12 August 2016

Wal-Mart agrees purchase of Jet.com

On 8th August Wal-Mart announced a deal to buy Amazon rival Jet.com, an e-commerce start-up. The consideration was reported to be around USD 3,300 million, which will be settled in a combination of cash and shares. Following the transaction, Jet.com’s co-founder Marc Lore will join Wal-Mart as chief executive to oversee both companies, which will continue to operate as separate brands.

Since its inception in 2014, Hoboken-based Jet.com has raised total proceeds of approximately USD 715 million in several transactions, according to Zephyr, the M&A database published by Bureau van Dijk. Its first round of funding took place two years ago, with venture capitalists including MentorTech and Bain Capital injecting USD 75 million in the start-up. The following year saw other big names, such as Singapore’s Temasek Capital and Goldman Sachs alongside existing investors, pouring in another USD 140 million. Last November, Fidelity Ventures agreed to back Jet.com with an investment of around USD 500 million, making it the target’s largest funding round so far, according to Zephyr. With the Wal-Mart acquisition expected to take place this year, Jet.com’s shareholders are set to cash out on their investments via the transaction.

Despite media reports describing Jet.com as unprofitable, Wal-Mart sees significant growth potential in the company. In a press release, the purchaser highlighted Jet.com’s steadily growing customer base and its robust business, which managed to sell USD 1,000 million worth of goods within its first year of operation. Other factors that attracted Wal-Mart include Jet.com’s efficient pricing scheme. It offers a discount to encourage bulk purchasing, as well as shipping of goods from the same distribution centre. Furthermore, Jet.com’s wide selection of products sourced from thousands of retailing partners will be advantageous to Wal-Mart’s business, too.

Wal-Mart’s move to acquire Jet.com is said to be an attempt to compete against Amazon. With technological shifts making online shopping easier and more convenient than ever before, companies are increasingly placing their focus on the e-commerce sector. While Wal-Mart is the largest company in the world by revenue, according to Fortune, it still trails far behind Amazon in online retail. Last year, Amazon yielded USD 107,006 million in net sales, about eight times more than Wal-Mart’s e-commerce revenue. Apart from that, Amazon is also spending billions of dollars per year on research and development to enhance its services.

In June this year, Wal-Mart sold Shanghai Yishiduo’s e-commerce website to its Chinese rival JD.com, which issued USD 1,500 million worth of shares as payment for the deal. As a result, the seller now holds a 5 per cent stake in JD.com. The decision to form a partnership with the buyer came after the US firm struggled to crack the Chinese market, according to the Wall Street Journal.

© Zephyr