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GSI to enter private sale market with Rue La La
28 Oct '09
5 min read
“Rue La La can offer GSI's clients access to a new way of selling opportunistic inventory in a manner that enhances their brand image and further drives consumer engagement,” said Rubin. “It is an excellent strategic fit for GSI adding a new growth pillar. Rue La La positions us to continue adding value to our clients and provides meaningful cross-sell opportunities among all of our services.”
Rue La La's membership has grown to more than 1.2 million members in 18 months and continues to grow rapidly, driven by highly effective viral marketing and email marketing services, powered by e-Dialog, GSI's e-mail marketing division. Rue La La's engaged membership base, with approximately 10 percent of its members visiting the site daily, and high repeat purchase rate have led to rapid growth of net revenues with estimated third quarter 2009 net revenues expected to increase almost five times from the third quarter of 2008.
RCI's attractive cash flow model is driven by low customer-acquisition costs that reflect the viral marketing nature of its business and low capital intensity. RCI generates double-digit inventory turns, healthy gross margins (low- to mid-30 percent range), and since inception has spent less than $5.0 million of capital expenditures per fiscal year.
The acquisition of RCI is expected to be accretive to GSI's non-GAAP income from operations per share beginning in fiscal year 2010. On a trailing 12 month-basis ending September 2009, RCI has achieved the following:
GSI is expected to record approximately $2.0 million of transaction related expenses in the fourth quarter of fiscal year 2009 and approximately $2.0 million to $4.0 million of integration-related expenses in fiscal year 2010.
Description of Earn-out
The agreement includes an earn-out of up to $170 million over a three-year period beginning with fiscal year 2010 that is tied to RCI's achievement of performance targets. The earn-out payment for each year is determined by multiplying the implied transaction multiple by the non-GAAP income from operations (NGIO) and subtracting all previous payments, up to the maximum payment for the earn-out year.
For GAAP purposes, the earn-out received by RCI's shareholders and employees in accordance with their pro rata ownership percentage will be treated as purchase price and the portion received by RCI's shareholders and employees above their pro rata ownership percentage will be treated as compensation expense. However, for the purposes of calculating non-GAAP income from operations, GSI will exclude compensation expense related to the earn-out as well as integration expenses and related purchase accounting valuation adjustments.
The acquisition is expected to close within 30 days and is subject to customary closing conditions and expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. Following the close of the transaction GSI will report the results of RCI in a new reporting segment that will be called Consumer Engagement.
GSI Commerce was advised on the transaction by BofA Merrill Lynch and Blank Rome LLP served as legal advisor. Retail Convergence was advised on the transaction by Cowen & Company LLC and Goulston & Storrs served as legal advisor.
Rue La La's membership has grown to more than 1.2 million members in 18 months and continues to grow rapidly, driven by highly effective viral marketing and email marketing services, powered by e-Dialog, GSI's e-mail marketing division. Rue La La's engaged membership base, with approximately 10 percent of its members visiting the site daily, and high repeat purchase rate have led to rapid growth of net revenues with estimated third quarter 2009 net revenues expected to increase almost five times from the third quarter of 2008.
RCI's attractive cash flow model is driven by low customer-acquisition costs that reflect the viral marketing nature of its business and low capital intensity. RCI generates double-digit inventory turns, healthy gross margins (low- to mid-30 percent range), and since inception has spent less than $5.0 million of capital expenditures per fiscal year.
The acquisition of RCI is expected to be accretive to GSI's non-GAAP income from operations per share beginning in fiscal year 2010. On a trailing 12 month-basis ending September 2009, RCI has achieved the following:
GSI is expected to record approximately $2.0 million of transaction related expenses in the fourth quarter of fiscal year 2009 and approximately $2.0 million to $4.0 million of integration-related expenses in fiscal year 2010.
Description of Earn-out
The agreement includes an earn-out of up to $170 million over a three-year period beginning with fiscal year 2010 that is tied to RCI's achievement of performance targets. The earn-out payment for each year is determined by multiplying the implied transaction multiple by the non-GAAP income from operations (NGIO) and subtracting all previous payments, up to the maximum payment for the earn-out year.
For GAAP purposes, the earn-out received by RCI's shareholders and employees in accordance with their pro rata ownership percentage will be treated as purchase price and the portion received by RCI's shareholders and employees above their pro rata ownership percentage will be treated as compensation expense. However, for the purposes of calculating non-GAAP income from operations, GSI will exclude compensation expense related to the earn-out as well as integration expenses and related purchase accounting valuation adjustments.
The acquisition is expected to close within 30 days and is subject to customary closing conditions and expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. Following the close of the transaction GSI will report the results of RCI in a new reporting segment that will be called Consumer Engagement.
GSI Commerce was advised on the transaction by BofA Merrill Lynch and Blank Rome LLP served as legal advisor. Retail Convergence was advised on the transaction by Cowen & Company LLC and Goulston & Storrs served as legal advisor.
GSI Commerce Inc
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