The Big Takeaway from Gilt Groupe’s Sad Exit
By Matthew Malone Today, the rumored acquisition of online retailer Gilt Groupe has been confirmed, with Reuters reporting that Canada’s Hudson Bay Co is buying the struggling brand for $250M. Just three years ago, Gilt, whose many long-term investors included private equity firm General Atlantic, was valued at $1B (it’s unclear whether GA itself ultimately made or lost money). Gilt’s underwhelming exit doesn’t mean that Internet retail is no longer an attractive private equity investment—the secular shift from bricks-and-mortar isn’t going away—but it is a clear example of the challenges PE faces when entering the space. In the span of its 8-year existence, Gilt led both the rise and decline of the “flash sale” craze. As Bain Capital’s Tricia Patrick explained in a recent Privcap webinar, such dynamic transformation means private equity’s traditional five-year holding periods may be incompatible with success. “Amazon was able to build a business that’s a billion dollars in sales in just five years. And if that’s the opportunity for a new entrant to hit the market, you just need to be really cognizant as you’re investing in this space of what can happen. We tend to make five year investments. [If] Amazon – who today is just a massive piece of the market, but more importantly, a massive piece of the growth in the market – can come into existence within an investment period, you need to be incredibly cognizant of what could come.” Patrick and Richard Leonard of Angelo Gordon & Co. expand upon the challenges and opportunities for private equity investment in retail in the full webinar, The Private Equity Opportunity in Consumer & Retail, which you can watch here: http://privcap.wistia.com/medias/3c1lm44mb9?embedType=async&videoWidth=700
Is Internet retail incompatible with private equity?