Omni-channel retail requires omni-channel systems. That much is clear. Retailers that implemented point solutions to trade online are now demanding that their vendors offer joined-up solutions that facilitate the sharing of key information – price, promotions, stock and basket details – across all customer touch-points.
This is why the e-commerce vendors have been steadily bought out by the (generally larger) enterprise application or EPOS vendors. From the top to the bottom of the market, we’ve seen a steady consolidation which began in the UK with the acquisition of Fresca by BT Expedite in 2008.
One e-commerce vendor has bucked this trend. Demandware this week announced that it had paid $65m for Tomax Group which trades as Retail.Net. This business provides API’s, middleware and a presentation layer that allows retailers to trade across multiple channels with a consistent set of data. This is achieved without the need to upgrade enterprise applications or replace the existing EPOS.
This is an intuitively attractive proposition for retailers and Retail.Net claims 50 enterprise customers including Hallmark and LL Bean.
There is clear strategic logic for Demandware here. By incorporating the Retail.Net capability within the overall Demandware offer, it can position itself at the heart of its customers architecture. This will make relationships stickier and should permit Demandware to claim a higher share of its clients’ IT spend. It also means that Demandware can properly claim to be omni-channel which is helpful when talking to sales prospects.
However, Demandware has paid a stiff price. Tomax’s made $24m sales in 2014 split between licenses, professional services and subscription/hosting fee. This puts the purchase multiple at 2.8x revenue. Revenue is split into thirds – licenses, professional services and subscription/hosting fees. Gross margin was c.$13m and “it has historically been running at breakeven profitability.” It has 170 staff.
Contrast this with Sanderson – a British ERP vendor, which bought One Iota, which does roughly the same things as Retail.Net but is rather smaller, for £5.4m. One Iota has performed really well since the acquisition – revenue and profit doubling in its first year of ownership – and it does look like Sanderson bagged a bargain.