Saturday, 10 December 2011

Wiggle Sold in £180M Private Equity Deal

In case it escaped your notice, on-line retailer Wiggle has changed hands from one private equity firm to another in the past week.

Investor Bridgepoint took the business off the hands of current owners ISIS for £180M ($280M US/€210M).  A handsome sum for a business started in 1999.

Looking at the numbers, ISIS investors have done pretty well out of the deal too, achieving an IRR of 69% and a yield of x15 against their initial investment.  ISIS made their initial investment in 2005.  You can read more about the deal on the ISIS website here and more about the investment milestones here.

It's pretty common in private equity circles for businesses to be passed along the chain.  Investors tend to handle businesses with a certain value, when they achieve their growth plan, they exit, take their money and go off and find a new project.  This is a textbook deal.

Wiggle have seen some amazing growth numbers, driven by a number of different factors including: -

1) A devalued currency meaning that their export numbers have dramatically increased and international markets have been opened up.
2) Industry disruption with the local bike shop marketplace being challenged by a shift to the internet for commodity items by buyers.
3) Buying power.  The bigger the business has become the more powerful it has also become, giving it capability to take volume deals from manufacturers.  I download their accounts every year and they've increased stockholding from around £7M to £15.7M vs. the previous year.  They can't risk to be out of stock.

No doubt there will be an army of independent bike retailers, spitting feathers over a pint at this news plus the impact that on-line retailing has had in their margin retention. 

On-line retailing is disruptive.   I've seen it impact into the multi-tiered business model that I run in my day job.  One thing I do know however is you cannot fight it, the move to on-line is a major trend driven by buyers, not sellers. 

Buyers want value and convenience and Wiggle spotted this trend and went for it.  I talk about this a lot.  Two types of buyers exist nowadays, I-WIN (I Want It Now = price insensitive) or I-WAIT (non-urgent = price sensitive).

Local bike shops have to play to their strengths if they want to survive.  They need to push the distributors in the industry to get more efficient and reduce their costs for pass through, club together more into buying collectives to have a bigger voice with manufacturers and look for more exclusive products for sale.  I'm talking from ten years experience of this issue in information technology.

Ultimately, local bike shops need to give a reason for you to visit when you're not in I-WIN mode and the manufacturers also need to work with the channel to incentivise customers.  The smart dealers will have already figured out that geo-location, proximity marketing and google local search gives them a big advantage over businesses like Wiggle, but they should also be realistic that you can't make 35% of every line you stock, you have to blend your margin across your entire product assortment.

Ultimately, Wiggle will continue to go from strength to strength.  They have a new investor, with mountains of cash, more money for search engine marketing and expansion.  I'm pretty sure they'll break the £100M barrier in their next financial year.

1 comment:

  1. Great post Phil, I'm from the UK and live in Southern California now so although I'd read the headlines on Wiggle recently I never gave it much thought so it was nice to read your insight on what is happening in the Cycling Biz back Home.
    I ride with a number of Guys who buy from Wiggle, they have a great Site and everyone I know is very happy with their dealings.

    One question, I know that VAT is "hidden" in the UK, here in the US we have "State Tax" so for instance, the price on a Taxable item would be $100 + Tax. So is VAT left hidden in the purchase price for US Customers?

    There is an added incentive to buy online here in the US from a different State, sales Tax here in California is ~8%, so if we buy online from, say, a company in Florida that doesn't have a "Physical presence" in California we can save $480 on a $6000 Bike. Although, with the State of California being insolvent (The whole country is Bankrupt) they are trying to close this Loophole, we are now asked to declare this on our yearly State Tax forms (we don't have PAYE).I'm sure they collected $13 last year.

    One of my Favourite sayings is " Wanna make a Million Dollars? Invest two Million in a Bike Shop"
    This is a shame, we *need* Bike Shops to hang out in and meet for Shop rides (not to buy stuff from). I tried to buy a pair of Specialized BG Carbon Shoes from my LBS (local Bike Shop), they could have made $360, but they didn't have my size "We will order a Pair and call you when they come in" that was 3 months ago, they never did. They are good for when I'm in I-WIN mode like when I'm on my last Tube.

    Which is a shame.

    Cheers then..