Shopify Inc. has made the largest acquisition in its 15-year-history with a US$450-million deal as it tries to stake out a position as an e-commerce platform alternative to Amazon.com Inc.
The Ottawa-based tech giant, which provides software more than 800,000 retailers in 175 countries use to manage their businesses online, announced on Monday evening it had bought 6 River Systems, a Boston-area startup in the warehouse order-fulfillment business.
The four-year old company, whose systems are used in 20 facilities in North America and Europe for companies including Office Depot, DHL and Lockheed Martin Corp., is expected to generate annual billings of about US$30-million in 2020 and increase Shopify’s expenses by about US$25-million this year, the Ottawa company said in a release. Shopify said in August it expects revenue this year to exceed US$1.5-billion.
The purchase is part of a planned US$1-billion investment Shopify announced in June as it moves to build a network of warehouses to store and ship its clients’ products.
But it also represents a major strategic shift for Shopify, the company’s chief product officer Craig Miller acknowledged in an interview. Shopify will not only use 6 Rivers to speed up its push into order fulfillment for the Ottawa giant’s existing retail customers, “we’ll continue to build out [the acquired company’s] solution and sell it to more and more warehouses throughout the world” – even if they aren’t Shopify e-commerce customers, he said. “Our plan is to not only honour our commitments to [existing 6 Rivers clients] and to keep supporting them, but to get more and more customers as well.”
That is in contrast to what happened after Amazon bought warehouse robotics pioneer Kiva Systems in 2012. The e-commerce company’s acquisition “sent ripples through supply chains” as Amazon began using Kiva, now Amazon Robotics, exclusively for its needs, said Seth Winterroth, a partner with Silicon Valley-based Eclipse Ventures, an early backer of 6 Rivers.
He said that forced former Kiva customers – including other e-commerce fulfillment players – to make expensive investments in warehouse technology or deal with Amazon, where they would lose access to data collected by the Seattle behemoth. “We started looking for the next-generation company that would attack that problem” and fill the void left by Amazon, he said, which led Eclipse to back 6 Rivers – co-founded by former Kiva executives Jerome Dubois and Rylan Hamilton.
Mr. Miller said as the company began looking into automation in the fulfillment business “we found there was one company that kept popping up over and over when we talked to the experts, and that was 6 Rivers. We met the team and found … they shared the same vision."
Shopify will pay for 60 per cent of the deal with cash and the rest by issuing Class A subordinate voting shares and options, including US$69-million worth of securities to 6 Rivers founders and employees.
The deal was announced after the market closed on Monday, with Shopify stock closing on the New York Stock Exchange down 5.7 per cent on the day, in line with other large, cloud-based software firms whose stock fell during the trading session. Shopify stock is up 159 per cent so far this year, even after today’s sell-off.
Analyst Brian Peterson of Raymond James said the acquisition would bring Shopify both technical know-how, but that 6 River Systems’s longer-term value could come as Shopify integrates its platform and data into its new-but-growing business in warehousing, logistics and delivery.
“We suspect that this gives Shopify more paths towards a differentiated fulfillment offering longer-term,” Mr. Peterson said in a research note. Tom Forte of D.A. Davidson & Co., meanwhile, called the acquisition a key to sustaining Shopify’s share growth.
In a blog post, 6 River Systems investor Matt Murphy of California’s Menlo Ventures wrote that after the sale of Kiva to Amazon, its founders “recognized that the non-Amazon world of merchants needs automation to keep up with increased competition and customer expectations. … This acquisition is a sign that the market is accelerating and in fact, we’re on the cusp of a golden age of robotics.”
With a file from Josh O’Kane
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