ACQUIRES SELLERCLOUD
THE TD COWEN INSIGHT
Descartes acquired omni-channel eCommerce software provider, Sellercloud for $110mm in cash plus $20mm in potential revenue-based earn-outs yesterday. It expands Descartes' existing eCommerce offering, filling a product gap that could drive cross-sell opportunities. Descartes' fifth acquisition in C24 brings total M&A outlay to ~$317mm, the most ever deployed in a single year.
Impact: SLIGHTLY POSITIVE
Attractive fundamentals and valuation. We estimate Sellercloud's annual revenue to be ~ $20mm, with ~30% EBITDA margin, implying ~$6mm in annual EBITDA contribution. While margins are below the corporate average adjusted EBITDA margin of ~44%, we expect management's proven integration playbook to capture cost synergies and improve margins over time. The implied acquisition multiple of 5.5x EV/Revenue is at the upper end of historical deals, reflecting potential revenue synergies from bundling Sellercloud's solution with Descartes' existing offerings. Since we already forecast some acquisitions in our model, we do not expect a material change to our estimates.
Expanding the eCommerce product suite. Founded in 2010, Sellercloud offers omni-channel eCommerce solutions, including inventory and order management. Integrated with leading online marketplaces and platforms, such as Amazon, Walmart, Wayfair, and Shopify, Sellercloud allows small and mid-market retailers to list, sell, and manage products across multiple fulfillment channels. Sellercloud processes ~$15bln in annual GMV from ~150mm orders across 1,000+ customers. The company offers a variable monthly subscription fee based on order volume, with a minimum rate of $1,200/month. We believe the addition of Sellercloud fills a product gap, allowing Descartes to market a more complete eCommerce product suite. This could drive considerable cross-sell opportunities, especially from existing customers looking to consolidate software vendors away from multiple point-solutions and deepen their relationship with Descartes.
Record year for acquisitions. Sellercloud will be Descartes' fifth and largest acquisition in C24, marking the most ever deployed in a single year, with total outlay (including potential earn-outs) of ~$317mm. We believe the elevated level of deal-making points to a favourable M&A environment, with valuations declining to more reasonable levels. Pro-forma Sellercloud, we estimate Descartes has ~$119mm of net cash, no debt, and will generate ~$254mm of FCF in the NTM.