Gilt’s Unicorn Tale Comes to an End After Being Acquired for $250M | Hacker News Reader

Gilt’s Unicorn Tale Comes to an End After Being Acquired for $250M

techcrunch.com

86 pointsssclafani38 comments

They were purchased by Hudson's Bay Company, which was founded in 1670. It almost seems anachronistic to see a historical institution from the 17th century buy up a hyped tech company.

TechCrunch's front page headline for this is "Gilt Gets Acquired For $250M by Saks Fifth," which wouldn't be as interesting and isn't even accurate since Saks is just another HBC subsidiary. This is like if the East India Company bought Groupon.

Well, what really happened is that NRDC Equity Partners, formerly National Realty & Development Corp, a mall developer, did a sequence of deals. These resulted in them owning Saks, Macys, Lord and Taylor, and Hudsons Bay. After a few reverse mergers, Hudsons Bay became the parent company. NRDC's business is buying troubled retailers and turning them around. They're surprisingly good at it.[1]

[1] http://business.financialpost.com/executive/management-hr/ho...

$271MM in investment and a $250MM purchase price. https://www.crunchbase.com/organization/gilt-groupe#/entity

Does that mean that the investors got all the money and anyone holding common stock was basically screwed?

Yes. The preferred will get the payout. If there were any holders of debt (which is senior to preferred -- his is why the yield on preferred shares of mega corps are higher Than the company's bonds), they will get paid before the preferred.

Execs will renegotiate their compensation contracts with the acquirer and likely have fairly lucrative contracts (often happens to sweeten the deal).

It's not so much to "sweeten the deal" as it is to make sure the execs don't flee, leaving the acquirer with an organization that they have no idea how to run.

There may be a carveout in place, providing a modest return that would otherwise be consumed entirely by investors eating first.

http://blog.drosenassoc.com/?p=70

A 1x liquidity preference is standard, but it is common now to see larger multiples - especially in high-value later stage rounds, where the preference to those investors would also be stacked before earlier investors.

So, yes, I doubt common holders got much here, it is also possible that earlier investors didn't get much either.

For founders and employees this is usually made up with a separate bonus or earn-out from the acquiring company - which has been the source of conflict of interest claims from investors in some of these deals (where the acquisition price is much less than the 1x preference but the founders get a separate payout/earnout/signing bonus).

I am in a similar situation in another acquisition and would love to receive your feedback, mainly if we (the common stockholders) should make a "sanity check" with a lawyer or completely forget about the issue.

The company was acquired recently and has some debt, so they returned money to the preferred stockholders, our common stock "was cancelled and extinguished" and one of the directors received 1 million.

You're always welcome to consult a lawyer, but odds are there won't be much you can do. It's not uncommon to wipe out common shareholders where the preferred stock and other debtholders take all the money out of the acquisition.

It's also difficult to weigh in without knowing the specifics, and even then the specifics from your perspective might be very different from the perspective or facts the board is running with.

I realize the director receiving 1 million may seem unfair (and it may even BE unfair), but it might also be whatever his/her agreement is with the company.

Talk to a lawyer. If a director, not an investor, got money out and the shareholders didn't, that may be a breach of fiduciary duty. Directors have a responsibility to the shareholders.

So, I think you probably meant to reply to the GP, and yes, directors have a fiduciary duty, but I suspect the director was also an investor or preferred shareholder.

Straight-up malfeasance is pretty rare in cases with professional investors, as there are lawyers involved and people who know what's going on.

Matt has covered it in his reply which i'll second - there isn't a lot you can do. The people affected tend to talk about it, which is why you hear these stories a lot.

I've been surprised by the number of exits that are portrayed as 'successful' in the media actually left founders and employees with little or nothing after preferences.

The founders and employees are embarrassed to admit that after years of hard work and mediocre compensation packages, they're seeing nothing.

Golden parachutes are pretty common. It's a way of aligning company leadership financial interests with stockholders. The legality is highly dependent on specifics. If there is a lot of money at stake, I'd talk to a lawyer.

Rumors seem like One King's Lane is going to follow suit:

http://recode.net/2016/01/06/one-kings-lane-once-valued-at-9...

Lots of unicorn blood to be spilled.

It already makes me feel a bit old to remember the days when Gilt, Fab, LivingSocial, and Groupon were all riding hot as variants of discount deals and but one by one have fallen from grace.

Back in the 1990s, people seemed to constantly talk about "Internet time." Referring to the sense that a year online, seemed like forever - especially given most people had spent very little time online, the Web was expanding at a rate essentially never seen before, there was little to compare it to historically, it all seemed to change a lot in one year. It still sometimes feels like the Internet time effect, when you refer to the brief era of Groupon's boom - it seems like it was a decade or more ago, when it was just three to four years.

Amazon has such a commanding lead over everyone in ecommerce, it's going to take more than scale to beat them out.

Amazon has merely a slice of ecommerce. They have a commanding lead only in their type of ecommerce: being the new age Walmart of the Web. That leaves room for the other 80% of the market (in Walmart's case, they couldn't dominate most categories eg: dollar stores, Target, Costco, Home Depot, paint stores, convenience stores + gasoline, banking, pharmacy, clothing, tens of thousands of boutiques, grocery stores, Macy's & upscale, jewelry, video games, electronics, liquor stores, and on and on).

You have to do what Amazon isn't doing. Ultimately as ecommerce doubles in size in the US over the next ten years, Amazon is not going to get most of that. It's a staggering opportunity in terms of scale.

They couldn't beat eBay at auctions. They couldn't beat Craigslist at classifieds. They can't beat Priceline or AirBnB. They couldn't beat Google at search. They couldn't beat Apple at phones. They won't own online restaurant ordering. They will probably fail at trying to own services (Angie's List, legal, health, whatever). Amazon is going to lose in most things not directly tied to what they do today.

Amazon's inability to dominate the other 80% of ecommerce, is your opportunity.

This is OT but how come submissions which have less than 12 points appear on the first page? Has anyone figured out the HN algo? There are many other posts with far greater points yet this appears. Maybe techcrunch has higher ratings?

It has a time decaying value function. If the points accumulate rapidly upon submission, you can reach front page with as few as 5 up votes. This often happens for github repo submissions.

This is the correct answer.

Does it stay on the front page with so few votes?

This sounds trivially gameable by voting rings.

No, it'll melt and quickly fall off the front page if it doesn't get more votes in an appropriate amount of time.

It's not trivial to game over time. HN has been very successfully handling attempts at gaming for years. If it didn't, the site wouldn't function at all given its traffic, it would be overwhelmed with crap 24/7.

Though being on front page dramatically heightens the possibility of getting further clicks (without any gaming).

I can't remember where dang explained this, but there is a human factor in the algorithm. Some posts are artificially bumped to low on the front page for a small period of time to see if they gain traction. The selection of those posts is up to the moderators. This might be one such post.

EDIT: As I recall, the human-curated selections get put in a pool which the computer randomly promotes for a time to see if it gains traction.

Notably, the user that posted the article has 47,000+ karma. I imagine that's a factor

Speaking as a user with 37,000+ karma, no, not that I am aware of.

Can't say I'm shocked. Everything I've been interested in buying from Gilt I could find cheaper elsewhere just by googling.

"unicorns" are only interesting for Goldman Sachs and the like for the possibility of a inflated IPO.

btw, did Facebook deliver any dividends?

FB has never issued dividends to common stock holders.

http://m.nasdaq.com/symbol/fb/dividend-history

hence my point.

this is only to lure people into stock-betting, a zero sum game where the earlier people to join have a great advantage.

There is value in a non-dividend paying stock beyond the stock market itself: ideally, the market cap estimates the value of the company if it were to be acquired, and someone buys your shares from you. So it's not simply stock market participants guessing about other stock market participants. There is an actual, valuable, buyable product being traded, namely the company itself; it just happens to be traded in the form of lots of tiny shares.

Whether the chance of an acquisition happening is sufficiently non-nil as to be worth caring about is a legitimate question. It's not completely unheard of even for tech companies (cf. Dell), but it's certainly not the norm.

Also, note that the stock market isn't zero-sum: when the value of a stock goes up, wealth is created. Nothing goes down. If a company IPOs at $10/share, I buy it at $12, and that share gets purchased for $14, nobody loses money. The original purchaser of the share made $2, I made $2, and the final owner now owns a product which the market thinks is worth paying $14 for. There may be another sense in which this activity is meaningless, but it's not because it's zero-sum.

Keyword here is "ideally". Stocks are just a very elaborate pyramid scheme in which you rely on a greater fool to buy your stock at a higher price. It has nothing to do with owning a share of a company unless you get paid dividends.

Plus what are the chances Google or Apple getting acquired? Once you go public that rarely happens.

Dell actually got acquired very recently. Google did the weird Alphabet thing. Apple had the entire NeXT saga.

It's not likely to happen soon, but unless you're a "fool" or someone who makes their money on foolishness arbitrage (which, again, you can do without being zero-sum), that's not the point of stocks, anyway. Buy a bunch and leave it alone until you retire.

Buybacks are functionally equivalent to dividends, and more tax-efficient (which is a whole other discussion). If a company's doing buybacks you're benefiting appropriately from your ownership share.

Both Google and Apple have now started paying dividends (Google has done it via the funky reverse-spinout of Alphabet, but again that's economically identical).

Google and Apple are exceptional though - there are a lot of public companies and acquisitions of them happen all the time.

JustFab is on the cutting block too

Reply on news.ycombinator.com