sraeli fintech giant Global-e announced on Wednesday that it is acquiring U.S. company Flow Commerce, a technology based cross-border e-commerce software solution for emerging brands, for $500 million.
The acquisition will move its capabilities to smaller merchants who are not eligible to use Global-e services.
from the GlobalE press release
The acquisition is expected to allow Global-e to expand the scope of its exclusive relationship with Shopify to offer certain cross-border services to a broader set of merchants on the platform in addition to its current end-to-end 3rd-party solution catering to established brands. Global-e shares.
“Our platform supports cross-border trade in a smart, simple and localized manner,” said Nir Debbi, President and co-founder of Global-e. “This acquisition follows our strategy, ultimately allowing us to serve small and emerging brands in the most sophisticated and light-weight way possible, by utilizing Flow’s cutting edge technology coupled with Global-e’s best-in-class expertise and unique data models..... The combination of Flow’s small merchant solution and our existing market-leading solution for large enterprise merchants, is expected to allow us to position our platform as a leading cross-border solution for any size of merchant, from self-served lightweight solutions for small and emerging brands, all the way to complex tailor-made enterprise solutions for the world’s largest brands.”
The move will allow GlobalE to offere its cross border solution across the entire range of Shopify clients. Their earlier strategy was to concentrate only on the 10-15% that make up Shopify's largest client base.
Flow is expected to generate $20 million in revenue in 2021. GlobalE total revenue guidance for Already in 2021 GlobalE for 2021 is $240 million. So the Flow acquisition should add at least 10% to GlobalE's earnings in 2022 when the deal closes.
Financial arrangements (from the GlobalE release:
Global-e agreed to acquire Flow for an aggregate purchase price of up to approximately $500 million (in equal portions of cash and Global-e shares), comprised of a base consideration of approximately $425 million and up to approximately $75 million in potential additional consideration based on certain financial results in 2021, plus approximately $45 million in Global-e shares for certain assumed, performance-based vesting warrants for Flow shares. Flow is expected to generate approximately $20 million in net revenues in calendar year 2021. The transaction is expected to close during Q1 2022, subject to customary conditions, including regulatory approvals.
Note that part of the cost of payment is in stock and part of the compensation is performance based. Thia reflects Flow's confidence it will be able to generate significant value to the relationaship
There's an additional ostensibly unrelated announcement from GlobalE:
Global-e agreed to issue to Shopify a warrant for approximately $70 million in Global-e shares.
Two things of note here:
I consider this a highly efficient marketing expense. Shoptify customers are a captive market for GlobalE services creating tremendous potential revenue stream.
Accepting payment in warrants reflects confidence in Shopify's financial performance and creates a large incentive for Shopify to work for the success of the relationship (and the value of their warrants).
The market reaction was swift and positive. GLBE shares jumped 15.75% on the Nov. 24 announcement date. Effectively the purchase price which is based in equal parts stock and cash dropped by that amount. That left the stock trading at $61 way below its high of $83.77 but still well above its closing price on the May IPO date of $24.22. Despite the carnage in the markets on Nov. 25 GlobalE closed slightly higher.
My positive view of GlobalE's long term performance has definitely increased after this transaction. One has to wonder if GlobalE will expand its services to vendors on Etsy,Wix and even as an additional opportunity for vendors tied in with Amazon