July 20, 2015

EBay sells off fulfillment arm to focus on online marketplace

Private equity groups pay $925 million for eBay Enterprise.

By Ben Ames

Online commerce giant eBay Inc. will sell off its fulfillment arm to a consortium of private equity groups for $925 million, a move that returns eBay to its roots as a virtual marketplace and bucks a trend of e-commerce firms like Amazon.com Inc. expanding their logistics operations.

The company will sell its eBay Enterprise unit to London-based Permira Advisers, Chicago-based Sterling Partners, and Toronto-based Longview Asset Management Ltd., the companies announced Thursday. eBay used its Enterprise division, based in King of Prussia, Pa., to offer warehousing and logistics services to third-party sellers, including large retailers like The Sports Authority (TSA Stores Inc.), PetSmart Inc., and Ikea Systems B.V. Enterprise provided global logistics service through five divisions: its "Magento" e-commerce software platform, order management, customer care, marketing, and fulfillment. It operated for eBay nine distribution centers in the U.S., Canada, and U.K.

The purchase marks an expansion of Sterling's investment in the sector, following its 2014 acquisition of Innotrac Corp., an Atlanta-based company that runs 11 fulfillment centers in the U.S. and eight in Europe for e-commerce businesses including Target Brands Inc., Groupon Inc., and Ann Taylor Inc.

Joining that group provides increased resources for growth, Enterprise president Craig Hayman said in a post on the company blog. "Since January, we've been thoughtfully exploring all avenues for our future. We believe this deal will give us the most opportunity to continue focusing on our areas of proven strength and help our clients win in an incredibly evolving market," Hayman said.

He pledged continued commitment to eBay Enterprise's current clients and promised that the buyers would release more details about future business plans after the deal had closed.

"We are excited by the opportunity ahead, as it allows us to continue to create new ways for retailers, brands, and branded manufacturers to leverage their existing technology investments, to get to market quickly, and innovate to stay ahead of the competition," Hayman wrote in the blog post.

That optimism matches Enterprise's own business research, as shown in an April survey of e-commerce retailers titled "2015 Retail Growth Outlook." The study showed that 72 percent of respondents anticipated online revenue to increase by an average of 17 percent.

Despite these positive signs, the fulfillment unit was not a strategic fit with eBay's essential function, said one industry watcher.

"The tool set of eBay Enterprise was originally thought to better position eBay to compete with the likes of Amazon through a technology platform, but was really divergent from the core eBay business, which is an online, auction-enabled marketplace," said John Santagate, research manager for supply chain execution at IDC Manufacturing Insights, an analyst group based in Framingham, Ma.

Unloading Enterprise could allow eBay to differentiate from the likes of Amazon and "get back to its roots" by focusing on a more diverse set of smaller sellers offering specialty products rather than big retailers hawking commodities, Santagate said.

In pursuit of that goal, new eBay CEO Devin Wenig made the decision to sell the division after noting that eBay Enterprise had contributed just $300 million of the company's $4.4 billion in revenue during the second quarter. Those meager financial results made it expendable in pursuit of eBay's long-term strategy, said Santagate.

About the Author

Ben Ames
Senior Editor
Ben Ames has spent 20 years as a journalist since starting out as a daily newspaper reporter in Pennsylvania in 1995. From 1999 forward, he has focused on business and technology reporting for a number of trade journals, beginning when he joined Design News and Modern Materials Handling magazines. Ames is author of the trail guide "Hiking Massachusetts" and is a graduate of the Columbia School of Journalism.

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