ACQUIRE - The Impact of Amazon's purchase of RING for More Than US$1B

Amazon Continues to Invest in the Last Mile (Yard) of Customer Access

The Amazon purchase of Ring could cost the company as much as US$1.8B. However, virtually all analysts and observers find it to be a good strategic and tactical move for Amazon. Past InfoStream articles have shown that Amazon wishes (needs) to own the path to the consumer to continue and expand the client ecosystem it has developed. 

In late December, the ecommerce giant announced the purchase of Blink to enhance the Amazon Key service and devices. Earlier this year Amazon announced it would move to disrupt Fedex and UPS with services for the 'last mile' of home and business delivery. With Amazon Key, Amazon Logistics, Amazon Flex and Fulfillment by Amazon (FBA) it seems Amazon is well on the way to accomplish this goal. 

The reader should not overlook the fact that integrating Ring with Amazon Home services and devices like Amazon Echo, ensures the company is also poised to disrupt the huge field of Home Security.

The one aspect of this purchase that analysts don't seem to understand is the price tag. Perhaps they are not pricing into this deal the competitive advantage and cost of time and resources to own and control this last 'yard' of the path to the customer. The one big winner in this transaction aside from the investors who supplied early stage capital to Ring will be the customer.

Here are the important story links:

The original Reuters article on Wednesday, February 27

Quartz Article and Videos of Shark Tank's rejection of Jamie Siminoffs Big Idea - Smart Doorbells (4'56")

CNBC Video of Kevin O'Leary on Why He Won't Cry Over Spilt Milk (3'44") 

CNBC Video and Article - the Impact of the Ring Deal on Security Companies like ADT (4'43")

ACQUIRE - Ferrero Buys Nestle's US Candy Business for US$2.8B Cash

Ferrero the Maker of Nutella, Kinder and Ferrero Rocher Expands to Become 3rd Largest US Confectioner

Ferrero SpA the Italian company has sought to expand its footprint in the US. This acquisition is expected to add US$900M to Ferrero's US revenues annually when the transaction closes in March.


The Nestlé US unit, is being sold as the Swiss company seeks to shed candy and sugar products in favor of items such as coffee and pet food where it leads the market.


Nestlé CEO Mark Schneider commented: 

"With Ferrero we have found an exceptional home for our U.S. confectionery business where it will thrive. At the same time, this move allows Nestlé to invest and innovate across a range of categories where we see strong future growth and hold leadership positions, such as pet care, bottled water, coffee, frozen meals and infant nutrition."

Nestlé says its U.S. confectionery business represents about three percent of U.S. Nestlé Group sales. The group sells popular local chocolate brands such as Butterfinger, Crunch, BabyRuth, 100Grand, Raisinets, Chunky, OhHenry! and SnoCaps, as well as local sugar brands such as SweeTarts, LaffyTaffy, Nerds, FunDip, PixyStix, Gobstopper, BottleCaps, Spree and Runts.

About Ferrero:
Ferrero has grown from simple beginnings as a family bakery located in Alba, a town in the Piedmont region of Italy. From a small local business in 1946, Ferrero has grown to become the 3rd largest chocolate and confectionery producer in the world. Ferrero is also the largest producer and distributor of hazelnuts in the world.

About Nestlé:
With sales of CHF$26.7B in 2016, the U.S. is Nestlé’s largest market. Nestlé products can be found in 97 percent of U.S. households under brands such as Purina, Nestlé Pure Life, Coffee-Mate, Gerber and Stouffer’s. The company employs 50,000 people in more than 120 locations across the U.S., including 77 factories and 10 R&D centers.

ACQUIRE - Amazon Buys Blink and Improves Access

The more things change, the more they stay the same

This saying (originally in French), seems to apply to current trends in retail. If you were born before 1960, and you lived in a town or city you will remember delivery men as well as the need for a 'milk and package receiver'. In fact,  product delivery of every description is now a global growth market. 

In 1927, the 'Majestic Milk and Package Receiver' was an important element of urban living. The simple and secure device consisted of two cast iron frames and doors connected by an adjustable steel body that was installed in the wall of the kitchen. 

Manufactured in Huntington, Indiana and patented on January 18, 1916, this system served the urban need of the consumer and the delivery service. The sound of the door being closed early in the morning, sent children running to get the milk, cream, butter, cheese or bread left behind by the delivery man. It was a simple, secure solution for receiving regular deliveries.

Now, almost 100 years later, Amazon has purchased Blink a company that has perfected online security to help solve the problem of access for home product delivery. 

Last week when the transaction became public, analysts agreed that Amazon would integrate this technology to complete the 'last mile' of their 'in home technology' and logistics platform to become the consumer's goto source for everything. 

Imagine speaking product needs into Alexa and receiving products securely inside the home with Blink in hours or days.

Blink was founded in 2014 and got its start via a crowdfunding campaign that raised over $1 million to develop "a totally wireless home monitoring system". Amazon already has home video cameras and entry products with its Cloud Cam and Amazon Key offerings. However, what Blink brings to the table is expertise in building connected, wireless home monitoring and security technology without a complicated installation.

Blink’s Doorbell operates on two AA batteries which they claim should last for about two years of regular use. Furthermore, it costs a lot less than competitors like Ring and has many similar features including motion detection, two-way audio, waterproofing and night vision.

Why is this important:
Some experts believe the 'final mile' of product and service delivery is determined by who controls (secures) access to the home. Watch for Amazon to use this as a competitive advantage with their Prime customers and preferred vendors. Once again it shows that emerging innovators are most valuable to those who need the expertise to create or sustain a competitive advantage. A Fortune panel of experts says that Amazon has changed the disruptor conversation.

ACQUIRE - Target buys Shipt for US$550M Cash

Target ramps up same day delivery to compete with Walmart and Amazon

According to TechCrunch, Target's acquisition of the Birmingham-based online grocery delivery service Shipt, marks the largest known acquisition of a venture-backed company in the state of Alabama.

According to an article in RetailDive today, Daphne Howland expects Shipt, to be a wholly owned Target subsidiary, operating independently under CEO Bill Smith. The company was founded in 2014 and operates in more than 72 U.S. markets. The online service enlists a network of more than 20,000 "shoppers" who pick out customers' orders and deliver them for an average of $20 per order. 

Back in August, Target acquired Grand Junction, a San Francisco based transportation technology service founded the same year as Shipt (2014). According to Ms. Howland, the purchase of these two operations is based on two essential ideas: that retailers know their inventory really well and that a slew of local and regional delivery companies already exist. The key has been to match those two things up, via technology. In both cases, Target is accelerating its same-day services by acquiring technology, infrastructure and talent from established players.

Sucharita Kodali, Vice President & Principal Analyst at Forrester Research, published her prognosis for the Target acquisition of Shipt, in Forbes magazine yesterday. She continues to see issues with adoption of paid delivery services and expects to see the free delivery service offered by Walmart as well as Amazon Prime, as services that will be hard to beat.  

Why this is important:
It is clear that retailers are acquiring emerging companies that already exist with expertise, management talent and ecosystems which allows the retailer to gain traction quickly. Building your own technology and infrastructure is too costly and time consuming to be an appropriate competitive response in this environment.

ACQUIRE - CVS buys Aetna for US$69B

Aggregation by a pharmacy benefit manager (PBM) may deliver a shorter path, better care and lower costs.

According to Bruce Japsen in Forbes the CVS deal, values Aetna at $207 a share, and creates a company with combined annual revenues of $240 billion, which rivals United Health Group ($225 billion forecast in fiscal 2018). Japsen notes that Aetna aborted its effort to buy rival health insurer Humana last year in the face of antitrust scrutiny and didn’t have the resources to build doctor and outpatient care centres like United’s Optum unit has been doing.

“This combination brings together the expertise of two great companies to remake the consumer health care experience,” said CVS President and Chief Executive Officer Larry Merlo. “With the analytics of Aetna and CVS Health’s human touch, we will create a health care platform built around individuals.”

The Washington Post quoted Michael Rea, Chief Executive of Rx Savings Solutions, “This is kind of uncharted territory — a pharmacy benefit manager (PBM) buying a major national health plan. I think it’s a sign of the times, PBMs represented a little-known entity no one knew about not that long ago, and now they’re the controlling piece of the deal to take over a national insurer.”

No one should be surprised. The margin between pharmaceutical manufacturer and consumer is open to attack and consumer satisfaction is low. In once sense, it's no different than the aggregation that is happening in other markets such as grooming products. An InfoStream story earlier this week showed Gillette's ability to drive the price of a razor into the stratosphere opened the door for innovators to rethink the market and gather in quite a bit (11%) of Gillette's market share.

While the CVS Aetna transaction may be uncharted territory, the sector will likely see more activity. According to a story by Lauren Hirsch of CNBC on Monday, the CVS acquisition is aimed at driving Aetna healthcare subscribers to CVS stores. She suggests a 'market watch' on Walgreens, Rite Aid, Kroger and Walmart to look for similar mergers or acquisitions. Everyone sees the need for these players to shore up market share, acquire innovation and eliminate threats.

According to an article in Fortune, Wall Street is skeptical. The success of CVS Health Corporation's acquisition of health insurer Aetna Inc. is a bet on a complex and untested strategy. Some analysts are questioning whether the companies can pull it off.

CVS plans to build mini health centres in some of its 9,700 stores, turning them into key locations where Aetna members — and customers of rival insurers — get low-level care for ailments and chronic diseases. Already, CVS has 1,100 'MinuteClinics' in its pharmacies, and is testing out hearing and vision offerings in a handful of CVS locations.

Investors also seem to be showing skepticism. Aetna stock was trading at $180.11 as of 9:34 a.m. in New York on Tuesday. That’s 13 percent below CVS’s $207-a-share cash-and-stock offer. Investors may be pricing in the fact that CVS Health will no longer be a dividend growth company following this transaction.

CVS competitor UnitedHealth Group has a menu of health insurance products under its umbrella including Medicare, Medicaid and OptumRx as its' pharmacy benefit manager (PBM) as well as 30,000 healthcare professionals and hundreds of practices, outpatient surgery centres and urgent care facilities spreading across the country.


WHY THIS IS IMPORTANT:
Rethinking the market to create a broader ecosystem has just begun. Technology is driving the ability to bring new bedfellows together, but innovative thinking to find large pools of subscribers that can be cemented into an existing ecosystem is the game. This aggregation has already begun in the dental and cosmetic business and is also beginning in healthcare for companion animals. 

Watch the companion animal market for moves to cement a national animal health insurer together with retail locations, veterinary hospitals, diagnostics, technology and nutrition. Companies like Fairfax, Mars, National, Nestle, Petco and PetSmart will likely look at this deal very closely. 

While some call this kind of transaction a 'market consolidation', at Paradigm we look at it from the client perspective. It is really about aggregating the client demand while improving the client experience and convenience.

ACQUIRE - Retailer Buys AR Startup for $US112M Cash

Home Decor retailer Williams Sonoma has bought AR startup Outward

Cookware and furniture retailer Williams Sonoma will acquire Outward, a 3D imaging and augmented reality startup with a focus on home décor, for $112 million in cash. According to Crunchbase the San Jose, California based Outward previously raised about $12 million in venture funding.

"Outward brings proprietary and transformative technology at the forefront of our industry, and we welcome them to WSI," said Williams Sonoma, Inc. CEO Laura Alber. Despite Williams Sonoma  having full ownership over Outward at the close of the deal, the San Jose based tech company will continue to operate under its current president, Clarence Chui.

The Archeticural Digest story illuminates the reasons why several home decor and home furnishing retailers are pursuing or have acquired Augmented Reality (AR) or Virtual Reality (VR) applications. According to this article IKEA is using the new Apple ARKit to add augmented reality to their online services.

WHY THIS IS IMPORTANT:
Demonstrates the need for acquiring emerging and innovative technology to support brand activities. Also shows a valuation that is more aligned with competitive advantage than the  revenue or free cash flow of the innovator. 

ACQUIRE - Bell buys Alarm Force for C$166M Cash

Two weeks ago, BCE Inc. offered C$16.00 per share to acquire AlarmForce Industries Inc., a leading home security and automation firm in Canada. 

Alarm Force is said to have 102,000 subscribers paying an average monthly fee of C$35.00. The transaction is expected to close in January 2018. 

Bell's offer represented a 71% premium to AlarmForce's closing share price of $9.34 on November 6, 2017 and a 70% premium to the 20‐day volume weighted average price for the period ending November 6, 2017.

George Cope, President and CEO of BCE Inc. and Bell Canada said the acquisition would "Leverage Bell's network and service leadership and our place in millions of Canadian homes. We look forward to growing our nascent position in security and automation services to ensure Bell residential customers are at the leading edge of connected home innovation."

While most analysts believe the transaction isn’t material to Bell’s bottom line we see the transaction as part of a strategic move.

RBC Capital Markets analyst Drew McReynolds advised clients, that “Strategically, we believe the acquisition highlights the growing battle among telecom operators to own the home as well as the desire to tactically and actively participate in over-the-top services (such as home security and home automation),” 

Barclays analyst Phillip Huang was quoted as saying the deal, (less than 0.2 per cent of BCE’s market cap) is “a small acquisition that serves big purposes." In his message to clients Huang noted that AlarmForce is another product that can be bundled with internet, TV and telephone. Bundled customers are less likely to change providers due to the hassle. For network providers, a reduction in customer churn is desirable.

More details are available from the press release.

WHY THIS IS IMPORTANT
Network providers, online retailers and equipment manufacturers are all chasing the 'connected home'. Amazon's Echo and Echo Dot as well as the Google Home devices are prime examples of the race to 'own the home'. Adding innovative applications that allow these devices and the network connections owned by large players like Bell, Rogers, Telus and Shaw to be more effective and productive is the next battlefield. So who will win? Those who currently own the cable, wired and wireless connections to the home or those with the largest pool of content, the most available products and services or the most applications that consumers use. Stay tuned.

ACQUIRE - Procter and Gamble buys Native Deodorant for US$100M Cash

Native sells natural deodorant and a million online customers for US$100M Cash

According to a TechCrunch report last week, consumer products giant Procter and Gamble is acquiring Native a natural deodorant brand, for $100 million in cash. San Francisco-based Native initiated business in 2015 and previously raised seed funding from Azure Capital Partners.

According to industry sources,  Procter and  Gamble recently announced they would be transparent about what’s truly in their fragrances by the end of 2019. This is a huge move considering “fragrance” is an umbrella term that can include a myriad of chemicals (which are not legally required to be disclosed).

Industry Analysts estimate the annual sales of Native to be between US$25-30 million per annum.

WHY THIS IS IMPORTANT
Native moved deodorant into a subscription based business. Procter and Gamble's acquisition price does not seem related to free cash flow or revenue. It seems to be more about acquiring an innovative approach to deodorant. In that respect this purchase is not unlike Unilever's earlier purchases of Dollar Shave Club and The Honest Company. Given the high cost and time required to develop a product and a subscriber ecosystem, acquisitions like this one may well become common place. 

ASPCA Acquires Humane Alliance

The American Society for the Prevention of Cruelty to Animals (ASPCA) acquired Humane Alliance (HA) in August 2015. HA is an organization that specializes in high-quality, high-volume spay and neuter procedures. HA is primarily a spay/neuter training program that teaches hundreds of veterinarians each year.

HA opened in 1994 with four employees. By 2008 HA launched its training program and training began in 2009. Through 2014, 511 veterinarians and 459 externs from nine countries have received training through HA. HA’s training program has assisted 141 clinics in the United States and Canada with over 4.8 million surgeries performed. HA also has a clinic in the United States where they positively contribute to decreasing overpopulation. ASPCA’s Senior Vice President of Animal Health Services, Dr. Jed Rogers said, “As veterinarians specializing in high-quality, high-volume spay/neuter techniques, Humane Alliance’s expertise is unparalleled, and we know the unique skills of its staff will benefit the work we do around the country.”

The ASPCA has been providing financial support to HA since 2007. Former Executive Director of Humane Alliance, Quita Mazzina said, “The ASPCA is a long-standing partner and supporter of our spay/neuter programs, so this is a natural next step to further our reach and results.” Due to the acquisition of HA, the ASPCA will now be able to provide more training to veterinarians and veterinary students as well as increase the number of spay/neuter clinics in the United States. According to the ASPCA, “This will make it possible for veterinarians, shelters, and rescue operations to reach millions more at-risk animals with these critical services, dramatically reducing the number of homeless pets entering shelters nationwide.”

ASPCA’s President and CEO, Matt Bershadker said, “From our animal sheltering work to field rescues to legislative advocacy, spay/neuter is an essential component of the ASPCA’s animal welfare efforts. We have long admired and supported Humane Alliance’s innovations in spay/neuter practice and training, and are excited to combine forces to end animal homelessness and suffering around the country.”

READ THE PRESS RELEASE

Pfizer Agrees to Acquire Nimenrix and Mencevax from GlaxoSmithKline

On June 22, 2015, Pfizer Inc. announced that it entered an agreement with GlaxoSmithKline to acquire the meningitis vaccines Nimenrix and Mencevax. The acquisition will cost approximately $130 million USD and is expected to occur in the second half of 2015. The vaccine acquisition will allow Pfizer to service a broader population. This acquisition is not expected to have a significant financial impact on Pfizer’s 2015 financial performance and is subject to customary closing conditions and regulatory approvals.

Nimenrix (meningococcal serogroups A, C, W-135 and Y conjugate vaccine) is a meningococcal ACWY-TT conjugated vaccine that protects against Neisseria meningitidis. Nimenrix became available three years ago and is approved for sale in 61 countries and it’s registration is under review in 18 countries.

Mencevax (meningococcal polysaccharide serogroups A, C, Y and W-135 vaccine) is a meningococcal ACWY unconjugated polysaccharide vaccine used against meningococcal outbreaks and for travelers. Mencevax is available in 79 countries.

President of Pfizer Vaccines, Susan Silbermann said, “The addition of Nimenrix and Mencevax is an important milestone for Pfizer Vaccines. Adding these two innovative and complementary vaccines to our current portfolio will allow us to more completely respond to meningococcal disease outbreaks as well as proactively address a critical public health need – the prevention of meningococcal disease across all ages. Acquiring these quadrivalent vaccines will broaden our ability to address the burden of meningococcal meningitis – an uncommon but serious and sometimes fatal disease. This helps us to further fulfill our vision to protect lives with innovative vaccines to fight serious diseases worldwide and gives us even greater capability to meet the needs of the global community we serve.”

Pfizer’s goal for several years has been to bring new therapies to patients that significantly improve their lives. Pfizer Vaccines has the goal to increase business and enhance their portfolio through targeted external opportunities.      

  

About Nimenrix and Mencevax

Nimenrix is indicated for active immunization of individuals from the age of 12 months and above against invasive meningococcal diseases caused by Neisseria meningitidis group A, C, W-135 and Y.

Mencevax is indicated for active immunization of children older than two years, adolescents and adults against invasive meningococcal disease caused by meningococci of groups A, C, W135 and Y.

About Pfizer Inc.

At Pfizer, we apply science and our global resources to bring therapies to people that extend and significantly improve their lives.  We strive to set the standard for quality, safety and value in the discovery, development and manufacture of health care products. Our global portfolio includes medicines and vaccines as well as many of the world's best-known consumer health care products.  Every day, Pfizer colleagues work across developed and emerging markets to advance wellness, prevention, treatments and cures that challenge the most feared diseases of our time.  Consistent with our responsibility as one of the world's premier innovative biopharmaceutical companies, we collaborate with health care providers, governments and local communities to support and expand access to reliable, affordable health care around the world.  For more than 150 years, Pfizer has worked to make a difference for all who rely on us.  

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Pet Flys Joins Mirage Pet Products

Pet Flys, a manufacturer of pet carriers, toys, accessories, and apparel has been acquired by Mirage Pet Products. This acquisition will allow Mirage Pet Products to offer a more inclusive line of pet products. While Mirage will include Pet Flys products into their current product lines they will also continue to use Pet Flys’ websites so there is no disturbance to customers.

The founder of Pet Flys, Tammy Arnett, said “I am very excited by this acquisition because not only will Pet Flys products still be available to its loyal customer base, the Mirage organization is ideally equipped to grow Pet Flys to the full potential of its current market demand.” 

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