BUSINESS - PetSmart Acquisition Sheds New Light on Corporate Valuation

AllPaws.com purchased by PetSmart

Richard Kestenbaum, Partner at Triangle Capital, recently wrote about the value of emerging subscriber based companies in Forbes magazine.

His startling conclusion is that many companies that once held great value are no longer given the same regard, while some of those formerly considered worthless are now regarded as having great value.

He draws this conclusion from Triangle’s participation as sell-side advisor on the AllPaws.com acquisition by PetSmart which is a recent real world event.

Furthermore, he admits that he and his colleagues were surprised by how things worked out as the transaction progressed.

PetSmart makes no money when a pet is adopted and yet the company looks upon the AllPaws transaction as core to their business:

“Pet adoption is core to our purpose-driven business, and the acquisition of AllPaws offers a smart technology platform to accelerate our in-store adoption program even further,” said Michael Massey, president and chief executive officer for PetSmart.

“Our leadership role in pet adoption has led to a record-setting seven million pets adopted from our stores since we started the in-store adoption program in 1994. More than 3,000 current animal welfare partners -- plus thousands of additional rescues and shelters -- will be able to use AllPaws as a digital hub to promote adoptable pets, which we believe will result in even greater success in finding forever homes for pets across North America.”

As Kestenbaum notes:

“Convincing consumers that a business has a purpose beyond making money and is consistent with consumers’ values is key to developing a sustainable and trusting relationship with consumers and maintaining sales and profits.Never before have values been so closely associated with earnings and success. This is new. 

"About half the population has a dog and 35% has a cat. But among Americans in their 30s, 75% have dogs and 51% have cats. Even though the pet industry is exploding, having grown threefold in the last ten years, PetSmart knows that they can’t rely on a growing industry, they have to share their customers’ values to continue succeeding.”

What does this mean for emerging companies like Urban Animal Corporation? Just three things:

1. Investing capital to develop online services that can accumulate large pools of subscribers at a low cost of acquisition IS THE THING OF VALUE.
2. Subscribers and successful services will be valued higher than revenue, income or free cash flow.
3. In the next three to four years the scramble to acquire subscribers and services that add to the core values (purpose) of large brands will intensify.

The Paradigm Corporation has followed this trend in valuation since it emerged in late 2012. The ‘Paradigm Market Watch’ document is constantly updated to maintain a watching brief on comparable transactions and resources as well as market trends and analysis.

We believe the opportunity for clients like Urban Animal Corporation is to apply capital to add services and subscribers at a lower acquisition cost than these elements are valued by the market.

Large brands will then seek out meaningful relationships that add the substance and trust of Urban Animal Corporation to the brand’s purpose and core value.

About Executive Producer, Larry R. Evans:
Larry Evans is a futurist, a brand developer and a collaboration advocate. He is Principal of The Paradigm Corporation, which is headquartered at Thunder Ridge just outside Crossfield, Alberta, Canada. He is known for bringing a unique and predictive lens to paradigm shifts in a career that spans 45 years. Now from his wheelchair, he brings a grounded, tenacious view of brand value, client rights, online services and trusted relationships in the digital age. His perspective and values influence his life, business and ministry.

ACQUIRE - Unilever Negotiating Acquisition of The Honest Company

Unilever’s proposed purchase of Jessica Alba’s The Honest Company for $1 billion is its second recent move to acquire young start-ups with direct-to-consumer subscription models.

The Dollar Shave Club was purchased by Unilever earlier this year, allowing the much larger company to tap into the market share that Dollar Shave Club had opened up.

The model of cheap, subscription-based service eliminates a lot of expensive elements involved in brick-and-mortar operations.

These types of purchases offer benefits for the start-up in terms of an influx of cash to push them into the black.

For the larger company, such as Unilever with these purchases, or Walmart purchasing Jet.com, the benefits are less tangible but no less real.

Acquiring start-ups that are finding footholds with consumers who now demand much more flexibility and responsiveness from their providers allows large companies to remain relevant in a changing capitalist climate.

The convenience and price point are probably also a factor in The Honest Company’s success, with their bundle services and subscriptions designed to fit specific lifestyles.

The Honest Company also offers the promise of eco-friendly and baby-safe products (though there has been controversy over whether they keep that promise).

This second purchase by Unilever indicates a similar focus on accessing the subscription bases of successful start-ups in order to diversify their customer base and remain agile in a new market environment.

In 2014, 80% of The Honest Company’s sales were via a monthly subscription service. Although their products are now available in Costco, Whole Foods, and Target, their subscription services are still a significant part of their marketing.

And, even if some of their subscribers are inactive, those inactive subscribers are still a valuable commodity for Unilever.

Research has shown that even inactive subscribers purchase more, and more frequently, than non-subscribers. This means that Unilever gains benefits from The Honest Company’s subscription-model start despite the company’s move into department stores.

And the subscription model offers valuable information and direct access to customers, which provides value beyond the standard sales figures.

With venture capitalists being much choosier about where their money goes, these sorts of alliances between agile young start-ups and established larger companies will become more and more important.

By Tiffany Sostar

Tiffany is a writer, editor, academic, and animal lover who came late to her appreciation of pets. At 18, a rescue pup named Tasha saved her from a depression and she hasn't looked back. She has worked as the canine behaviour program coordinator for the Calgary Humane Society, and was a dog trainer specializing in working with fearful and reactive dogs for many years. She doesn't have any pets right now, but makes up for it by giving her petsitting clients (and any dogs she comes across on her frequent coffee shop adventures) extra snuggles.

EDITORIAL - What Yahoo can Teach us about Business

The VOX Technology article by Tim Lee yesterday provides an explanation of Verizon's purchase of Yahoo.

There's no happy little internet story here.

In fact, Yahoo, like AOL is a story of missed opportunities and failed strategies.

A company that made correct early stage investments in the very companies that would later dethrone it in 'search' and 'social'. A company that was once the biggest play on the internet brought to its knees and sold for a tiny percentage of its earlier market valuation.

Analysts suggest that Verizon will reap the benefits of adding Yahoo’s advertising engine to its 100 million subscribers, and well they might.

However, the real learning for everyone in business may be from understanding how a company with the largest base of subscribers in early internet history, a trusted ecosystem if you will, lost its way.

Personal digital devices and a ubiquitous internet (mobile network) have redefined the power structure for consumers and marketers.

Around the world consumers, who own 'demand' are being empowered to evaluate and discover brands that own the 'supply' (product/service) at the moment they desire something. We observe that movement from brand to brand is often radical and completely unrelated to the value or supply chain that was once paramount. The new environment honors the quick draw and the agility of those who command this new frontier. Remember the 'Oreo tweet' of Super Bowl 2013.

  

Expect to see more traditional brands like ‘Unilever’ acquiring upstarts like Dollar Shave Club in a quest for loyal subscriber/customers.

Expect to see more brands experiment like P and G's approach to the Tide brand with the Tide Wash Club.

Expect to see subscriber-based valuations for ecosystems like LinkedIn or Wind Mobile continue to rise well beyond traditional valuations which are based on free cash flow or income.

Expect to see the 'experience factor' (length of subscriber experience) of active residual subscribers become the most important aspect of value.

The times, they are 'a changin' and it may be time to review the things we value in business.

About Executive Producer, Larry R. Evans:

Larry Evans is a futurist, a brand developer and a collaboration advocate. He is Principal of The Paradigm Corporation, which is headquartered at Thunder Ridge just outside Crossfield, Alberta, Canada. He is known for bringing a unique and predictive lens to paradigm shifts during a career that spans 45 years. Now from his wheelchair, he brings a grounded, tenacious view of brand, client rights and trusted relationships for the digital age. His perspective and values influence his life, business and ministry.

EDITORIAL - SalesForce Bid Increased Microsoft's Cost per LinkedIn Member/Subscriber

According to details released on Friday, a bidding war with Salesforce.com increased the cost Microsoft paid for LinkedIn by nearly US$6 Billion.

 

Read the copyrighted Financial Times article by Richard Waters in San Francisco

As InfoStream reported earlier, no matter how you attribute the cost of the LinkedIn acquisition, the cost (433 million LinkedIn Members @US$60, 105 million Active Members @US$254 or 2 million Paying Subscribers @US$13,000) of acquiring a member/subscriber based enterprise has increased rather dramatically.

The casual observer may wonder why this increased value and interest in member or subscriber driven enterprises. The reader may find the answer surprising.

Instead of reducing the cost of client acquisition, the Internet has actually driven expenses higher and made many campaigns less effective.

There are several reasons for this: The number of 'channels' increased substantially further fragmenting the audience and increasing the cost to reach consumers; The promise of big data and campaigns using SEO or SEM tactics did not anticipate a dramatic move to mobile devices where these tactics are much less effective; The rising skepticism of the mobile consumer who values authenticity and self discovery over 'blast and cast' voucher, coupon and discount campaigns; and finally, The agility of the member/subscriber based enterprise to respond to 'trending' consumer demand with speed (time to market), trust (brand confidence) and the reduction or elimination of market-wide campaigns (lower direct cost, higher margin).

In the war rooms of content and media channels, advertising agencies and marketing departments there is consternation and confusion about what to do next.

Against this backdrop, the idea of acquiring an existing base of 'members or subscribers' may be seen as the least cost, most timely and therefore the most financially efficient method of developing or increasing the number of customers that can be exposed to a brand's product or services.

Organizations that develop members or subscribers in a trusted ecosystem are therefore accorded the highest value by brands who wish to expose their services or products to prospective clients.

About Executive Producer, Larry R. Evans:

Larry Evans is a futurist, a brand developer and a collaboration advocate. He is Principal of The Paradigm Corporation, which is headquartered at Thunder Ridge just outside Crossfield, Alberta, Canada. He is known for bringing a unique and predictive lens to paradigm shifts during a career that spans 45 years. Now from his wheel chair, he brings a grounded, tenacious view of brand, client rights and trusted relationships for the digital age. His perspective and values influence his life, business and ministry.

PetLynx Utility Reports 2012 Activities

PetLynx Corporation, a Calgary based Utility in the companion animal industry today released its 2012 activity report.

• PetLynx added 26,893 net new subscribers (NNS) bringing the total subscribers to 861,455.
• PetLynx subscribers registered 26,266 animals in the system bringing the total animals serviced by the system to 967,340.
• PetLynx automatically handled 34,462 recovery episodes which brings the total recovery episodes to 262,939 since May 2006.
• PetLynx now supports recovery services in 246 Canadian communities.
• PetLynx web related activities remained steady at 23,679,491 hits and 322,792 logged in visits for the year.
• PetLynx now serves 1,828,795 entities including 8% of the dogs and cats in Canada. 

About PetLynx:
PetLynx Corporation is an innovative, leading edge, service provider, intent on automating the Companion Animal Industry in North America.

Thousands of times each day, the PetLynx Utility serves Canadian pets and pet owners. PetLynx owns the only internet system in the world that can recover animals using a physical description, with or without any of the common forms of pet identification. PetLynx is also the only system in the world that can recover pets not enrolled prior to becoming lost.


PetLynx .... lifelong protection for pets and peace of mind for people.