Retail Technology

Sector Bulletin
_
Retail Technology_
March 2014_
Retail Sales: 2013 Recap and 2014 Outlook
E-commerce and m-commerce to continue outpacing overall
industry. Currently comprising 6% of all retail sales, U.S. e-commerce
sales increased 17% to $263 billion in 2013, the largest annual growth rate
since 2007. Although a small fraction of the market, e-commerce is driving
most of the sector’s growth, averaging a 16% annual increase over the
past four years. Accounting for approximately 11% of total e-commerce
sales in 2013, mobile commerce is estimated to have grown 37% in 2013
and increased to 22% of e-commerce sales on Black Friday 2013.
Annual Sales ($T)
30%
$4
21%
$3
12%
$2
3%
$1
-6%
$0
2003
2004
2005
2006
2007
2008
2009
2010
Offline Retail Sales
Offline Retail Growth
2011
2012
-15%
2013
E-commerce Sales
E-commerce Growth
Note: Seasonally adjusted
Source: U.S. Department of Commerce
M-commerce as % of E-commerce on Black Friday
Mobile's % of E-commerce/Traffic
Uptick in retail sales forecasted for 2014. The NRF projects a less
volatile year and a faster rate of growth in 2014, with U.S. retail industry
sales increasing 4.1%. The optimistic outlook is attributed to stronger
economic growth, continued recovery in the labor market, higher inflation
and improvements in the housing sector that are expected to help bolster
more consumer spending in 2014.
Online vs. Offline Retail Sales
$5
% Annual Growth
Retail sales up in 2013, exceeding long-term average. Despite a
volatile year of consumer spending, U.S. retail industry sales increased
3.7% from the previous year to $4.5 trillion in 2013, exceeding initial
forecasts of 3.4% growth and surpassing the average growth rate of 3.6%
over the previous 10 years. A healthy but slightly disappointing holiday
shopping season, buoyed by heavy promotions and last-minute deals, saw
holiday retail sales increase 3.8% from the previous year—just shy of the
3.9% forecast by the National Retail Federation (NRF). The year’s volatility
was attributed to the fiscal cliff, tax increases, a government shutdown and
the rollout of Obamacare, as well as perennial issues such as consumer
confidence and fuel prices.
45%
39.7%
36%
27%
24.0%
18%
9%
9.8%
5.6%
3.2%
0%
21.8%
16.3%
14.3%
2010
2011
2012
Share Of Sales
2013
Share Of Traffic
Sources: IBM; BI Intelligence
Sources: National Retail Federation; U.S. Department of Commerce; BI Intelligence; comScore
Retail Technology Trends
IT spending continues to rise with expected industry growth. Retailers
are expected to continue their growth trajectory this year, as 75% of
retailers are planning new stores and 60% are planning an increase in IT
head count in 2014, compared to 66% and 58%, respectively, in 2013,
according to an RIS study. As a result, enterprise IT and store IT spending
are projected to grow 4.9% and 5.1% in 2014, up from 4.8% and 4% in
2013, respectively, suggesting that sales growth is expected to accelerate.
Omnichannel optimization and mobile continue to be top priorities. As
retailers are increasingly seeking a unified solution that can manage
transactions regardless of the channel, nearly half of all retailers cite
omnichannel strategies as a key priority for 2014, while 63% expect their
IT spend on omnichannel activities to increase this year, according to an
RIS study. As the linchpin of omnichannel retailing, mobile will also
continue to remain a heavy focus for retailers.
Mobile POS growing while traditional POS shrinking. With the
advancement of mobile POS (mPOS), the number of U.S. retailers using
tablets and smartphones as mobile registers is expected to triple this year
while POS terminal purchases are expected to decline by 20%. In 2014,
30% of retailers are planning a new POS investment decision, the largest
percentage in years, and 63% of those retailers say their next POS will be
a unified transaction engine also used for e-commerce and m-commerce.
By 2016, mPOS is expected to claim 12% of traditional POS shipments.
Sources: RIS News; IHL Group
Top Store System Priorities
Mobile for Associates
61%
43%
Mobile for Consumers
58%
46%
Advanced CRM/Loyalty
54%
48%
45%
47%
Omnichannel Integration
36%
Inventory Visbility
32%
PCI Compliance
Business Intelligence
35%
32%
21%
10%
44%
20%
30%
40%
2013
Source: 2013 & 2014 RIS Store Systems Study
50%
60%
70%
2014
Next Store System Purchase
POS Software
POS Printer
EFT/Debit/Signature Capture
10%
Currently Use
Source: 2014 RIS Store Systems Study
© MARCUM CRONUS PARTNERS LLC 2014
www.MARCUMCRONUS.com
13%
25%
16%
0%
15%
25%
26%
POS Scanner (cell)
10%
26%
29%
20%
30%
40%
Within 12 Months
50%
7%
9%
26%
35%
POS Scanner (2D)
11%
10%
30%
28%
11%
13%
30%
26%
POS Client
9%
8%
9%
60%
12-24 Months
70%
80%
24-36 Months
Mobility in Retail
Mobile paradigm shift. The shift to mobile in retail is expected to
accelerate in 2014, with 84% of smartphone shoppers using their device
as a shopping assistant, forcing retailers to address the utility, portability
and cross-channel applicability of their current mobile capabilities. While
71% of retailers have a mobile optimized version of their website, only a
third have a mobile app and offer mobile coupons, for example. Such
features are expected to see higher adoption rates going forward in order
for retailers to combine customer location, purchase intent analysis and
personalized promotions to deliver offers to customers at the right time and
in the right place.
Four stages of mobile adoption. The first stage of mobile adoption by
stores is to provide mobile devices intended for the manager, enabling the
manager to be on the store floor instead of in the back office. By the end of
2014, more than half of all retailers are expected to have this technology
deployed. The second stage puts a device in the hands of a store
associate to improve customer engagement and product/inventory
knowledge, and the third stage is mobile POS to streamline the customer
checkout experience. Nearly 40% of all retailers are expected to have the
second and third stages deployed in 2014, with the iPad the dominant
mobile platform that retailers expect to deploy. In the fourth stage,
consumers are able to perform checkout using their own device, which is
expected to reach an adoption rate of 29% in 2014.
Mobile payments. While still in the early stages, payments made via
mobile phones are expected to exceed $600 billion in 2016, according to
ISIS, a mobile wallet provider. The percentage of consumers willing to use
mobile wallets is expected to rise as confidence grows in merchants’ ability
to secure their information. Moreover, with the rising popularity of digital
currencies like PayPal, Google Wallet and Bitcoin, industry advancements
are expected to take shape in 2014 to push mobile and digital currency
further into mainstream retail.
Mobile analytics. The most valuable element of mobility will be found in its
analytic opportunities to deliver a more personalized shopper experience.
Mobile-enabled analytics can be used to gain a greater understanding of
general traffic patterns and customer behavior and can also be tied to
more granular, individualized measurements of shopper activity, including
customer activity related to retailers’ mobile apps, sites and coupons.
Mobile Capabilities Currently Deployed
Mobile version of online site
71%
Mobile store locator
51%
Mobile apps
34%
Mobile coupons
32%
Product reviews
29%
SMS based messages
27%
Mobile site on m-commerce platform
24%
Product availability
24%
Mobile payment
10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
70%
80%
Source: 2013 RIS Cross-Channel Study
Mobile Device Adoption Plans
Mobile Device for Manager
Mobile POS
26%
26%
13%
20%
19%
10%
0%
20%
18%
21%
Consumer Mobile Checkout at Store
25%
21%
30%
Mobile Device for Associate (non-POS)
10%
20%
30%
Currently Use
40%
50%
60%
Within 12 Months
12-36 Months
Source: 2014 RIS Store Systems Study
Mobile Platform Plans for 2014
iPad
57%
iPhone
45%
Bring Your Own Technology
39%
Windows 8
31%
iPad Mini
29%
Other Android
19%
Windows Mobile
12%
iPod Touch
10%
0%
10%
20%
30%
40%
50%
60%
Source: 2014 RIS Store Systems Study
Source: RIS News
Analytics in Retail
Integrating Data Sources into Analytics
Big Data to drive IT spending. Big Data is forecasted to drive $34 billion
of IT spending in 2014, according to IT research firm Gartner. In retail, Big
Data can mean access to real-time analytics able to fuel dynamic pricing in
store and online in a real-time, customized manner, as well as leveraging
historical sales trends or latent POS data for better planning and
forecasting. However, organizing and integrating unstructured data from a
variety of sources is the greatest challenge retailers are currently facing
with Big Data.
Big Data still in its infancy but critical to omnichannel integration. Big
Data is five years away from becoming mainstream in retail, according to
market research firm EKN, as 60% of retailers still assess themselves as
having only basic analytics capability. Moreover, 83% of retailers consider
themselves at par or behind competition in terms of strategic use of
analytics, and only 3% of retailers currently use a mobile business
intelligence solution. Understanding that improving customer insights is
plan
Sources: Gartner Research; EKN Research; RIS News
Store (POS transaction data)
69%
Online
14%
65%
Loyalty or CRM data
43%
Syndicated data (Nielsen, IRI)
35%
38%
Social media
19%
30%
Mobile
22%
0%
Currently Integrated
14%
20%
17%
6%
40%
Within 12 Months
11%
32%
24%
42%
11%
5% 6%
11%
11%
35%
25%
Census data
6%
24%
11%
16%
58%
60%
12-24 Months
80%
100%
No Plans to Integrate
Source: EKN Big Data in Retail (2013)
one of the foundational elements of omnichannel retail, 58% of retailers
plan to implement a predictive analytics tool and digital dashboards for
management in the next two years, while 70% plan to implement a mobile
business intelligence solution. However, less than 20% plan to invest in
any Big Data technology in the next 12 months, intending to be more
aggressive in the 12-24 month timeframe.
© MARCUM CRONUS PARTNERS LLC 2014
www.MARCUMCRONUS.com
Merger Musings
+
+
+
Deal: PE firm Clearlake Capital formed Tolt
Solutions from the $35 million acquisition of the
Retail Solutions Group of Agilysys (rebranded
Kyrus Solutions) in July 2013 and the
subsequent acquisition of Tolt Service Group in
January 2014.
Implications:
• Creates one of the largest independent
providers of retail IT services and technology
solutions in North America
• Coupled with Clearlake’s operational and
financial capabilities, develops a strong
platform to build an even stronger and more
dynamic global retail technology company via
a combination of organic and acquisitive
growth
Deal: RetailNext acquired Nearbuy Systems in
December 2013 in an all-stock, 100% equity
deal that values Nearbuy in the “high teens
millions.”
Deal: SAP (DB:SAP) acquired hybris in August
2013 for an undisclosed amount estimated to be
$1+ billion.
Implications:
• Enables SAP to deliver
omnichannel business solutions
Implications:
• Enables RetailNext to increase its locationbased analytics capabilities at brick-andmortar stores
complete
• Tightens SAP’s competition with rivals IBM
and Oracle by filling the void of a credible
enterprise commerce platform in its portfolio
• Provides RetailNext with the technology to let
retailers provide free Wi-Fi to omnichannel
shoppers in exchange for the ability to track
their behavior and create personalized ad
campaigns
• Enterprise commerce technology landscape
is now dominated by four large software
companies: SAP, IBM, Oracle and eBay
• Leaves few independent vendors in the
enterprise commerce technology space,
bringing to a close a multi-billion-dollar, threeyear spell of intensive M&A and IPO activity
in the sector
• Expands RetailNext’s global partner network,
wireless expertise, platform, retailer base,
employee base and patent portfolio
Source: Capital IQ; company press releases
Recent M&A Activity: Retail Technology (SaaS and Legacy)
Date
Jan 14 A
Jan 14 A
Jan 14
Jan 14
Jan 14
Dec 13
Oct 13
Sep 13
Aug 13
Jul 13
Jul 13
Apr 13
Mar 13
Feb 13
Feb 13
Feb 13
Enterprise
Value
Target
Acquirer
Payment Processing, Inc.
Datec Retail Systems
MICROS Boise and Spokane
Quest Solution Inc.
Tolt, LLC
Nearbuy Systems, Inc.
One iota Limited
Easy2 Technologies, Inc.
hybris GmbH
MerchantOS
Agilysys, Retail Solutions Group
TradeCard, Inc.
Ogone BVBA/SPRL
Channel Intelligence, Inc.
Retalix Ltd.
G4 Analytics, Inc.
Global Payments Inc.
Wincor Nixdorf
Spark Solutions Group
Amerigo Energy, Inc.
Kyrus Solutions, Inc.
RetailNext, Inc.
Sanderson Group Answers Corporation
SAP AG
LightSpeed Retail Inc.
Clearlake Capital
GT Nexus, Inc.
Ingenico SA
Google Inc.
NCR Corp.
Nielsen Holdings N.V.
Revenue
$420
‐ ‐ $16
‐ ‐ $9
‐ ‐ ‐ $35
‐ $510
$125
$613
‐ EBITDA
‐
‐
‐
EV / Revenue Description
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ $24
‐ $34
‐
‐
$1
‐
‐
‐
‐
‐
$54
‐
$267
‐
Mean
Median
‐ ‐ ‐ 0.5 x
‐ ‐ 8.2 x
‐ ‐ ‐ ‐ ‐ 9.5 x
‐ 2.3 x
‐ Integrated payment processing solutions
Retail software for data integration
POS systems for hospitality industry
Mobile supply chain solutions Retail focused IT support solutions
Multi‐channel shopper analytic products Cloud‐based multi‐channel retail solutions Multichannel merchandising technology solutions Multi‐channel commerce software solutions
Cloud‐based POS and inventory software
Retail focused IT support solutions
Supply chain collaboration platform
Online payment solutions Technology services that drive online purchases
Software solutions to retail stores
Retail business intelligence applications
5.1 x
5.3
Source: Capital IQ and public company filings. Amounts in millions of U.S. dollars.
Public Company Valuation: Retail Solutions
Stock
% of 52‐Week
Company Name
Ticker
Price
High
NCR Corp.
MICROS Systems, Inc.
Wincor Nixdorf
Bematech SA
GK Software AG
PAR Technology Corp.
NYSE:NCR
NasdaqGS:MCRS
XTRA:WIN
BOVESPA:BEMA3
DB:GKS
NYSE:PAR
$33.55
54.59
79.12
3.39
64.32
4.80
81 %
92
99
79
89
81
131 % $5,568
136
4,122
160
2,356
120
171
199
122
126
75
Mean
Median
87 %
85
145 %
133
Low
Market Enterprise
Cap
EV / Revenue
Value
Cash
$8,422
3,498
2,493
148
109
66
$528
627
135
31
17
10
LTM
2014E
2015E
EV / EBITDA
LTM
2014E
P/E
2015E
LTM
2014E
2015E
1.4 x 1.2 x 1.2 x 9.5 x 7.7 x 7.0 x 12.6 x 11.0 x 9.5 x
2.7 2.5 2.4 13.6 11.3 11.1 26.5 20.3 18.3
0.7
‐
‐ 9.5
‐
‐ 19.6
‐
‐
1.0
‐
‐ 6.1
‐
‐ 9.8
‐
‐
2.3
‐
‐
‐
‐
‐
‐
‐
‐
0.3 0.2 0.2
‐
‐
‐
‐ 12.1 10.1
1.4 x 1.3 x 1.3 x 9.7 x 9.5 x 9.0 x 17.1 x 14.5 x 12.6 x
1.2 1.2 1.2 9.5 9.5 9.0 16.1 12.1 10.1
Source: Capital IQ as of February 25, 2014. Amounts in millions of U.S. dollars, except share price.
© MARCUM CRONUS PARTNERS LLC 2014
www.MARCUMCRONUS.com
Selected Marcum Cronus Transactions
has issued
preferred stock to
has sold substantially all its assets to
has been acquired by
Market Trends and Performance
Software M&A Activity
500
$20
Q4 13
Q3 13
Q2 13
Q1 13
Q4 12
Q3 12
Q2 12
Q1 12
Q4 11
Q3 11
Q2 11
Q1 11
Q4 10
$0
Q3 10
-
Q2 10
$5
Q1 10
100
Q4 09
$10
Q3 09
200
Q2 09
$15
Q1 09
300
Source: Capital IQ
Public Market Trading Performance
70%
NASDAQ
Enterprise SaaS
60%
+70.4%
Retail Solutions
Legacy
50%
40%
+37.8%
30%
+29.2%
20%
+22.5%
10%
0%
-10%
Feb 13
Mar 13
Apr 13
May 13
Jun 13
Jul 13
Aug 13
Sep 13
Oct 13
Nov 13
Dec 13
Jan 14
Feb 14
Source: Capital IQ as of February 25, 2014
Historical EV/Revenue Multiples
12.0x
NASDAQ
Enterprise SaaS
10.0x
Retail Solutions
Legacy
12.3x
8.0x
6.0x
4.0x
3.4x
2.5x
2.0x
Q4 13
Q3 13
Q2 13
Q1 13
Q4 12
Q3 12
Q2 12
Q1 12
Q4 11
Q3 11
Q2 11
Q1 11
Q4 10
Q3 10
Q2 10
Q1 10
Q4 09
Q3 09
Q2 09
1.2x
Q1 09
0.0x
Aggregate Deal Value ($B)
400
Number of Deals
$25
Deal Count
Deal Value
has merged its PLM business with
M&A deal activity declined in 2013 but
expected to rise in 2014. In 2013, there were
1,426 closed M&A software deals with an
aggregate value of $47 billion, compared to
1,652 closed deals with an aggregate value of
$56 billion in 2012, representing a 14% drop
in deal flow and a 15% drop in deal value.
The deal outlook for 2014 is optimistic and
points towards an accelerated M&A pace as
technology companies continue to expand
into the cloud, mobility continues to grow and
more companies across industries leverage
Big Data analytics.
SaaS stocks continue to outperform tech
peers. As businesses increasingly rely on
cloud computing to access and analyze data,
enterprise SaaS stocks (+70.4% LTM)
continued to ride the wave of momentum up,
led
by
Demandware
(+153.7%),
ChannelAdvisor (+121.3%) and LogMeIn
(+96.9%). While retail solution (+29.2%) and
legacy (+22.5%) stocks have been performing
well, each group still had underperformed
against the broader market (+37.8%) over the
last 12 months.
SaaS commanding highest valuations.
Revenue multiples for enterprise SaaS
companies (12.3x at year-end 2013)
continued to far outpace its tech counterparts.
The higher valuation for SaaS is indicative of
the premium that comes with its higher growth
prospects over more traditional software rivals
and legacy IT providers, who are trying to
transition out of their hardware-oriented world.
Source: Capital IQ as of February 25, 2014; historical EV/Revenue multiples are enterprise value weighted
MARCUM CRONUS PARTNERS LLC
www.MARCUMCRONUS.com
New York | New Haven | Boston
Contact:
Andrea Chase
Director, Marketing and Business Development
212.485.5876
[email protected]
This publication is for general information purposes and is not intended to provide specific advice or recommendations.

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