We’re going to copy a bit of text on the transaction to save ourselves some time.
COVID-19 is forcing independent businesses to urgently replace legacy point-of-sale systems in order to remain operational and safely adapt to evolving consumer behaviors. The scale achieved by the combination of Lightspeed and ShopKeep presents retail and restaurant business owners in the United States with enhanced resources to pivot their operations. Lightspeed’s analytics, loyalty, eCommerce, and payments modules, in addition to its multi-location solution, will offer ShopKeep’s customer base the opportunity to enhance their capabilities.
The acquisition immediately expands Lightspeed’s U.S. market share, allowing for increased investment in sales, marketing, and research and development to capitalize on the increasing demand for modern, cloud-based, omnichannel commerce solutions. Following the closing of the acquisition, Lightspeed will serve over 100,000 customer locations1 worldwide, generating approximately $33 billion USD in gross transaction volume2 (GTV).
“ShopKeep’s commitment to enabling independent businesses to dream big and rise above industry and economic challenges is deeply aligned with our own mission to power the future of commerce,” said Dax Dasilva, Founder and CEO of Lightspeed. “This acquisition will bring ShopKeep merchants, small and medium-sized businesses that make up the backbone of the U.S economy, into the Lightspeed family, providing them even more crucial product innovation and world-class support as they drive the reinvention of American commerce.”
The acquisition will generate strong expected synergies resulting from increased GTV, the ability to leverage integrated go-to-market resources and a combined payments opportunity. Once closed, Lightspeed’s acquisition of ShopKeep will follow the successful integration of multiple premier platforms that experienced accelerated growth following their acquisitions by Lightspeed, including that of Montréal-based Chronogolf, Sydney-based Kounta and Berlin-based Gastrofix.
“We believe uniting with Lightspeed highlights and amplifies our shared vision to deliver industry leading commerce enablement for small and medium-sized businesses,” said Michael DeSimone, CEO of ShopKeep. “Our partnership sets the stage to help business owners navigate through challenging times, keep pace with rapid change and adapt quickly to meet the rising demands of today’s customers.”
Details of transaction:
ShopKeep generated revenue of approximately $50 million3 and GTV of approximately $7 billion in the trailing twelve month period ending September 2020. Lightspeed will acquire ShopKeep for a total estimated consideration of approximately $440 million, satisfied by way of payment on closing of $145.2 million in cash and the issuance of 9,500,000 subordinate voting shares in the capital of Lightspeed, subject to the adjustment mechanisms outlined in footnote 4 below.4 The deal, which is subject to customary closing conditions and post-closing working capital adjustment, is expected to close before the end of the company’s quarter ending December 31, 2020.
Back to our commentary and questions.
Shopkeep had been trying to sell itself for a while. From the sales deck they had passed around last year, churn had about equaled new account additions, making it difficult to find growth. Further, Shopkeep’s average merchant is quite small, doing ~ $350,000 in annual revenues. Merchants of these sizes don’t have much discretionary spend, which is why Square has been trying to move upmarket as much as possible. Larger merchants are more stable and therefore have lower churn, and come with the added benefit of having budgets to pay for more things.
But if we’re Shopkeep, we’re looking for an exit ASAP. People on the inside told us that Lightspeed had tendered a low offer earlier this year, which Shopkeep rebuffed, but that was before COVID. With winter bearing down, and an election that looks like it will swing to Democrats, who will likely mandate several more national lock downs, Shopkeep management has to be fearful that their customer base will erode significantly by Q2 next year.
Lightspeed is now juggling a large number of acquired companies, all with their own code bases and software stacks. The technical management of such a sprawling empire is no small feat, so we ask how Lightspeed will blend it all together so the value and features of Lightspeed are made available to Shopkeep merchants.
We also ask how Lightspeed will increase revenue per customer (ARPU) if the average Shopkeep merchant is so small; there might not be a ton of room for revenue expansion.
Lastly, we want everyone to be aware how clever Lightspeed was in the structure of the transaction, giving up only $145M of cash for the asset. When you’re public, you can more easily use shares as currency. The benefits public companies substantially and allows them to make “cheaper” acquisitions.
Consolidation of non-profitable companies does not make for a profit. Just like the delivery services, the dirty little secret is they are buying market share as nary a one has ever generated a profit. Considering how distorted the market it, how damaged the retailers and restaurants are, when you add it all up, we are going to end up with one huge, non-profitable too-big-to-fail at the governments doorstep looking for a bailout. Failing to mention that the entire business model is unprofitable and funded by venture capital. What a shitshow.