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Welcome to Dealboard. In this weekly feature, The Current is providing a look at the mergers, acquisitions and venture capital deals making waves in ecommerce, CPG and retail.
This week, we dig into the data on retail tech funding for the third quarter. Plus, Amazon is getting some bigger planes, Instacart is reportedly backing off 2022 IPO plans, and a SKU data network raised $43 million.
Retail tech funding falls globally
Every week, Dealboard provides a look at the startups receiving funding and returning capital to investors as they build retail tech platforms powering ecommerce, marketing, logistics and more. This week, we’re kicking things off by taking a step back to review the overall funding results for the most recent quarter, courtesy of the Q3 2022 State of Retail Tech report from tech market intelligence firm CB Insights.
Here’s a look at the highlights for third-quarter VC funding and M&A activity.
Funding fell to a five-year low globally, CB Insights reported. Collectively, retail tech companies raised $8.5 billion, which was a 33% quarter-over-quarter decline and the lowest total since 2018. The number of deals, however, increased by 5% to 776. For the year, 45% YoY
Top equity deals included funding rounds for payments company Klarna, digital experience platform ContentSquare and European payment network Satispay.
In the US, 261 companies in this sector raised a collective $3.4 billion. The number of deals was up 28% quarter-over-quarter, even as funding fell. The US share of deals also rose to 34% from 28% in Q2. Top US funding rounds were for live shopping marketplace Whatnot, and fresh food-focused platforms Grubmarket and Afresh.
Ecommerce companies far outpaced all subcategories in funding, with $4.6 billion invested across 372 deals. The funding total was up 10% quarter-over-quarter. The US led global share in this category, with $1.7 billion across 21 deals.
Megarounds are declining. Funding for deals over $100 million, which are called megarounds in venture capital circles, was down 38%. Eighteen deals of this size were recorded. From Q4 2020 through Q1 2022, there were more than 50 of these deals each quarter.
Unicorns are also becoming rarer. There were three companies that were newly valued over $1 billion, called unicorns in VC circles, and none were minted in the US. That's down 77% quarter-over-quarter, and was the fewest since Q1 of 2018. In Q4 of 2021 alone, there were 30 such companies that cross the milestone.
M&A exits were down 31% in the third quarter, to 111. Top North American deals included Essity’s $400 million acquisition of intimate apparel brand Knix and eBay’s $295 million acquisition of trading card platform TCGPlayer.
The Current’s view: The retail tech sector is seeing the same pullback that is being felt across venture capital as a whole. As markets become more volatile at a time of economy uncertainty, funding rounds haven't been as large as they were during the frothy days of the last two years, and there’s less appetite for exits. However, opportunity still exists for companies that are still new to the scene. Lower-dollar early stage deals have accounted for a higher share so far in 2022 than they did in 2021 (64% vs. 60%), and median funding was up 9%. It’s a reminder that strong products that solve real problems will continue to receive funding in any market.
Returning to the present, here’s a look at this week’s key deal activity:
Amazon inks air cargo deal with Hawaiian Airlines
Amazon has a new agreement that will enable it to fly goods as part of its logistics operation.
The company announced announced a new agreement to lease 10 Airbus A330-300 freighter planes from Altavair. These planes will be converted from passenger planes. In turn, the aircraft will be operated and maintained by Hawaiian Airlines on flights between Amazon facilities and airports.
“These A330-300s will not only be the first of their kind in our fleet, they’ll also be the newest, largest aircraft for Amazon Air, allowing us to deliver more customer packages with each flight," said Philippe Karam, director of Amazon Global Air Fleet & Sourcing, in a statement.
The planes will come online in 2023 and 2024, and the deal includes an option to expand based on Amazon's needs. Hawaiian Airlines also intends to stand up a pilot base in the continental US, expand existing facilities, and hire team members.
There is an investment component to the agreement, as well: Hawaiian Airlines will issue warrants that allow Amazon to acquire a stake of up to 15%, exercisable over nine years.
Banyan raises $43M for SKU data network
Fin Capital and M13 led the financing, which consisted of $28 million in equity and $15 million in venture debt. Participants included FIS Impact Ventures, Bridge Bank, Interplay and TTV Capital. Additional investors in Banyan include More than Capital, Manifold, Motivate Venture Capital, Elizabeth Street Ventures and Gaingels, along with angel investors Jonathan Weiner, David Chubak and Kush Saxena.
Along with the funding, former Walmart EVP & Chief Customer Officer Janey Whiteside joined the company’s board.
The company said it will use the funding to build out its technology and infrastructure, which allows retailers and financial institutions to access data capabilities at the SKU level. Among myriad uses, the capabilities can enable merchants to offer deals and loyalty programs through banking channels. Hotels, fintechs and financial institutions are also among potential beneficiaries.
Frasers Group raises stakes in 3 companies
Frasers Group, the British retail group founded by entrepreneur Mike Ashley that started as Sports Direct, disclosed a series of investment updates in statements to investors:
Asos: Frasers Group increased its stake in the fast fashion company, and now owns 5.1% of Asos’ issued share capital, according to a filing. Based on the company’s Friday closing price, the share is worth about 26 million pounds, according to Marketwatch. This comes after recently-hired Asos CEO Jose Antonio Ramos Calamonte laid out a restructuring plan that will reduce stock and spending at a time of elevated inflation and rising costs, Bloomberg reported.
Hugo Boss: Frasers Group also upped its stake in the luxury fashion label, according to a filing. It now owns 4.3% of direct common stock, and another 28.5% of total share capital through put options.
MySale: Frasers Group now owns a 59.85% stake in the Australian fashion marketplace, according to a filing. This followed the issuing of a mandatory offer for the company, which became unconditional last week. The offer closes on Nov. 1. Frasers has been making a bid for the flash sale site since August.
Nourish Ingredients raises $28.6M for animal-free fats
The financing was led by Horizons Ventures, with participation from Main Sequence Ventures and Hostplus.
The company employs synthetic biology to create fats and oils without animals. These are key to making alternative proteins smell and taste like meat, which is necessary to improve their overall quality, the company contends. Nourish will use the funding for R&D and scaling activities, with a goal of bringing its first fats to product lines next year, Techcrunch reported.
Credit Key raises $115M in debt for B2B BNPL
Credit Key secured $115 million in venture and debt funding as it works to expand a Buy Now, Pay Later solution for B2B ecommerce.
The funding include $100 million debt facility from funds managed by affiliates of Fortress Investment Group LLC, and a $15 million equity raise led by RedBird Capital, Bonfire Ventures and Greycroft.
“While we’re seeing a slowdown across the tech sector, there is still a huge untapped opportunity in B2B e-commerce payments. This e-commerce market is 10-15 years behind B2C on the digital maturity curve but is rapidly catching up,” said John Tomich, CEO of Credit Key, in a statement.
Nestlé, Starbucks in Seattle’s Best acquisition
Consumer goods conglomerate Nestlé has entered a deal with coffee company Starbucks to acquire the brand Seattle’s Best Coffee.
Acquired by Starbucks in 2003 for $72 million, Seattle’s Best makes whole bean, roast and ground packaged coffee, as well as K-Cup pods. Products are available in foodservice and grocery channels. In bringing on the brand, Nestlé is aiming to bolster its coffee business in the US, where Seattle’s Best will join labels including Nescafé, Nespresso and Blue Bottle. Terms of the deal, which is expected to close by the end of 2022, were not disclosed.
The companies were already working together. Nestlé distributes Starbucks products across more than 80 markets. That was the result of a $7 billion deal signed between the companies in 2018 to create what is known as the Global Coffee Alliance.
Instacart shelves IPO plans for 2022
One of the year’s most anticipated stock market debuts in ecommerce is apparently on hold.
Grocery delivery platform Instacart is “likely” to postpone plans for a 2022 initial public offering, Reuters reported. Citing two sources, the wire service reported that market conditions led the food delivery company to hit pause on plans for a Q4 entrance into the stock market. As a caveat, the sources allowed that the move is not completely off the table this year, just “extremely unlikely.”
Instacart confidentially filed to go public in May, and has since been making changes to its leadership ranks, adding new companies via acquisition and rolling out new offerings for retailers, brands and consumers as it positions itself as a technology provider for the grocery industry under CEO Fidji Simo. A spokesperson told the New York Times that the company saw revenue growth of more than 40% year-over-year in the third quarter. But the company has also cut its internal valuation, with the latest reduction bringing the figure to $13 billion, The Information reported.
As it sought to go public, Instacart was not immune from the slowdown in the public markets observed in the CB Insights report above. Still, there are indications that the company may still begin trading if market forces improve.
Trending in Economy
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.