A technology company in China announced in a regulatory filing last week that it is paying $179 million to increase its stake in online electronics retailer Newegg Inc. to almost 94 percent.
This is the second bite for Beijing-based Hangzhou Liaison Interactive Information Technology Co. Ltd., which spent $263 million last year to acquire 55.7 percent of Newegg in Whittier.
Newegg did not respond to a request for comment, but Chief Executive Danny Lee said in a September statement that the initial investment would help accelerate company growth.
“Newegg is the destination of choice for technology enthusiasts who aspire to live a digital lifestyle,” Lee said. “This investment enables Newegg to further cement its leadership position, while accelerating into high-growth categories increasingly vital to our business in the long term.”
The transaction price – a total of about $442 million – is a big discount from the peak value the company could have fetched, according to some analysts. Newegg revenue figures provided to the Business Journal show the company’s growth stalled in recent years, declining to $2.6 billion in 2015 from a high of $2.8 billion in 2012.
A big part of this stagnation is Amazon.com Inc.’s continued domination of the online retail space. A study released in February by Slice Intelligence said 43 percent of all revenue generated in the U.S. e-commerce market last year was attributable to Amazon.
The Seattle company accounted for 53 percent of all growth in online sales in 2016, the study said.
Amazon announced plans earlier this month to acquire grocery chain Whole Foods Market Inc. for $13.7 billion, a move analysts said could help the e-tailer shorten shipping times thanks to Whole Foods’ 431 nationwide stores, thereby strengthening Amazon’s market position even more (see related item in Page 3 column).
Amazon’s dominance likely backed Newegg into a corner, according to Muizz Kheraj, a managing director at West L.A. investment bank FocalPoint Partners.
“Amazon is eating everyone’s lunch,” Kheraj said. “They are causing ripple effects across all industries, and I wouldn’t be surprised if Newegg is getting killed in the marketplace and this was their only option.”
Not too long ago, the private company was looking at another exit route: an initial public offering. The company filed paperwork in 2009, but withdrew its registration request in 2011.
Newegg has been relatively silent about the latest transactions other than the brief statement from Lee, but the company acknowledged in a press release that it would use Hangzhou Liaison Interactive’s ownership and capital infusion to expand overseas and push into core markets such as e-sports, and virtual and augmented reality.
