Groupon Buys Ideeli At A Discount

<Discountp>In the latest sign that "flash sale" sites are struggling, Groupon bought Ideeli for $43 million in cash. This was a loss for Ideeli shareholders, considering the company received $107 million in venture capital from 2007 through 2013. Groupon, however, is known for finding discounts.

Ideeli sells "designer" goods via timed sales, similar to competitors Gilt Groupe, Rue La La and HauteLook. The site features a different selection of brands each day, available for up to 90% off. Ideeli has yet to turn a profit with this business model, and most recently operated at a $30 million loss.

Groupon, which sells coupons, says that it intends to keep Ideeli running as a separate website. Groupon also sees potential for synergies. "Ideeli extends our fashion presence and brings great relationships with many of the top brands in apparel," says Groupon CEO Eric Lefkofksy.

Sameet Sinha, analyst at B. Riley & Co., sees both opportunity and risk in the deal. On one hand, "fashion is one of the top categories for ecommerce and it should keep growing," says Sinha. Groupon is "potentially hoping to reduce the customer acquisition cost by using its own customers." Yet Sinha points out that the execution will be challenging because "flash sales have lost their momentum" and the unprofitable business "further dilutes Groupon's margins."

Investors appear skeptical of the transaction. Groupon's stock fell 5% on the acquisition news, closing the day at $11. Groupon, which has faced its own profitability challenges, has seen its stock rise 105% in the past year, partly due to optimism about its new CEO. Controversial founder, Andrew Mason, left the top post in 2013. Competitor LivingSocial also recently saw its chief executive step down.

Groupon expects to make more acquisitions, stating that they are "constantly evaluating growth opportunities across all of our business lines." Groupon has made dozens of acquisitions over the past four years. Its largest purchase was Korea's Ticket Monster, which Groupon purchased for $260 million earlier this month.

This is not the first time that daily deals and flash sales sites have combined forces. Gilt Groupe acquired Groupon competitor, BuyWithMe in 2011. It was folded into Gilt City, a similar Gilt property. The industries which were once oversaturated with competition, can only expect to see more consolidation.

HauteLook was purchased by Nordstrom for $270 million, in the flash sales heydey of 2011. Gilt Groupe has talked about an IPO for years, but has been reluctant to pull the trigger. A public offering was once the stated path for Ideeli. Groupon went public in 2011.