What do Jet.com, Uber and Dollar Shave Club all have in common? According to The Wall Street Journal, the three companies decided to sell themselves (in Uber's case it sold its China unit) rather than hanging on to losses en-route to an initial public offering.
- Jet.com sold itself to Wal-Mart Stores, Inc. WMT this week instead of fighting along towards achieving profitability at the end of the decade.
- Uber sold its Chinese operation to rival Didi Chuxing as it was losing more than $1 billion a year.
- Dollar Shave Club sold itself to Unilever rather than battling against the much larger brands.
WSJ noted that all three companies "spent heavily" to build its customer base but also failed to achieve a profit. On the other hand, their businesses were attractive enough to warrant the attention of a strategic buyer.
One of the reasons why the companies sold to larger peers is poor valuations. For example, WSJ noted Jet hoped to raise capital in January of this year at a $4.8 billion valuation. Early investors did make money on the deal, but perhaps not as much as expected given the $3 billion-plus price tag on the deal.
Meanwhile, Dollar Shave's investors felt that Unilever's $1 billion cash offer represented the best chance of success and Uber simply couldn't keep up with its much bigger and government-backed rival Didi who could sustain a price war indefinitely.
"Later-stage companies that can't raise capital or stop burning cash can either seek a profitable M&A outcome, or become a smoking black-hole by shutting down," WSJ quoted Michael Kim, a managing director of Cendana Capital, and an investor in Dollar Shave as saying. "The smoking black-hole scenario is the higher probability outcome."
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