Risks of sticking to the acquired vendor

Just like last year, most M&A deals closed in North America in 2019 were connected with e-commerce. E-commerce site search providers were no exception. Several of our business rivals (Swiftype, SLI Systems, Celebros, Searchspring, and Nextopia) were acquired by larger enterprises this year. We have some thoughts on how the industry is changing and what happens when a vendor is been obtained by another.

M&A in E-commerce tech 

SaaS, e-commerce, and digital media acquisitions dominated the M&A market scene. Divertingly, this space wasn’t occupied by Amazon and Walmart, even though that was the tendency we saw in recent years. Strong performances by $1 billion+ companies like Amazon, Alibaba, eBay, and others have brought more attention from traditional investors and private equity firms to mid-market-leveled SaaS and e-commerce companies. The fastest increase observed in recurring revenue businesses cemented the attractiveness of this sector for potential buyers. The most sought-after companies are those which focus on brand awareness, obtain high customer lifetime value, and/or build technology that is difficult to recreate in-house. 

Swiftype story

The surge in M&A activities in the site search industry was started by Swiftype. The company participated in Y Combinator’s incubator program. From 2012 until 2015, Swiftype received investments in several funding rounds. In February 2017, the company released an enterprise search service, probably trying to sustain the growth rate and bite off another piece of market share. It was a controversial move into a new territory already occupied by a larger vendor. As a result, the company had a problem with positioning – it wasn’t clear whether it was an e-commerce search or enterprise search. In the end, the Swiftype enterprise search tool caught the attention of Elastic, and the company was then acquired in November 2017.

In May 2018, Swiftype released the Elastic App Search Service. The big difference between the Swiftype search and the new search app is that the first one was still a specific product, helping e-commerce websites have better navigation. The Elastic App Search Service is generalized for different industries: enterprise documentation, education base, publications, and e-commerce. It’s not always the case, but in general, it’s better when a product is field-specific because it understands the targeted business better. Since the app release last year, Swiftype hasn’t shared any product updates on its blog or social media.

SLI Systems story

SLI Systems is a global leader and one of the oldest companies in the site search industry. In May 2013, the company became the first one in the e-commerce site search sector to launch an IPO. At the start, SLI offered its shares at $1.50 and they peaked at about $2.90 early the following year. Over the years, the investors’ trust in the company gradually faded and bottomed out to 30¢ per share in July 2018. Shortly after, in November of 2018, the company was bought by ESW Capital.

Wondering why such a drastic drop? It’s common for the acquisition process to badly affect the environment inside the company. But it seems like SLI Systems had low morale, as well as problems with management and product development even before the sale. According to the employees’ reviews on Glassdoor, the SLI Systems product fell behind in the market. The company management didn’t follow the industry trends, and instead poured a lot of money into sales and marketing rather than enhancing product development. 

The new management team hasn’t changed anything, and the new strategy hasn’t resulted in a better product. One of the employees complained: “Senior management brought in their friends and girlfriends to top positions. The entire product management team rotated as a result of a couple of years.” The data on Builtwith shows that from the beginning of 2018 until now, the number of customers shrank drastically.

What catches the eye when browsing the SLI Systems blog is that the company presented several new features like an image search and upgraded personalization, so everything might be not as bad as it is written in reviews. But that was the only product update in almost a 2-year period.

Celebros story

At times, acquisition improves the target’s company performance. And that was the case for the Celebros search. Despite being a quite famous player in the e-commerce site search market, the company’s acquisition by Bridgeline Digital this February hasn’t caught much of the public’s interest. But since it was acquired, the site search vendor has continued to show that its product is alive and improving. The company shared news that seven new e-commerce brands have selected Celebros to run their site search and e-merchandising. Celebros also got two new apps listed in Shopify and Microsoft marketplaces and gained a spot as a rising star in The FeaturedCustomers’ Summer 2019 Customer Success report. 

Searchspring and Nextopia

The most recent acquisitions in the site search industry were made by Scaleworks. An alternative investment company acquired Searchspring in May and Nextopia in August. 

Before being bought, both companies suffered from constant employee turnover. “In the few months I worked there, I saw 10 employees quit. This is why Nextopia is always hiring for the same roles,” shared one of the former employees on Glassdoor. In such conditions, it is hard to grow and improve the product. 

Scalesworks stated that they don’t plan to merge the two companies in the near future, nevertheless, both now have the same person (Peter Messana) as a CEO and have moved their headquarters to San Antonio. He explained the motivation behind buying two companies with a similar product by the differences in customer base that Nextopia and Searchspring had. 

The future is still unfolding

History has proved that merging and acquisitions are tricky - they can result in either product improvement or product failure. Among the acquired site search companies, Celebros has the least murky future. Swiftype may disappear as a brand and stand-alone company and focus on the enterprise search segment. SLI Systems risks losing the market share by not focusing on product development. Searchspring’s and Nextopia’s products may go downhill due to office turmoil. There is still a probability that in the end, the two companies will become one. Messana himself stated in the interview that he “won’t rule out” merging the two in the future. This can lead to more culture clashes and poor employee morale, which inevitably affects the product.

Technology vendors may be bought for a variety of reasons – ones that are good for your business, and others that are not. E-commerce owners and marketers better think twice before sticking to an acquired product and not trying to look for better and more stable options. For every major product you select for your business, it's better to do the research and have a good Plan B. Don’t see your technology vendor acquisition as a challenge. Look at this as an opportunity to choose a better solution for your business.