DealsDirect acquisition confirms talent buyout trend

Online department store DealsDirect has invested in another online start-up in a bid to expand its portfolio as talent buyouts become the order of the day in the skill-starved tech industry.

DealsDirect purchased online start-up ToyBarn.com.au for an undisclosed sum, with Deals Direct chief Paul Greenberg saying the price was less than $1 million.

Launched in 2007, ToyBarn was initially designed to showcase IT applications including a gift registry, reward points, wish lists and online chat support but response was so encouraging that the business transformed into an online toy retailer.

According to Greenberg the acquisition provides DealsDirect with more than $100,000 worth of inventory and around 20,000 customers.

Greenberg says his acquisitions – including previous buys DinosaurDeals, KidStore and TotalDVD — were as much about talent as they were about the companies’ infrastructure and customer bases.

“There is just a lack of talent available so the highlight of these buys is about the people we can get … I think these smaller e-commerce guys have had to do more with less and they have some really interesting solutions around CRM, site search and so on,” Greenberg says.

“I think there is a shortage of talent in this space and these guys are showing they are very nimble and have some great knowledge with them.”

Talent buyouts are becoming increasingly popular within the tech space, as evidenced earlier this year by Groupon’s acquisition of group buying site Crowdmass.

Crowdmass was founded in 2010 by high school friends Tim Wu, David Wei and Ying Wang, all university graduates.

The trio was responsible for every aspect of the site, including marketing, sales, site maintenance and customer service. They took almost $40,000 on one of their first deals.

After a year the founders sold the business to Groupon, which admitted that the purchase was more of a talent buyout than a strategic acquisition.

“Our plans are to grow organically. Crowdmass is more a talent buyout. We were impressed with them and their business model and wanted them on our team,” a Groupon spokesperson said.

Marc Peskett, a partner at business advisory MPR Group, says most saleable businesses are attractive because they don’t rely on the expertise or efforts of the owners.

“In order for a business to be saleable it needs to be set up to be attractive to strategic buyers and to be able to operate without the current owner,” he says.

Peskett says more companies are looking to buy innovation rather than innovate in-house due to internal skills shortages, hence the increase in talent buyouts.