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Tuesday, September 5, 2017

Blackhawk, CashStar merger reflects e-gift card growth

Blackhawk Network Inc. disclosed Aug. 30, 2017, that it paid approximately $175 million to acquire CashStar Inc., a digital gift card provider. The companies are positioning the merger as a positive event for consumers, merchants and the gift card industry. Blackhawk Chief Executive Officer Jerry Ulrich said the newly acquired assets will improve margins and topline growth.

"With projected 2018 adjusted EBITDA [earnings before interest, tax, depreciation and amortization] margins above our corporate average, it's also consistent with our margin expansion objectives," Ulrich stated. "We completed the acquisition using a combination of available cash and borrowings under our revolving credit facility while maintaining further borrowing capacity with a projected pro forma debt to EBITDA leverage ratio of approximately 3.8 at the end of our fiscal third quarter."

Aligned interests, management

Talbott Roche, Blackhawk Network President and CEO, expects the acquisition to enable Blackhawk to provide partners with enhanced technologies that meet the changing needs of business customers and consumers.

"With the addition of CashStar, Blackhawk is now a leading provider in the fast-growing first-party digital market," Roche state. "Also, with CashStar margins projected in the range of 25 percent to 30 percent for fiscal 2018, Blackhawk maintains its focus on margin expansion. Finally, Blackhawk remains committed to optimizing capital allocation to enhance shareholder returns and will continue to evaluate acquisition candidates as well as potential share repurchases in the future."

Ben Kaplan, President and CEO of CashStar, added, "Together, we can provide merchants with unified end-to-end solutions for B2B and B2C gift card distribution. The combination of our platform and Blackhawk's product breadth and global reach creates innovative new applications for branded value and mobile payments. We couldn't be more excited."

Kaplan will continue to manage the CashStar division, reporting directly to David Jones, General Manager of Digital and Incentives at Blackhawk. Jones said Blackhawk will honor CashStar's existing relationships and corporate culture, and integrate the company's SaaS platforms and organization into Blackhawk.

First-party e-gift growth

The first-party gift card market is valued at more than $100 billion, and digital gift cards are the fastest-growing gift card segment, Blackhawk representatives stated. CashStar's flexible commerce platform provides multiple options and tools to enable retailers to market, sell and distribute first-party digital and physical gift cards to businesses and consumers.

CashStar's roster of retail brands includes Sephora, Starbucks, The Home Depot, Uber and Wal-Mart. Third-party distribution partners include American Express Membership Rewards, Great Lakes Scrip, Maritz Motivation Solutions, MyCokeRewards, Raise.com and United MileagePlus X.

Second, third-party e-gift growth

Gift card sector growth has fueled equally robust secondary markets, according to Brick, N.J.-based CardCash, a gift card marketplace platform established in 2009. CardCash purchased more than $55 million store-branded and general-purpose gift cards in 2013, reselling many at discounts of up to 35 percent. The company added over 100 e-gift resellers between 2014 and 2016, and said 60 percent of all gift card offerings on its website are e-gift cards.

CardCash co-founders Elliot Bohm and Marc Ackerman predict e-gift card sales will reach $14 billion in 2017. The company conducted surveys in 2015 and 2016 and found a 200 percent annual growth rate for digital gift cards, compared to a 6 percent annual rate for physical gift cards. Following are additional survey insights:

  • Top retail brands: 81 percent of leading Internet retailers surveyed offer digital gift cards.

  • Mobile phones: 50 percent of respondents said they prefer to scan digital gift cards from their phone than to carry printed coupons; 53 percent said they would be interested in storing e-cards on their phones.

  • Holiday shopping: 73 percent of shoppers plan to purchase gift cards during the holiday season, with usage trending higher among millennials and people who live on the east and west coasts of the United States.

  • Growing adoption: CardCash found a 22 percent increase in digital gift card transactions in 2016, compared with the previous year's survey.

Coinstar Exchange, a subsidiary of Bellevue, Wash.-based Outerwall, entered the secondary gift card market in 2014, opening approximately 650 self-service kiosks in several western U.S. states. Coinstar General Manager Jeff Dirks said the retail store kiosks provide timely outlets where consumers can exchange unwanted gift cards for cash and shop for new products. end of article

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