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Friday, February 17, 2017

Investor Group Completes $520 million Acquisition of Blue Nile

An investor group comprised of Bain Capital Private Equity, Bow Street and Adama Partners completed the acquisition of online diamond and jewelry retailer Blue Nile Friday, paying $40.75 per share in cash. A Securities and Exchange Commission document said the total amount paid for the Seattle-based company was $520 million.

The transaction was first announced on Nov. 7, 2016, and was approved by Blue Nile's shareholders on February 2. Trading in Blue Nile’s common stock on NASDAQ will end February 21.

“Blue Nile has disrupted and transformed the way consumers shop for and purchase diamonds and fine jewelry by creating price transparency while simultaneously providing value to suppliers,” said Blue Nile Chairman, CEO and President Harvey Kanter. “As we enter the next phase of growth, Blue Nile will continue to expand our vision and focus on putting the customer first by reaching them the way they prefer to shop whether it's a computer, mobile device, or in one of our Webrooms.”

Blue Nile was founded in 1999 by Mark Vadon after he had a less than satisfying experience shopping for a diamond engagement ring through traditional retail routes.

The company was created during the infancy of the Web with the premise that choosing an engagement ring can be a simple process and can be done online. Education and disclosure helped consumers make informed decisions when choosing a diamond engagement ring.

Within 10 years it became one of the largest diamond and diamond engagement ring retailers in the U.S. and one of the early high-growth eCommerce darlings.

The company has an inventory of more than 200,000 diamonds with grading reports from the Gemological Institute of America or the American Gem Society. They can be paired with more than 200 settings. The overall result is that, according to company officials, Blue Nile provides more options and sells their jewels for less than traditional retail jewelers.

Since its founding the company says it has served more than 1.7 million customers and sold more than 1 million engagement rings and wedding bands, combined.

However, 18 years later Vadon is no longer with the company, and more recently it is showing signs that its robust growth in the U.S. is waning (The company sales are growing at a strong pace at its two international hubs in Europe and China). On the same day the acquisition was announced, Blue Nile released its third-quarter earnings report, which showed a year-over-year net sales decrease of 4.3 percent to $105.1 million for the period ended Oct. 2, 2016.

However, in a statement the new investors believe there is still room for growth. 

“Blue Nile is a unique business with a strong platform in an industry that is rapidly evolving and migrating online," said Ryan Cotton, a managing director at Bain Capital Private Equity.  "We are excited to … help Blue Nile continue to lead the transformation of the customer purchase experience in engagement rings and fine jewelry.”

In an October interview, Katner told me that he too believes there is plenty of room to diversify and grow in the U.S. and abroad. In the U.S., while Blue Nile is by far the largest Internet diamond jewelry retailer in the U.S. (and the world) with 50 percent of the market, he believes it has only 5 percent of the overall jewelry market. 

To capture more market share, Katner said the company is working to enhance their mobile capabilities, reach consumers through retail outlets, known as Webrooms, and enhance how it digitally displays their products. 

Blue Nile Webroom Roosevelt Field Mall

“Today’s consumer or the millennial consumer really requires choice,” he said in October. “The way we look at our business, it is no longer an eCommerce business or an Omni-channel business. It’s a business about commerce,” he said in October. “We believe that as we continue to engage the millennial customer, we can get more people to have the trust and confidence, and understand all of the benefits of buying from someone like Blue Nile online. The Webroom is an example of that. Enhancements to the phone or tablet or PC, which is ultimately the digital experience, are examples of that. Those are all important elements that actually accelerate our business.”

BofA Merrill Lynch served as exclusive financial advisor to Blue Nile, and Wilson Sonsini Goodrich & Rosati served as its legal advisor. Goldman Sachs & Co provided debt for the transaction, and Kirkland & Ellis LLP served as legal advisor to the Investor Group. 

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