GSI Commerce Inc.  has signed a definitive agreement to acquire publicy traded Innotrac Corporation – a provider of e-commerce fulfillment and customer care services.


Innotrac operates eight facilities, including seven primarily used for fulfillment and one primarily used for customer care. The fulfillment facilities are located in Georgia, Illinois, Kentucky, Nevada and Ohio, and the customer care facility is located in Colorado. GSIC sells sporting goods online under licensing agreements with a variety of retailers, including Dick’s Sporting Goods, Joe’s, Modell’s, Olympia Sports, Quiksilver/Roxy, Reebok, Russell, The Sport Chalet and Timberland. GSIC reported sales of $750 million in 2007.

 

As of June 30, 2008 Innotrac had gross property and equipment of $49.9 million and net property and equipment of $17.0 million. The company serves more than 30 clients in the retail, telecommunications and direct marketing industries. Retail clients accounted for the largest percentage of the company’s revenue in 2007 and include leading brands in the apparel, beauty, home, jewelry, entertainment, technology, toys and general merchandise categories. The company’s clients include one of the 10 largest retailers in the United States.

For the trailing 12 months ending June 30, 2008 Innotrac recorded net revenues of $128.2 million, income from operations of $4.5 million and non-GAAP income from operations of $9.1 million. Non-GAAP income from operations equals income from operations plus $0.2 million of stock-based compensation expenses and $4.4 million of depreciation and amortization expenses. As previously announced by Innotrac, these results include contribution from a significant client in the telecommunications category whose fulfillment contract will expire in the middle of 2009 and is not expected to renew.


The addition of Innotrac will increase GSI’s client base and expand GSI’s North American infrastructure and capacity. Following the close of the acquisition, GSI will operate approximately 4.7 million square feet of fulfillment centers and 2,165 call center seats. GSI intends to utilize the company’s Reno, Nev. fulfillment center to begin offering regional fulfillment capabilities to its clients beginning in 2009.


“Innotrac furthers our leadership position in e-commerce and multichannel services by bringing new clients, enhancing our scale for fulfillment and call center services and adding to our available capacity to support growth of new and existing clients,” said Michael G. Rubin, chairman and CEO of GSI. “By acquiring Innotrac we believe we will be better positioned to capture a greater share of our growing market opportunity. This acquisition works for us strategically and operationally and we would expect it to have a positive impact on our financial results in 2009. 


“We are also excited to begin our regional distribution strategy more than one year earlier than we had planned by utilizing Innotrac’s Reno, Nevada fulfillment center. Regional fulfillment will enable our clients to deliver packages to their customers more quickly while saving money on delivery costs. This is a key part of our strategic focus of enhancing the consumer shopping experience.”

Under the definitive agreement, which has been approved by the boards of directors of both companies, GSI will acquire Innotrac for $52 million, consisting of cash of $22 million and shares of GSI common stock valued at $30 million, or 1,841,621 shares at $16.29 per share, the volume weighted average price over the 20 days prior to signing. As of June 30, 2008 Innotrac had net debt of $9.9 million, making the aggregate value of the transaction $61.9 million.


Innotrac shareholders are expected to receive approximately $4.03 per share for each share of Innotrac common stock, consisting of $1.70 in cash and 0.1426 of a share of GSI common stock. The number of shares to be received are subject to adjustment under certain circumstances.


The acquisition is expected to close during the first half of 2009 and is subject to customary and other closing conditions, including the approval of Innotrac stockholders, certain third-party consents, and court approval by the United States District Court for the Northern District of Ohio of a settlement agreement between Innotrac and the court-appointed receiver of the IPOF Fund, L.P., which holds approximately 35% of the outstanding shares of Innotrac. Innotrac’s chairman and CEO, who owns approximately 46% of the company’s issued and outstanding shares, has agreed to vote in favor of the transaction.