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‘Commerce-as-a-Service’ Platform Goes Public in $646 Million SPAC

E-commerce software provider Nogin is going public through a SPAC, or special purpose acquisition company, after merging with Software Acquisition Group Inc. III (SWAG III). The deal would give the platform provider to Modcloth and Justice an enterprise value of $646 million, and raises up to $191 million in cash to fund its growth.

The combined company will be named Nogin, Inc. and is expected to remain listed on the Nasdaq under the new ticker symbol “NOGN” when the transaction closes, expected in the second quarter of 2022.

Nogin provides brands and merchants such as Kenneth Cole with what it calls a “Commerce-as-a-Service” (CaaS) platform designed to reduce the complexity associated with scaling an online business, enabling users to focus on their core strengths of product development and branding. Nogin’s full-stack enterprise technology capabilities include storefront, order management, catalog maintenance, fulfillment, returns management, customer data analytics and marketing optimization.

With the CaaS platform, businesses can build their e-commerce presence at scale without having to purchase, implement, manage, optimize, or support any of the underlying infrastructure. The Nogin Intelligent Commerce Platform is built to deliver the technology, R&D, and optimization for merchants to keep pace with top retailers without much of the added capital costs, technical staff, time and risk of doing it themselves.

The service is typically set up in one to three months, the company said, which is quicker than the four-to-six-month average needed for small businesses to develop a storefront on BigCommerce or Shopify. Nogin aims for clients to launch a profitable website within 90 days.

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The company is going public based on e-commerce’s continued projected growth. Citing eMarketer data, Nogin said 85 percent of U.S. retail in 2021 (an estimated $5.2 trillion) is projected to be conducted without e-commerce, representing a “large underpenetrated market” for the business.

So far, Nogin serves a range of industry verticals in apparel, footwear, accessories, consumer goods, and beauty/wellness. Nogin runs the e-commerce operations of Bluestar Alliance brands Hurley and Bebe, and has powered the platforms of brands including, True Religion, Yeezy and Charming Charlie.

“There is a large market opportunity for merchants who need world class e-commerce sophistication, but either lack the expertise, capital and personnel to manage it all or would just prefer to plug into a ‘Commerce-as-a-Service’ platform,” Nogin co-founding CEO Jan Nugent stated in an investor presentation. “Our merchants tend to be highly recognized brands which has created a wonderful referral asset for us, as well as helps shorten sales cycles due to the trust we garner in the marketplace. We have built the company organically without a ton of outside capital, so we look forward to the additional growth that will come from more heavily funding our sales and marketing.”

The open-source Intelligent Commerce platform is one of four products that Nogin offers, but serves as its flagship service, including both a customer data platform (CDP) and an artificial intelligence data pool across all endpoints for superior customer knowledge and future predictive commerce.

Intelligent Commerce leverages data from more than 1 billion customer interactions to create smart algorithms around discounts and markdowns, shipping, traffic, fulfillment and returns, freight, and customer service that brands can use to drive ROI outside of the online storefront. By testing, tracking and tagging, the software can determine the impact of implementing new strategies for clients, and allows them to gain insights into what impacts margins and uncover areas for improvement.

Nogin also includes the Smart Marketer marketing automation tool for crafting paid search and paid social campaigns, the Smart Ship order storage and fulfillment solution and the Smart Pay payment processing and subscription management function.

Depending on the retail partner, Nogin takes a base of five to 20 percent of the seller’s gross merchandise value (GMV) as its revenue. Brands who use the platform to manage their shipping and paid media such as Facebook or Google may spend another 10 to 20 percent in pass-through costs for those services. From 2019 to 2021, Nogin said it actively grew GMV by 50 percent per year.

Revenue for the nine months ended Sept. 30, 2021 increased by $26.2 million or 90.2 percent from the 2020 period to $55.2 million. However, in 2021, Nogin purchased stock from select clients to assist them with managing inventory through the Covid-19 pandemic in order to continue marketing and selling the particular brand of products. The inventory purchase was a unique situation in 2021 that the company does not anticipate continuing after it finds a buyer to distribute the inventory.

For the full 2021 year ended Dec. 31, Nogin said revenue reached approximately $67.9 million, up roughly 49.4 percent from the 2020 total of $45.5 million. The company ended the profitable year with $5 million in adjusted EBITDA in 2021.

Nogin says its net revenue retention rate, which has remained at 105 percent in 2020 and the 12 months ending September 2021, was consistently over 100 percent in the preceding years. This implies overall growth in revenue from clients that were already generating revenue on the CaaS platform prior to that period.

Currently, the company has an estimated lifetime value to customer acquisition cost ratio (LTV:CAC) of greater than 10X in 2021. On average, contract value per client is approximately $2 million.

This is why Nogin is even more bullish about its prospects going forward, expecting 58 percent year-over-year revenue growth to $107.2 million in 2022, and an even larger leap of 64 percent to $175.8 million in 2023. In turn, the company expects adjusted EBITDA to increase to $6.3 million in 2022 and then $32.8 million in 2023. Nogin expects to drive a 61 percent adjusted compound annual growth rate over the next two years, supported by current business opportunities as well as sales, marketing and global expansion across multiple verticals.

The net proceeds from the transaction will be used as working capital to support continued growth and to repay existing debt.

As of Sept. 30, 2021, Nogin had cash and cash equivalents of $4.4 million, and has $5 million due on its line of credit as of Sept. 30, 2021.

Nogin shareholders will roll 96 percent of their existing equity holdings into the combined company and are expected to own approximately 67 percent of the combined company on a non-fully diluted basis immediately following the closing.

Throughout the merger and go-public process, Stifel Financial Corp. is serving as exclusive strategic and financial advisor to Nogin, and Latham & Watkins LLP is acting as Nogin’s legal counsel.

Gateway Group is acting as investor relations advisor to Nogin, and Jaffe Communications is acting as its public relations advisor. Jefferies LLC is serving as exclusive financial advisor and capital markets advisor to SWAG III, and Kirkland & Ellis is acting as SWAG III’s legal counsel.