Amazon agrees to acquire Kiva Systems

Background

Kiva Systems built robots that help retailers manage inventory and fulfil orders^[2]. The company was founded in 2003 by Mick Mountz, who had previously worked at the online grocery business Webvan^[2]. Before the deal, Kiva served large retailers including Gap, Staples and Saks^[2]. Amazon described Kiva as a leading innovator of material handling technology — the equipment and systems used to move, store and retrieve goods inside a warehouse^[1].

The announcement

On 19 March 2012, Amazon announced an agreement to acquire Kiva Systems^[1]. Under the terms, Amazon would acquire all outstanding shares of Kiva for approximately $775 million in cash, a figure subject to adjustment for the assumption of options and other items^[1]. Amazon said the agreement had been approved by Kiva's stockholders, and that the transaction was expected to close in the second quarter of 2012^[1]. Amazon also said that Kiva's headquarters would remain in North Reading, Massachusetts, after the acquisition^[1].

An announcement of this kind is an agreement, not a completed purchase: the companies set out the price, the approvals already obtained and the quarter in which they expected the deal to close^[1].

Key details

Amazon vice president Dave Clark described the acquisition as another way to improve productivity by bringing products directly to the employees who pick, pack and stow them^[1]. Those three verbs describe the core of warehouse work: taking items out of storage for an order, packing them for shipment, and putting incoming goods back into storage. If goods travel to the worker instead of the worker travelling to the goods, the time spent walking falls.

Mick Mountz, Kiva's chief executive and founder, said the Kiva team had spent the past ten years creating material handling technologies^[1]. The New York Times reported that Kiva builds robots that help retailers manage inventory and fulfil orders^[2], and that the deal ranked as Amazon's second-largest acquisition, behind the $847 million takeover of Zappos.com in 2009^[2].

Why it matters

The size of the transaction can be read from two figures: roughly $775 million in cash^[1], and a rank behind only the Zappos.com purchase among Amazon's acquisitions^[2]. Both point to a company buying capability rather than a single product line.

For a retailer, order fulfilment depends heavily on how goods and people move inside a warehouse. Kiva's business was the machinery and software of that movement, sold to retailers who already ran large operations^[2]. Buying the supplier of that technology, rather than only licensing it, put the capability inside Amazon, while Kiva's headquarters and its existing retail customers were part of the picture the companies described^[1][2].

Amazon framed the purchase in ordinary operational terms — productivity, and getting products to the people who handle them^[1] — rather than as a new business. That framing, together with the price and the second-place ranking reported at the time^[1][2], is what made the announcement notable.