Architect Partners

MasterCash Acquires DataCash

Margaretha Margaretha — Wed, 25 Aug 2010 22:13:16 +0000

MasterCard Acquires DataCash

Transaction Overview

On Aug 19, 2010, MasterCard (NYSE: MA) announced an agreement to acquire U.K.-based DataCash (AIM: DATA) for £333mm, or $520mm in cash based on the current exchange rate.

Target Description

DataCash provides a payment gateway which enables merchants to accept and process payments from consumers online. DataCash’s software authorizes and settles credit and debit card transactions, detects fraud, manages foreign currency adjustments and automates tax calculation. DataCash is the leading provider of payment gateway services in Europe, specializing in the complex, multi-currency, tax and regulatory environment within that region. For example, using DataCash, an Australia-based global airline (who has an account with HSBC) can accept a MasterCard (issued by Banco Santander) payment from a customer located in Brazil. DataCash calculates the purchase in the currency of interest including applicable taxes, and forward this information to Banco Santander, HSBC and MasterCard for processing. In 2009, DataCash processed more than 240mm transactions for more than 1,400 merchants. Founded in 1997, DataCash employs 362 people worldwide with operations in London, Dublin, Mannheim and Cape Town.

Buyer Description

MasterCard is a major payment processor. MasterCard connects a large number of merchants/retailers, customers and multiple financial institutions that provide bank accounts for merchants and issue credit cards to consumers. MasterCard ensures that the payment is transferred, cleared and settled among the multiple parties. MasterCard’s payment card brands include MasterCard, Maestro, and Cirrus, through which MasterCard offers various payment programs including consumer credit, debit and prepaid programs as well as enterprise payment solutions. MasterCard currently offers an e-commerce payment gateway, MiGS, (“Master Card Internet Gateway Service”, in Asia Pacific, Middle East and Africa. Ajay Banga, President/CEO, was the key executive sponsor of the acquisitions.

Transaction Parameters

MasterCard will pay 360 pence/share to DataCash’s shareholders.

Purchase Price $520mm¹

Enterprise Value $492mm²

Enterprise Value Multiples:
Revenue 9.0x³
EBITDA 19.8x⁴

Premium Analyses:
1 day prior 56%
30 day prior 55%

1) Based on £333mm purchase price , or $520mm based on current exchange rate
2) Assuming 12/31/2009 net cash of £17.80mm, or $27.77mm, based on current exchange rate
3) Based on 12/31/2009 TTM revenue of £36.89mm, or $57.50mm, based on current exchange rate
4) Based on 12/31/2009 TTM EBITDA of £16.85mm, or $26.29mm, based on current exchange rate

Strategic Rationale

DataCash brings MasterCard a robust e-commerce payment platform that complements MasterCard’s current e-commerce gateway offering (“MiGS”). DataCash’s European online merchant and financial institutions relationships provide important geographic expansion in Europe and complement MasterCard’s MiGS Asia-Pacific presence. DataCash also brings mobile and e-wallet capabilities which are crucial products for the future.

Architect Partners’ Observation

MasterCard’s acquisition of DataCash further demonstrates the growing importance of online and mobile payments. Recently, Visa made a similar move to bolster its online payment offerings with the acquisition of Cybersource for $2.0b in April 2010. Cybersouce had 295,000 merchant customers and played a role in 25% of all on-line transactions measured by dollars transacted. Visa also paid a very health valuation multiple of approximately 7x revenues and 25x EBITDA.

Resources

Wikipedia’s Definition of Payment Gateway
Yahoo! Small Business “Online Credit Card Payment Processing – How It Works?”
BusinessWeek

M&A Theme: New Shopping Applications Emerge for Mobile and Internet

Margaretha Margaretha — Fri, 20 Aug 2010 19:57:40 +0000

E-tailing used to refer to shopping sites such as Amazon, Zappos or Walmart.com. A whole new class of web sites and mobile applications has emerged that let customers find promotions or search for pricing across local merchants. Most are similar to Groupon, which features a daily deal in major markets (often a 2-for-1 spa offer…). Recently, there has been a flurry of small transactions in this space. Groupon, Tippr and others are currently rolling up regional competitors. More interesting are product-specific applications like Red Laser (acquired by eBay, click here for our eBay/RedLaser M&A Alert) and ShopSavvy, which use barcode scanning to find better deals online and locally.

Facebook Places Logo is a “4″ in a Square!

Margaretha Margaretha — Thu, 19 Aug 2010 22:08:59 +0000

Ok, folks — we try to not fill your inbox with trite industry insider jokes and snarky cat videos, but this one had our whole office in disbelief today. The new logo for Facebook’s Place locations tool is indeed a “4″ in a square! Kudos to Alexia Tsotsis at TechCrunch for noticing this one.

M&A Theme: New Vigor in the Gaming Industry

Margaretha Margaretha — Thu, 19 Aug 2010 21:25:03 +0000

]]>

Mid Year 2010 IPO Market Assessment

Margaretha Margaretha — Wed, 18 Aug 2010 19:21:34 +0000

]]>

IBM Buys Unica

Margaretha Margaretha — Mon, 16 Aug 2010 21:18:06 +0000

Transaction Overview

On Aug 13, 2010, IBM (NYSE: IBM) announced an agreement to acquire Unica (NASDAQ: UNCA, market cap: $448mm) for approximately $480mm.

Target Description

Unica offers a cross-channel marketing analytics and management software for corporate marketers, enabling them to automate and manage their marketing planning and offer a targeted marketed campaign. For example, marketers can use Unica’s platform to track, analyze and predict consumers’ behavior (via various channels such as their web click history, in-store activity or call-center-interaction) and use this information to display relevant web landing pages and send marketing offers that are of most interest to the consumers. In addition, marketers can monitor marketing process, manage marketing budget, or track inventory of marketed items and determine relevant marketing offers based on the inventory level of these items. Clients include Best Buy, ING, Monster, eBay and Starwood. Unica’s platform has won multiple industry awards, including Gartner’s Leaders Quadrant for CRM Multichannel Campaign Management, Gartner’s Magic Quadrant for Marketing Resource Management and Forrester Research’s Leader in Cross Channel Campaign Management. Based in Waltham, MA, Unica has 1,500 customers, and 500 employees who will join IBM’s Software Solutions group upon acquisition.

Buyer Description

IBM provides a broad array of hardware, software and services to business customers. IBM’s software offerings span across many categories and are generally oriented toward helping large and medium-sized businesses run their businesses more efficiently. The sponsoring organization, IBM’s Business Analytics and Optimization Consulting, lies within IBM’s Solutions Group, has 5.000 consultants and made $11b acquisitions in the last five years. Earlier this year, IBM’s CEO, Sam Palmisano mentioned IBM is planning to spend about $20b on acquisitions in the next five years. Craig Hayman, GM of Industry Solutions was the key executive sponsor of the acquisition.

Transaction Parameters

IBM will pay $21/share to Unica’s shareholders.

Purchase Price $490mm¹

Enterprise Value $447mm²

Enterprise Value Multiples

Revenue 4.1x³
EBITDA 44.4x⁴

Premium Analysis

1 day prior 120%
30 day prior 108%

1) Based on 21.5mm outstanding common shares and 2.5mm outstanding stock options
2) Assuming 6/30/2010 net liabilities of $42.8mm
3) Based on 6/30/2010 TTM revenue of $109.19mm
4) Based on 6/30/2010 TTM EBITDA of $10.08mm

Strategic Rationale

This transaction highlights IBM’s continued effort to bolster its online marketing and analytics solutions offerings. Unica brings a marketing platform that enables corporate marketers to collect and analyze consumers’ preferences and behavior and use the data to execute an efficient and targeted marketing action. Unica’s marketing platform capabilities also complement IBM’s other marketing-oriented offerings via their recent acquisitions of Sterling Commerce (an e-business platform provider) in May 2010 for $1.4b and Coremetrics (a web analytics provider) in July 2010, both of which lie under IBM’s Software Solutions group.

Architect Partners’ Observation

IBM is clearly seeking to assist enterprises’ needs to track and analyze marketing data and to quickly act upon these data. MediaPost wrote an insightful article about this transaction and discussed key drivers. Below are two drivers that are mentioned, with some of our additional thoughts/observations:

1) As Yuchun Lee (Unica’s CEO and Co-Founder) mentioned, companies are now focused on increasing the effectiveness of their marketing campaign, via data, measurement and analytics, instead of increasing marketing budgets. Mr. Lee stated that companies are spending about $3 trillion annually on online and offline marketing, much of which could use vastly improved assessment of effectiveness.

2) The explosion of internet-enabled devices has driven the rapid growth of interactive marketing (including mobile, email, social media, search and display), further enabling consumers to choose to be approached by marketers and/or share their needs and preferences online. This necessitates effective marketing data collection, analytics and measurement that are well coordinated between multiple channels (online and offline) in order for marketers to understand consumers’ needs and deliver a relevant marketing campaign that is efficient. Forrester projects interactive marketing to increase from $25b today to $55b in 2014.

Resources

IBM Press Release

MediaPost

Adobe Acquires Day Software

Margaretha Margaretha — Fri, 13 Aug 2010 22:14:05 +0000

Transaction Overview

On July 28 2010, Adobe (NASDAQ:ADBE) announced an agreement to acquire Day Software Holdings AG (SIX Swiss Exchange:DAYN) for Swiss francs 255mm, approximately $240mm based on the current exchange rate.

Target Description

Day Software offers a web content management system (“CMS”) enabling companies to manage and deliver digital content of their websites or web-based applications. For example, a chain hotel could use Day’s platform to receive customers’ reservation requests via an online form, inform the customers of room availability and complete the reservation/payment online. Day’s product capabilities include an online web authoring platform (which enables enterprises to create and manage website via a simple drag-and-drop functionality) and an online content management system (which enables enterprises to store, search, discover, edit and distribute digital content such as photos, videos and digital images). Day also offers content analytics allowing enterprises to segment customers’ profiles, enhance keyword effectiveness, maximize online lead generation and offer personalized online content. Clients include Audi, Volkswagen, General Motors, MTV Networks, Intercontinental Hotels Group and McDonald’s. Day was founded in 1993 and is headquartered in Basel, Switzerland with an additional office in Boston, MA. Upon acquisition, Day’s CEO, Erik Hansen, will join Adobe, reporting directly to Rob Tarkoff, Adobe’s SVP/GM of Digital Enterprise Solutions Business Unit.

Buyer Description

Mainly known for its digital authoring applications such as Flash, Photoshop, Illustrator and Dreamweaver, Adobe (NASDAQ:ADBE, Market Cap: $15b) also offers a variety of enterprise-oriented solutions. Among them, contained in the Enterprise Solutions Business Unit, are Livecycle (an enterprise content management system), Acrobat (an application that enables document sharing and authentication), and Connect (a collaboration platform which enables web conferencing, e-learning and web seminars). The key executive sponsor of the acquisition was Rob Tarkoff, SVP/GM of the Digital Enterprise Solutions (“DES”) business unit.

Transaction Parameters

Adobe will pay Swiss francs 139 /share to Day Software’s shareholders.

Purchase Price $240mm

Purchase Price Multiples

Revenue 5.7x¹
Net Income 48.1x²

Premium Analysis

1 day prior 32%
30 day prior 58%

1) Based on TTM revenue of Swiss francs 44.4mm, approximately $41.8mm based on current exchange rate
2) Based on TTM net Income of Swiss francs 5.3mm, approximately $5.0mm based on current exchange rate

Strategic Rationale

Adobe is taking very clear steps to substantially broaden its core capabilities. Historically known as the de facto standard for content creator tools, Adobe’s acquisition of Day demonstrates the increasingly important link between digital content (design/layout/text/photos/web) and web-based applications and robust websites. Day’s products help create digital content-driven websites and applications and also manage the content within such applications/sites. Adobe’s recent acquisition of Omniture also complements this strategy, directly building important analytic and monetization capabilities.

Architect Partners’ Observation

Adobe’s Digital Enterprise Solutions group has historically been a stepchild within Adobe, generating only something on the order of 1% of total Adobe’s revenues. The acquisition of Day clearly fits with the DES unit customer base. We’re impressed with Adobe’s thoughtful, strategic and deliberate M&A efforts recently.

Resources

CMSWire Report Part I

CMS Wire Report Part II

Google Acquires Slide

jshieh — Mon, 09 Aug 2010 17:42:10 +0000

Transaction Overview

On August 6^th 2010, Google announced that it has agreed to purchase Slide, a social games and applications developer, for a reported amount of $228mm.

Target Description

Slide is a developer of games and applications published on social networking sites including Facebook, MySpace, Hi5, Bebo and Orkut. Games include Superpoke Pets, SSP Ranch, TopFish and Superpocus Academy of Magic. Applications include FunSpace (which enables social networking members to share, view and discover online photos, music, videos and slideshows), TopFriends and SuperPoke (both of which enable social networking members to interact online with their friends such as buying/sending drinks/gifts or taking quizzes). Slide has 27mm monthly unique users. In August 2010, AppData reports that Slide has 20m Facebook users. Slide has received four rounds of funding totaling $78mm from BlueRun Ventures (John Malloy), The Founders Fund, Khosla Ventures (Vinod Khosla), Mayfield Fund (Allen Morgan), T. Rowe Price and Fidelity Investments. The most recent round of funding was $50mm in January 2008 from Fidelity and T. Rowe Price at a $500mm valuation. At the time, the company had revenues of between $10mm and $12mm. San-Francisco-based Slide was founded in 2005 by the former co-founder of PayPal, Max Levchin, who will be joining Google upon acquisition.

Buyer Description

Google has recently been shifting its focus toward social networking. Prior to their acquisition of Slide, Google had invested between $100mm and $200mm in Zynga, reportedly the largest social games developer. Other recent social networking initiatives by Google include the recent launch of Buzz (a social networking feature integrated with Gmail, allowing Gmail users to follow other users via Twitter and to share their Picasa pictures, Google News Feed Readers or YouTube videos). There are rumors that Google is working on Google Me. Speculation is that Google Me will be integrated to Google’s Profile and mimick Facebook’s news feeds. It allows users to automatically stream and generate status updates and new photos. David Glazer, Engineering Director, wrote the official Google blog post on this transaction.

Transaction Parameters

The $228mm transaction includes $46mm in employee retention bonuses. In spite of the sale of Slide far below the valuation on the last round of financing, no investor is reported to have lost money from this transaction thanks to liquidation preferences. In 2009, 75% of Slide’s revenues were from the sale of virtual currency. Slide has also reportedly been working on a platform that allows its users to create and sell their own virtual goods.

Strategic Rationale

This acquisition is clearly about bolstering social gaming capabilities and acquiring a very strong team who understands social media. Interestingly, Google also recently made a substantial investment in Zynga, the leading social game publisher, showing Google’s multi-pronged social gaming strategy.

Architect Partners’ Observations

It appears that Google’s main interest in social networking is to enrich Google’s search and advertising platform, instead of providing a social networking service, that would compete directly with incumbents like Facebook. Google’s Eric Schmidt recently noted that 1) social information enhances its search results, and 2) its interest is in hosting, rather than creating, games and entertainment. Eric Schmidt also mentioned that Google will not create a competitor to Facebook and declined to confirm the development of a social networking service that would incorporate social games. According to WSJ.com, Google has been in discussions with a number of social gaming companies including Zynga, Electronic Arts and Playdom to build a gaming platform to capture advertising dollars that have been flowing to social networks such as Facebook. At the moment, Google has not yet announced detailed product plans. We will be watching closely to see how Slide folds into Google’s social gaming / social network offerings.

Resources

Google Official Blog “Google and Slide Building A More Social Web”
TechCrunch “Google Buys Slide $182mm Getting More Serious About Social Games”
NYT “Google Acquires Slide, Maker of Social Apps”
Business Insider ”Slide Onto Its Second Office, Fifth Business Model
TechCrunch “Here’s What Everybody Made From The Slide Sale”
WSJ.com “Google Develops a Facebook Rival”

NTT DoCoMo acquires PacketVideo

jshieh — Tue, 03 Aug 2010 02:01:02 +0000

Transaction Overview

On August 2 2010 NTT DoCoMo announced that it has acquired PacketVideo Corporation from NextWave Wireless (NASDAQ Pink Sheets – NEXT).

Target Description

PacketVideo markets three media delivery products: Core, Media Fusion and Twonky. Core is a video and music player that is integrated into mobile phones, allowing them to stream and play downloaded media regardless of underlying format. Media Fusion allows mobile carrier and handset vendors to create easy-to-navigate content access and management applications, allowing users to discover new, and access existing, music, video, photo’s and other media. Twonky allows consumers to stream media across various connected home entertainment and media storage devices as well as to their mobile phone and vice-versa. Major customers include Verizon, NTT DoCoMo and Google who were 37%, 23% and 10% of calendar year 2009 revenues, respectively. PacketVideo was founded in 1998 and was acquired by NextWave Wireless in 2005 for $46.6mm.

Buyer Description

NTT DoCoMo is Japan’s largest wireless services provider with 56 million customers with subsidiaries in Asia, Europe and North America. NTT DoCoMo was one of the first wireless carriers to introduce 3G coverage and is expecting to roll out LTE 4G services across Japan in December of 2010. The company is based in Tokyo, Japan and has 22,000 employees. Their market capitalization as of August 2 2010 was $67 billion.

Transaction Parameters

NTT DoCoMo announced that it would pay $111.6mm in cash for the remaining 65% interest in PacketVideo that it didn’t already own, implying a total equity value of $171.7mm. Based on SEC filings by NextWave Wireless, PacketVideo generated $61.2mm in revenues for the trailing twelve month (TTM) period ending March 30, 2010, translating into an equity value / TTM revenue of 2.8x. Given the complexity inherent within NextWave Wireless’ disclosed financial statements resulting from it’s major restructuring, it isn’t clear as to the profitability of the stand-alone PacketVideo business at this time.

NTT DoCoMo had previously acquired a 35% stake of Packet Video from NextWave Wireless in July 2009 for $45.5mm (implied equity value of $130mm and an equity value / TTM revenue multiple of 2.0x).

Similar recent transactions which focus on content delivery to mobile devices include HP’s acquisition of Melodeo ($30mm – $35mm) and Google’s acquisition of Simplify Media.

Strategic Rationale

NTT DoCoMo has shipped over 400mm mobile phones across 100 handset models which integrated Packet Video CORE technology. NTT DoCoMo plans to utilize PacketVideo’s technology to increase mobile media services on handsets and create new service which allow customers to link their mobile devices with home media devices.

Architect Partners’ Observations

When NTT DoCoMo acquired the 35% stake in PacketVideo, they also negotiated the right acquire additional ownership and received a call option exercisable under certain conditions to purchase the remaining shares of PacketVideo at an appraised value. This type of structure is fairly common in situations where a strategic investor acquires a meaningful minority interest and has negotiating leverage. As a rule these types of agreements tend to heavily favor one party, generally the seller, materially constrain the ability of the seller to attract other prospective acquirers and tend to be detrimental to maximizing value.

Resources

Press Release

MocoNews article about the acquisition

Delayed but Now Departing: The eLearning Train

Margaretha Margaretha — Thu, 29 Jul 2010 20:35:54 +0000

Our partner, Bob Austrian, has long helped investors understand and invest in long-cycle trends, and watch the secular themes promptly unfold. Or not! Timing is everything — An investment made too early in an eventual “overnight success” is doubly problematic. You lose your initial investment and credibility– and, worse, lose the conviction to invest when the chasm is finally crossed. So today, after years of watching the promise of digital learning go almost entirely unfulfilled, Bob’s declaring it time to place our bets. The eLearning train is finally leaving the station; better late than never: all aboard!

55 million American children attend kindergarten through 12^th grade taught by seven million professional educators. This translates into well over $500 billion in annual spending, with frankly dubious educational outcomes. University and post-graduate education adds another layer and continuing education and government and corporate training frost this trillion-dollar cake.

Certainly, computerized filing systems and administration platforms do help organize many educational institutions from an operational perspective. Yet these learning “management systems” deliver roughly zero innovation around actual teaching methods that educators use either in the classroom or beyond. Despite Moore’s Law, not much has changed regarding the methods of instruction and learning, not in 6th grade math or in sales training for multinational corporations. Recently, at lunch with one of the top professors in the U.S., recollections of overhead transparencies and grease pencils only underscored the fact that smart boards and PowerPoint haven’t really changed much of teachers’ craft. Ditto the video recording and broadcast of the lecture: same content, new channel.

However, against this backdrop, the brute force of innovation seems finally to be breaking through, enabling an entirely new methodology that leverages what technology can bring to the table in terms of improved educational outcomes. The value of “tools” ranging from online game competitions to programmable e-books has simply become too compelling. Headway in (i) wireless bandwidth fused with effective data synchronization, (ii) students’ demand for learning methods more compatible with their social media oriented upbringing, and (iii) administrators’ urgent requirements for less costly, more scalable educational systems are just three of a multitude of contributors breaking us free of an antiquated, staid approach.

This is simply a preamble to additional thoughts and observations which may become a digital learning centerpiece with a 10-year shelf life. The 10-year window starts now: the eLearning train is finally leaving the station.