Architect Partners

GREE Acquires Funzio

Margaretha M — Tue, 08 May 2012 13:00:59 +0000

Author: Tom Brehme

Transaction Overview

On May 1, 2012, GREE (Tokyo Stock Exchange: 3632, market cap: $6.2b) announced the acquisition of Funzio for $210mm in cash.

Target Description

Funzio develops mobile social role-playing cross-platform games for Android and iOS. Funzio’s game titles include “Crime City,” “Modern War,” (both earned the second highest ranking in the App Store’s top grossing games in the U.S ) and “Kingdom Age” (gained more than 1 million users in its first five days on the App Store), all three of which were in the top 25 grossing apps on the Apple’s appstore and had 20 million total downloads across social networking sites such as Facebook and Google. Founded in 2009, San Francisco-based Funzio has raised $20mm in funding from IDG Ventures (Philip Sanderson) and Playdom Co-Founder, Rick Thompson. Upon close of the acquisition, Funzio’s officers and founders will join GREE’s San Francisco development studio. Ken Chiu (CEO) and Anil Dharni (COO) will join GREE as Senior Vice Presidents. Ram Gudavalli (CTO) and Andy Keidel (VP, Engineering) will join as Vice Presidents. Funzio’s VP of business development, Jamil Moledina, worked with GREE’s SVP of corporate development, Shanti Bergel, at EA before both of them left for GREE and Funzio.

Buyer Description

GREE is a leading mobile social game company. GREE develops mobile social games and operates the largest mobile social game platform in Japan which lets users play social games and engage with social entertainment, lifestyle and commerce applications. In April 2011, GREE acquired OpenFeint for $104mm, a U.S.-based social gaming platform. GREE also announced its plans to plans to double its U.S. headcount with 100 new hires over the course of 2012 and aims for 1 billion users worldwide in three to five years. GREE’s network now reaches 190mm players and offers >7,500 game applications. In March 2012, GREE’s U.S.-based studio released its first mobile social game “Zombie Jombie”. GREE plans to launch a new global gaming platform in the second quarter of 2012.

Transaction Parameters

GREE will pay $210mm in cash. TechCrunch reported that prior to the acquisition, Funzio was in the market to raise $50mm at a $350mm pre-money valuation and had also been talking to various buyers in an auction-style process.

Purchase Price: $210mm

Multiple of Invested Capital ($20mm) 10.5x

Multiple of downloaded games (20mm): 10.5x

Other recent gaming transactions in the past year include Zynga’s $180mm acquisition of OMGPOP in March 2012, EA’s $1b acquisition of PopCap in July 2011, Perfect World’s $50mm acquisition of Atari’s Cryptic Studios in May 2011 and TenCent’s $350mm-$400mm acquisition of Riot Games in February 2011.

Strategic Rationale

Funzio provides GREE with a number of very successful titles in the mid-core segment of the market (which typically generates higher ARPU than traditional casual social games) and significantly bolsters GREE’s in-house game development capabilities in the United States. Funzio also brings a strong management team to oversee and grow GREE’s U.S. game development operations. Importantly, Funzio complements OpenFeint, the mobile social game platform which GREE acquired last year, and its titles will serve as anchor tenants in the U.S. for GREE’s upcoming global gaming platform. Aiming for 1 billion users, GREE’s global gaming platform will provide mobile game developers with global reach, cross platform publishing capabilities, social tools, a global payment system, analytics, and other monetization capabilities – all services required by developers to distribute, market and monetize their games worldwide.

Architect Partners Observations

We are still in the early innings of the smart phone-based mobile gaming sector and expect that the battle of the industry titans will continue. Established players, including: Zynga, Electronics Arts, Disney, TenCent, GREE, DeNA, etc. have recently made strategic acquisitions and will continue to make selective acquisitions for the purpose of acquiring genre expertise, geographic & platform presence, technology and scale.

Resources

GREE Press Release
OMGWHAT? GREE Acquires Mobile-Social Game Developer Funzio For $210M
GREE acquires mobile game maker Funzio for $210M
Announcement of Acquisition of Funzio
GREE’s Presentation on Funzio Acquisition
Mobile Gaming Startup Funzio Is Raising $50M At A $350M Valuation

Intuit Acquires Demandforce

Margaretha M — Tue, 01 May 2012 15:12:11 +0000

Author: Eric Risley

Transaction Overview

On April 27, 2012, Intuit (NASDAQ: INTU, market cap: $17b) announced its acquisition of Demandforce for $423.5mm in cash.

Target Description

Demandforce develops a SaaS-based application that allows local small businesses to automate and manage their marketing and customer communications. Customers include classic local businesses such as automotive repair, dental and medical care, professional services, home services, pet care, spas and salons. Capabilities include 1) managing various forms of local marketing via digital channels such as email, SMS text and social media, 2) enabling day-to-day communications with customers such as appointment scheduling and reminders and billing and 3) managing and appropriately disseminating important business profile information and customer reviews to services such as Yelp, CityGrid Media, Facebook, YellowPages, Bing and Google. Demandforce charges its local merchant clients a monthly subscription fee which generally ranges between $200-$300 per month.

Demandforce serves more than 35,000 local businesses. Founded in 2003, Demandforce is based in San Francisco and has raised $11.8mm in funding from Benchmark Capital (Bill Gurley), FLOODGATE (Mike Maples) and Palo Alto Venture Partners (Peter Ziebelman). Upon close of the acquisition, Demandforce’s 300 employees will join Intuit and will become a new division within Intuit’s small business group and will continue to be led by Demandforce’s founder, Rick Berry, who will report to Intuit’s SMB General Manager, Kiran Patel.

Buyer Description

Intuit provides a variety of technology solutions to individuals and small businesses. Intuit is historically known for its accounting and payroll products for small businesses such as Quickbooks, TurboTax, Quicken. More than 60% of Intuit’s revenue is generated from online and mobile services (driven by products including TurboTax online and GoPayment). Recently, Intuit has focused on expanding its online/mobile product offerings for small businesses. In April 2012, Intuit acquired AisleBuyer, a mobile commerce platform for small businesses. The acquisition of Demandforce is the largest in Intuit’s CEO Brad Smith’s tenure.

Transaction Parameters

Intuit will pay $423.5mm in cash. Demandforce reported 80% year-over-year in revenue growth for calendar year 2011.

Enterprise Value: $423.5mm
EV/2011 Revenue (a): 15.1x

a) Architect Partners estimates Demandforce’s 2011 revenues at approximately $28mm. Inc reported Demandforce’s 2010 revenue at $15.3mm and Demandforce disclosed that revenues have been growing at an 80% annual rate.

Recent comparable M&A includes SaaS application vendors such as SAP’s acquisition of SuccessFactors for $3.5 billion (12.0 times revenue) and Oracle’s purchase of RightNow Technologies for $1.5 billion (7.0 times revenue) and Taleo for $1.8 billion (5.7 times revenue).

Somewhat comparable local commerce M&A transactions include Green Dot’s $43mm acquisition of Loopt in March 2012, SingTel’s $321mm acquisition of Amobee in March 2012, Home Depot’s $80mm acquisition of Red Beacon in January 2012 ad Constant Contact’s acquisition of Cardstar in January 2012.

The transaction is expected to add one to two percentage points to Intuit’s revenue growth in FY 2013 and to be neutral to modestly dilutive for EPS in FY 2012 and FY 2013.

Strategic Rationale

Intuit has long served the needs of small businesses. Demandforce provides Intuit with a well established and broad product offering to address the digital marketing and customer support needs of a wide variety of local merchants and service providers.

Architect Partners’ Observations

Demandforce has developed an impressive set of product capabilities to serve the needs of real-world local merchants and service providers. Their value proposition is well demonstrated by their customer count of 35,000 businesses.

This is a very important transaction in our minds for several reasons. First, Demandforce has clearly demonstrated that it is quite viable to sell to and serve local merchants and service providers in spite of the challenge of a dispersed customer base and low average per customer revenue. Second, Demandforce’s product offering provides for a variety of needs of local merchants and service providers which we see as an increasingly necessary differentiator in a market saturated with point products. Third, Intuit’s move brings a whole new level of legitimacy to the local solutions market and will likely be an important catalyst to additional strategic moves by others.

Again, one of the most important lessons learned here is that companies are most often acquired by those that already know them well. Demandforce and Intuit have been building both business and personal professional relationships for some time.

Sources

Benchmark Capital’s Bill Gurley’s Blog Post
Intuit Acquires Marketing SaaS Company Demandforce For $423.5M In Cash
Intuit’s Demandforce purchase: A strategic game changer?
Intuit to acquire Demandforce for $424m; SaaS for SMBs
Intuit: Acquisition Of Demandforce Is Useful But Expensive Addition
SaaS Stays Hot, Investors Score With Intuit’s $423.5M Demandforce Buy
Intuit Pays Up For SMB-Focused Demandforce
Architect Partners’ Local Commerce M&A Snapshot

VC-Backed M&A Snapshot

Margaretha M — Thu, 19 Apr 2012 15:00:18 +0000

Last week, we published our analysis on the Q1 2012 M&A activity in the Internet | Mobile | Digital Media sectors. Today, we also take a closer look at the Q1 2012 VC-backed M&A activity. Our analysis is below.

Intuit Acquires AisleBuyer

Margaretha M — Wed, 18 Apr 2012 01:05:51 +0000

Author: Steve Payne

Transaction Overview

On April 10 2012, Intuit announced its acquisition of AisleBuyer LLC.

Target Description

AisleBuyer has developed a mobile commerce platform and shopping applications that allow retailers to offer consumers a better in-store experience while collecting valuable data on buying habits. AisleBuyer offers solutions for retailers, restaurants and brands. AisleBuyer’s mShop is a mobile self-checkout app that allows shoppers to scan a UPC barcode in the store (using a smartphone camera), see customer reviews and ratings and pay for a product with a credit card without having to stand in line at a register. AisleBuyer’s mClerk POS app enables store associates to assist shoppers with mobile inventory search and product navigation as well as mobile checkout. The AisleBuyer mDine app streamlines ordering in restaurants. The first “powered by AisleBuyer” shopping app was for Magic Beans, a Boston-area toy and baby gear store. Then last year, AisleBuyer announced a partnership with Big Y, a Springfield-based supermarket, to use AisleBuyer mShop to power its mobile shopping application, which allows shoppers to scan barcodes to view and compare product and nutrition information, access customer reviews and receive personalized coupons and offers. Competitors in the mobile shopping assistant space include ShopSavvy, and GlobalBay Mobile (which was acquired by VeriFone) is a competitor in mobile POS.

Founded in 2009, AisleBuyer is headquartered in Boston, has 7 employees and has raised $11.5mm in funding from Old Willow Partners. Andrew Paradise, AisleBuyer’s CEO, met with Chris Hylen, Intuit’s Head of Payment Solutions, last October. After the conversation, AisleBuyer began a pilot test with Intuit’s customers, integrating AisleBuyer with Intuit’s software products. On April 10, Paradise blogged that AisleBuyer would be joining with Intuit’s payments group to develop mobile small business POS solutions.

Buyer Description

Mountain View, California-based Intuit is a $4 billion company that provides a variety of software solutions to individuals and small businesses. Intuit is mainly known for its bookkeeping and tax preparation products for small businesses such as QuickBooks, TurboTax and Quicken. Intuit also offers a variety of payment services including QuickBook Merchant Services, which allows small businesses to accept credit cards without a POS terminal. Recently, Intuit launched GoPayment for small businesses, a Square-like mobile credit card app and reader.

Transaction Parameters

Intuit did not disclose details of the transaction, but Bostinno.com reported that the purchase price was in the $80-100 million range. AisleBuyer is a private company and does not disclose revenues.

Other comparable transactions include VeriFone’s acquisition of Global Bay (mobile retail software platform) in November 2011, Raymark’s acquisition of Retaligent (mobile handheld POS and kiosk clienteling solutions) in May 2011 and PayPal’s acquisition of Fig Card (mobile POS payment solution) in April 2011.

Strategic Rationale

Intuit offers a full range of payment solutions for small business, and the AisleBuyer acquisition strengthens their position in mobile payments and point of sale (POS) solutions for retailers.

Architect Partners’ Observations

The reported purchase price of $80+ million is above the norm for companies with only a handful of customers and, presumably, nominal revenues.

It is not clear whether mShop, the consumer shopping app, will be continued. AisleBuyer apparently developed the first two retailer-specific apps and then announced a SDK for other retailers to develop their own customized apps leveraging the AisleBuyer platform. This points to the challenge of whether to serve the consumer (like ShopSavvy) or the retailer (like AisleBuyer and Shopkick).

We expect Intuit to use this acquisition to offer merchant services to small businesses and white-labelled solutions to larger businesses, as it did with the Mint.com acquisition.

Sources

Intuit buys Boston-based AisleBuyer, startup developing check-out technology for mobile phones
AIsleBuyer Joins the Intuit Family
Intuit GoPayment Blog on the acquisition
Architect Partners: The Evolution of Shopping

Cerberus Acquires AT&T’s Advertising Solutions and AT&T’s Interactive Business Units

Margaretha M — Wed, 11 Apr 2012 18:30:21 +0000

Author: Eric Risley

Transaction Overview

On April 9, 2012, AT&T announced the sale of a 53% ownership stake in the Advertising Solutions and AT&T Interactive business units to private equity firm Cerberus for $950mm.

Target Description

AT&T Advertising Solutions publishes printed yellow pages directories and AT&T Interactive offers on-line, mobile and IPTV accessed local search, both seeking to connect local merchants with local customers. Assets include:

Approximately 1,200 The Real Yellow Pages print directory titles delivered to 150 million homes and businesses in 22 states,
YP.com,
YPmobile app, allowing users to search for local businesses from their mobile device (includes preload agreement with AT&T on non-Apple devices),
YP Local Ad Network, which includes YP.com and 300 independent mobile and online publishers reaching more than 76 million monthly unique visitors, and
5,000 person local merchant focused salesforce and a legacy of relationships.

Combined, AT&T’s print, online and mobile products serve over 500,000 local businesses and receive about 5 billion consumer searches a year (of which 2 billion are on digital properties and 600mm are originated from a mobile device) for local business information. The businesses have 8,400 employees (half of which are unionized). The sale does not include the recently formed AT&T AdWorks that sells advertising-related services across 3-screen platforms (online, mobile and TV).

Buyer Description

Cerberus is a private equity firm investing in multiple sectors including technology, aerospace and defense, consumer products, automotive and industrial, financial services, healthcare, real estate, transportation and the travel and leisure sectors.

Transaction Parameters

AT&T will receive approximately $750 million in cash and a $200 million note and retain a 47-percent equity interest. These businesses generated approximately $3.3 billion in revenues in CY 2011 (a 16% percent decline from CY 2010 driven by declining print directory revenues). Of the $3.3b revenues, about $1b was related to the digital properties. Although the business units for sale generated $2.3b in operating loss in CY 2011 after a $2.9bn impairment charge, EBITDA was positive at $1.0bn.

Implied Enterprise Value (EV): $1.8b

Multiples:

EV/CY 2011 Revenue 0.5x
EV/CY 2011 EBITDA 1.7x

Other private-equity companies that made investments in Yellow Pages businesses include KKR’s $4.2b purchase (at 5.2 times revenue and 13.3 times EBITDA) of France Telecom’s PagesJaunes in 2006, Hicks Muse Tate & Furst and Apax Partners’ $3.0b (at 2.8 times revenue and 8.1 times EBITDA) purchase of BT Group’s Yellow Pages unit in 2001.

The local print directory business has been under significant pressure for quite awhile. Idearc, Verizon’s directory business which was spun off in 2006, went through bankruptcy proceedings in 2009. It was rebranded as SuperMedia in January 2010 and has continued to struggle with Moody’s downgrading its credit rating last month to Caa3. Dex One, a former directories publisher of Sprint, also went through bankruptcy in 2009. Yell, a spin-off of U.K.’s BT Group’s directories business, which owns U.K. and U.S. directory brands, had to renegotiate its £2.6bn net debt last December.

Strategic Rationale

Cerberus is acquiring a world-class consumer brand, 500,000 local merchant relationships, a 5,000 person local salesforce and a strategic position to help influence $ trillions of consumer local spending.

Architect Partners’ Observations

As we highlighted in our recent StreetFight observations, a major battle is underway to capture a position in the $39 billion local advertising market. Google, Groupon, eBay, Yelp, CityGrid Media, Angie’s List, ReachLocal and many others are building businesses that innovate on the legacy of Yellow Page directories. Cerberus’ challenge will be to continue to purposefully and aggressively reorient an organization which has the dying print directory business in its DNA. The assets at their disposal are quite impressive but can the leadership let the past go and embrace the very fast moving innovation now occurring in online and mobile?

Clearly, a purchase price of 1.7x EBITDA appears attractive on the surface, however, the print directory business is in steep decline. In the past, in spite of declining revenue, directory businesses were considered “cash cows” which is what originally attracted private equity to the sector. That may have been the case when revenues were flat or declining by 5%-10% per year. The challenge now is that print revenue is decreasing at an increasing rate (last year 16% in this case). Can the expense side of the equation be managed in a way to allow for continued profitable operation, while at the same time growing the digital business?

Sources

AT&T Press Release
BIA/Kelsey Local Digital Ad Revenue
Architect Partners / StreetFight Local Commerce M&A

M&A Snapshot

Margaretha M — Tue, 10 Apr 2012 18:29:34 +0000

While Q1 2012 M&A activity was muted, we believe we’ve already seen the trough and expect M&A activity to increase for the foreseeable future. Several factors give us confidence. First and foremost, the broader economic concerns which weighed on strategic decision making in Q3 and Q4 2011 have moderated somewhat. Second, the IPO market has shown increasing levels of activity and many will become active M&A market participants. Third, marquee deals can be influential to the psychology of the M&A market and we’ve seen several recently. A more detailed assessment of Q1 2012 M&A activity is contained within our M&A Snapshot below.

Cisco Acquires NDS

Margaretha M — Fri, 23 Mar 2012 00:35:03 +0000

Author: Steve Payne

Transaction Overview

On March 15, 2012, Cisco announced plans to acquire NDS Group for $5b in cash.

Target Description

NDS Group provides software solutions that enable service providers to securely deliver and monetize pay-TV (including cable TV, IPTV and satellite TV) services across multiple screens and devices (including set-top-boxes, DVRs, PCs, tablets and phones) to consumers. According to Screen Digest, over one-third of the global digital pay-TV households use NDS technology. Ninety of the world’s leading cable, satellite and broadband pay-TV operators use NDS technology, including Astro, Bharti, Bouygues Telecom, BSkyB, Canal Plus, CCTV, Cox, DIRECTV, Kabel Deutschland, Sky Deutschland, SKY Italia, TataSky, UPC (a unit of Liberty Global) and Vodafone. NDS offers the following technologies:

- VideoGuard Content and Service Protection Solutions which ensure that only paying subscribers can access content (deployed in 125mm pay-TV households – approximately 28% global market share) — and protect pay-TV service revenues valued in excess of $50b.

- Head-End Middleware and Set-top Box Software which enable operators to deliver content over multiple networks including broadcast, satellite and broadband to multiple devices including connected set-top boxes, PCs, TV and phones (deployed on 214mm devices, 22% global market share of active units).

- Digital Video Recorder Software which enables pay-TV subscribers to record content as well as pause and rewind “live” TV (deployed in 47mm devices. 40% of global market share of active units)

- Electronic Program Guides which allow subscribers to discover, navigate and interact with content and features provided by the platform operator.

NDS’s competitors include content discovery and navigation companies such as Apple, Google, Microsoft and Rovi; pay-TV middleware companies including Kudelski’s OpenTV and Scientific Atlanta; content and service protection companies including Kudelski’s Nagra and Scientific Atlanta; DRM companies including Microsoft and Verimatrix and DVR companies including Motorola, OpenTV, Scientific Atlanta and TiVo.

Privately owned by News Corp and Permira, NDS is headquartered in Middlesex, U.K. and has over 5,000 employees (of which 86% are in technology) who will join Cisco’s Service Provider Video Technology Group (SPVTG), led by Senior Vice President and General Manager Jesper Andersen. Dr. Abe Peled, NDS’s Executive Chairman, will be named Senior Vice President and Chief Strategist for Cisco’s Video & Collaboration Group, of which SPVTG is a part. Dr. Peled will report directly to Marthin De Beer, Senior Vice President, Cisco Video and Collaboration Group. Upon acquisition, NDS’s products and services will be integrated with Cisco’s Videoscape product line.

Buyer Description

Cisco is the dominant supplier of networking equipment and network management solutions for IP-based networks. Cisco offers routers and storage systems that allow delivery of mobile, data, voice, and video applications on fixed and mobile networks via digital set-top boxes, digital media products and wireless systems. In January 2011, Cisco launched Videoscape, a cloud-based TV Everywhere platform allowing service providers to deliver video to consumers in various formats (including VoD, PayTV, broadcast channels and video/telepresence communications) through a variety of devices (such as tablets, mobile devices, smartphones) over multiple networks. Videoscape also allows service providers to manage users’ subscriptions and publishers’ content. Videoscape’s customers include Canada’s Rogers Communications and Telus, Israel’s YES, Norway’s Telenor, Korea Telecom, Australia’s Telstra and France’s Numericable. The NDS acquisition, like Cisco’s other recent acquisition – BNI Video for $99mm in October 2011, is positioned as an enhancement of Videoscape.

Transaction Parameters

Cisco will pay $5b in cash and expects the deal to close in the second half of 2012. The transaction is expected to be accretive in the first full year on a non GAAP basis. Cisco announced that the NDS acquisition price is in line with the EBITDA multiples paid when NDS was taken private in 2009 for $3.7b.

NDS filed for an IPO in December 2011. Approximately 75% of NDS’s revenues come from outside North America and emerging markets represent a growing part of NDS’s revenue, increasing to 40% for the fiscal year ended June 30, 2011. About 80% of NDS’s revenues are recurring generated from software, services and content protection businesses, with an average duration of approximately five years.

Enterprise Value (EV): $4.9b(1)

Multiples(2):
EV/Revenue 5.0x
EV/EBITDA 17.5x
EV/Net Income 121.8x

Note:
1) Includes Dec 31, 2011 net liabilities of $944.4mm
2) Based on LTM revenues of $989.4mm, EBITDA of $283.1mm and net income of $40.71mm (excluding the earnings of OpenBet, NDS’s business segment which was classified as discontinued operations and divested in January 2011). LTM is as of December 31, 2011. Source: NDS F1 Filing.

Comparable transactions include:

1) Cisco’s acquisition of BNI Video (video delivery and management) for $99mm in October 2011,
2) Arris’ acquisition of BigBand Networks (digital video network solutions) for $53mm (0.6x LTM revenues) in October 2011,
3) KIT Digital’s acquisition of PolyMedia (video content delivery) for $34mm-$39mm (1.8x-2.0x LTM revenues) in March 2011,
4) HTC’s acquisition of Saffron Digital (a content delivery platform) for $48mm (4.6x LTM revenues) in February 2011,
5) Cisco’s acquisition of Inlet Technologies (video encoding and bit rate adaptation) for $95mm (6.3x LTM revenues) in February 2011,
6) Cisco’s acquisition of ExtendMedia (IP-based content management platform) for $80mm (4.0x-5.0x LTM revenue multiple) in August 2010,
7) Juniper’s acquisition of Ankeena (video caching and adaptive streaming technology) for $100mm in April 2010,
8) Motorola’s acquisition of Terayon (digital video processing) for $118mm (1.7x LTM revenues) in April 2007, and
9) Cisco’s acquisition of Scientific Atlanta (consumer set top boxes) for $5b (2.6x LTM revenues) in November 2005.

Strategic Rationale

Cisco’s corporate blog aptly describes the NDS acquisition as a “medium-sized” deal that would broaden Cisco’s presence in the important service provider video market. In January 2011, Cisco announced its Videoscape initiative as a platform/vision for delivering TV Everywhere and NDS’s technologies clearly extend Videoscape. The blog post also highlights NDS’s relationships with operators overseas, particularly in emerging markets like China, India and Latin America.

Architect Partners’ Observations

- Video is one of Cisco’s five strategic pillars, and NDS provides service providers with key technologies for TV Everywhere.

- This deal is also important in that it is mostly about acquiring software (middleware and client) capabilities, traditionally not been a Cisco strength.

- One important component of the transaction is NDS’s portfolio of 1000+ granted and pending patents, giving Cisco some potentially-valuable IP in content protection and video delivery.

- Cisco’s stock price was down modestly after the announcement, on a day that the NASDAQ and Juniper were both up, possibly indicating investor concern at further exposure to the relatively low-margin set-top box market.

Sources

Why Cisco Paid $5 Billion for NDS
Cisco’s Analyst Presentation Regarding NDS Acquisition
Cisco Bets $5B More on Video With NDS
Marthin De Beer’s Blog: How the Acquisition of NDS Accelerates Cisco’s Video Entertainment Strategy

2011 Local Commerce M&A Snapshot

Margaretha M — Mon, 19 Mar 2012 20:22:04 +0000

StreetFight published our 2011 local commerce M&A analysis today. 2011 was an intensely active year for the local marketing and commerce M&A market, with 186 transactions logged — up 40% from 2010. Groupon, Google, LivingSocial and eBay led the way in acquisitions, gobbling up smaller companies in a move to further solidify their position in the local marketing arena. Major acquisitions include eBay’s purchase of local targeting company WHERE for $135 million, Reply’s $60 million MerchantCircle purchase, and Google’s $151 million purchase of Zagat. A glimpse at the amount of transactions:

Green Dot Acquires Loopt

Margaretha M — Wed, 14 Mar 2012 01:13:45 +0000

Author: Tom Brehme

Transaction Overview

On March 9, 2012, Green Dot (NYSE: GDOT, market cap: $1b) announced that it was acquiring Loopt for $33.6mm in cash, plus $9.8mm in retention payments for key employees.

Target Description

Loopt provides a location-based check-in service which enables users to discover and review local places, share location updates, geotag photos, find nearby friends and get nearby deals/offers. Loopt holds several patents relating to location-based messaging delivered real-time to a mobile handset. Loopt supports iOS, Android and Windows Phone devices. Loopt’s commercial partners include: Virgin America (check-in deals at San Francisco Airport’s Terminal 2 restaurants, cafes, green rental car program and Virgin flights), Universal Music Group (free song downloads at a musical concert venue), Sports Authority (check-in deals at professional stadiums and Sports Authority stores), U.S. Cellular (mapping and geolocation apps), Paul Frank and Element Eco Bottle (check-in deals and rewards at select stores). Other location-based companies include Pelago (acquired by Groupon), Where (acquired by eBay), Gowalla (acquired by Facebook), Shopkick, Foursquare (Foursquare signed a partnership with American Express to link Foursquare deals to a user’s credit card), SCNVGR (SCNVGR built its own mobile wallet) and Placecast. Founded in 2004, Loopt has 30 employees, is based in Mountain View, CA and has raised $17mm in funding from Maverick Capital (David B. Singer), NEA (Forest Baskett, Patrick Chung), Sequoia Capital (Greg McAdoo) and Y Combinator. Upon closing of the acquisition, Loopt’s Mountain View office will become the new Silicon Valley headquarter of Green Dot’s mobile technology and product development team.

Buyer Description

Green Dot provides prepaid payment card services primarily to the underbanked and partially-banked markets. Consumers can purchase, activate and reload Green Dot’s debit cards at 59,000 retailer locations including Walmart, Walgreens, CVS/pharmacy, Rite Aid, Kmart, Kroger, 7-ELEVEN, Ralphs, Fred Meyer, Smiths and Radio Shack. Green Dot’s platform enables point-of-sale connectivity and interoperability with Visa, MasterCard and other payment or funds transfer networks. Today, more than 4 million active accounts are using Green Dot not only as a debit card but to pay online bills, purchase digital goods, etc.

Transaction Parameters

Loopt agreed to pay $33.6mm in cash to equity holders and $9.8mm in retention payments for key Loopt employees. While a meaningful revenue multiple is not available it should be noted that Green Dot expects next year’s EBITDA to be reduced by $14.0mm (includes some portion of the $9.8mm retention bonus) as a result of the transaction. A meaningful amount relative to Green Dot’s 2011 Adjusted EBIDTA of $122.6mm.

Other location-based services M&A transactions include Facebook’s acquisition of Gowalla (check-in service) in December 2011, Groupon’s acquisition of Pelago (location-based social app) in April 2011 and eBay’s PayPal acquisition of Where (location-based deals/offers) for $135mm in April 2011.

Strategic Rationale

The acquisition of Loopt is a significant step in Green Dot’s strategy towards becoming a provider of mobile wallets, rewards and payment solutions to consumers and retailers. In addition to geo-location technology, mobile application development experience and local marketing capabilities, Loopt provides a visionary team with a lot of mobile know how. Also of value are the several patents Loopt holds related to mobile marketing and real-time, location-based mobile messaging.

The purchase price, retention payments and absorption of ongoing operating costs indicate the importance Green Dot places on the opportunity associated with a broader mobile strategy. Mobile represents a unique opportunity to leverage a ‘dumb’ (data wise) prepaid payment card service into a data and opportunity rich set of mobile payment services at and around the point of sale.

Architect Partners’ Observations

Our main takeaways from this transaction are:

1) It’s still early the mobile payments/wallet space. With all the concerns around mobile device privacy and security a prepaid card-based wallet strategy (and the limited exposure associated with prepaid services) might ease the transition from plastic.

2) Beauty is in eye of the beholder. Loopt may have lost the ‘check-in’ app battle but still has significant value to the right partner(s) with strategic interest in the local and mobile sectors. Given the growth and importance of these sectors, many constituencies with find value in applications/companies with know-how, engaged user bases, and related competencies.

3) Very interesting upvote for the expected demographic reach of smart phones. We don’t typically associate ‘underbanked’ or ‘partially-banked’ with smart phones but smart phones will continue to penetrate a much broader user base.

4) Interesting deal structure. The size of the retention payment indicates that Green Dot places a lot of value on what the Loopt team will do going forward – not necessarily what has been created already. The press release mentions expenses related to the wind-down of current Loopt services.

Resources

Loopt’s Sam Altman on Why He Sold to Green Dot for $43.4M
Green Dot to Acquire Loopt
Location-based service Loopt bought for $43.4M by Green Dot Corp
Loopt sales shows future of location is commerce
Green Dot Investor Presentation – March 2012

SingTel Acquires Amobee

Margaretha M — Tue, 13 Mar 2012 00:31:26 +0000

Author: Eric F. Risley

Transaction Overview

On March 5, 2012, Singapore Telecommunications (“SingTel”, Singapore Stock Exchange: Z74) announced its intent to acquire Amobee for $321mm.

Target Description

Amobee sells software which enables advertisers, publishers and wireless carriers to deliver targeted mobile marketing and advertising to mobile customers. Capabilities include mobile ad serving, campaign management, targeting, yield optimization, ad inventory management and campaign analytics. Marketing formats include WAP, web, messaging, apps and rich media targeted to device model, location, operator, device OS and site categories. Customers include eBay, Zynga, Google, Skype, Mozilla and Nokia. Carrier customers include Telefónica, Vodafone and Sprint/Boost. Other mobile advertising companies include Admob (acquired by Google), Quattro Wireless (acquired by Apple), AdMarvel (acquired by Opera), Greystripe (acquired by Valueclick), Millennial Media, JumpTap, Velti, Mojiva and InMobi. Founded in 2005, Amobee is based in Redwood City and has raised $54mm in total funding from Accel (Bruce Golden), Globespan (Venky Ganesan), Sequoia (Halm Sadger), Motorola Solutions, Telefonica, Vodafone, AMDOCS and Cisco.

Buyer Description

Singapore Telecommunications (Singapore Stock Exchange: Z74) is the largest telecom operator in Asia Pacific with 434 million mobile customers in 25 countries, including Bangladesh, India, Indonesia, Pakistan, the Philippines and Thailand. SingTel owns all of its Singapore and Australian operator businesses and owns minority stakes in six other mobile operators including India’s Bharti, Indonesia’s PT Telekomunikasi Selular and Thailand’s Advanced Info Service.

Currently, SingTel offers geo-localization capabilities that enable the delivery of relevant and customized offers and promotions. SingTel has also announced its intention to become the largest mobile advertising company in Asia Pacific and one of the top three worldwide. SingTel launched a $159mm fund in 2010 to invest in new ventures and also announced a reorganization of the company into three businesses: consumer, digital services and information technology for large business and government.

Transaction Parameters

PEHub disclosed that Amobee’s 2011 revenue was $30mm, up 3x from 2010.

Enterprise Value: $321mm
Enterprise Value/Revenue: 10.7x

Other mobile advertising M&A transactions include Google’s acquisition of AdMob in November 2009 for $750mm (18.8 times revenue), Apple’s acquisition of Quattro Wireless in January 2010 for $275mm (13.1 times revenue), Opera’s acquisition of AdMarvel in January 2010 for $8mm-$23mm, Motricity’s acquisition of Adenyo in February 2011 for $100-$150mm and Valueclick’s acquisition of Greystripe for $70mm in April 2011 (2.3-2.8 times revenue).

Strategic Rationale

Mobile service providers have a very significant new revenue opportunity available to them by delivering relevant, targeted marketing messages and advertisements to their customers. SingTel is taking an aggressive step toward that objective by acquiring the market share leading mobile marketing platform focused on servicing the needs of wireless carriers.

Architect Partners’ Observations

This transaction represents an important milestone in the evolution of wireless carriers into a partially ad driven revenue model. To-date, mobile carriers have been either cautious or just plain resistent toward integrating marketing elements into their services. Most carrier executives would justify this caution as “protecting the customer”. While high minded, the reality is that marketing and advertising has proliferated on mobile devices and the wireless carriers have been cut out.

Architect Partners believes other wireless carriers will follow SingTel’s lead; envisioning themselves more in the model of an MSO, where advertising is an accepted part of the experience. We believe that wireless carriers must aggressively begin to integrate the ad revenue model favored by their most notable competitors (Google, Apple, Facebook, Zynga, …) or risk being further marginalized. Wireless carriers own the customer relationship and have access to vast amounts of valuable data. Both are extremely valuable elements to marketers and therefore core tenants of value of the wireless carriers.

Resources

Why is This VC Smiling? Amobee’s Sale, for Starters
SingTel Pays $321M For Amobee
SingTel’s Amobee Buy Shows How Carrier Strategies Have Changed
SingTel Agrees to Buy Amobee for $321 Million to Expand Mobile Advertising