Category: media

Same price but very different deals for Tumblr and Websense

Brenon Daly

Contact: Brenon Daly

It’s often said that tech M&A valuations are more art than science, a perspective that stood in stark relief thanks to a pair of transactions announced Monday morning. The deals, which have wildly different strategic underpinnings, involve companies at opposite ends of their corporate lifecycle but came in at the same price: $1bn.

On the one hand, we have a fairly staid take-private of a 20-year-old information security vendor with flatlining sales of slightly more than one-third of a billion dollars. On the other, we have a wildly popular blogging site that gets a multiple of nearly 100x its nascent sales as a faded Internet kingpin makes a highly speculative acquisition.

In the more conventional transaction, buyout shop Vista Equity Partners said it will hand over about $1bn for Websense. The offer values the Web content filtering vendor at loosely 3x sales. (That’s just slightly higher than the multiple that fellow private equity firm Thoma Bravo paid a year and a half ago for Blue Coat Systems, a ‘vintage’ technology company that also offered Web content filtering as part of its broader portfolio.) According to a recent survey of IT buyers by TheInfoPro, a service of 451 Research, Blue Coat was the top-ranked Web content filtering vendor, cited by 27% of respondents, followed by Websense at 22%.

And then, there’s Yahoo’s reach for Tumblr. The $1.1bn all-cash acquisition is Yahoo’s largest in about a decade. And while Tumblr has a heavy user base (about 300 million unique monthly visitors), it had only really begun generating revenue. The company has only about one-tenth the number of employees at Websense.

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To get social, salesforce.com buys and builds

Brenon Daly

Contact: Brenon Daly

Built on the back of its two largest acquisitions, salesforce.com on Tuesday unveiled Social.com. The offering, which is part of the salesforce.com Marketing Cloud, connects the company’s core CRM product with advertising on social networks. Doubling down on social ad campaign development and optimization is the latest move by the SaaS giant to step into faster-growing markets.

At the heart of the company’s Marketing Cloud business are the ad placement and publishing technology that salesforce.com picked up with Buddy Media last June and the social listening products from Radian6 that it acquired two years ago. Collectively, those purchases cost salesforce.com a cool $1bn.

While salesforce.com has announced a handful of acquisitions since Buddy Media, those deals have been small technology purchases, notably around collaboration. However, recently a number of signs have pointed to (perhaps) larger M&A aspirations. Last month, salesforce.com sold $1bn in debt, which could be used to go shopping. Additionally, the company is currently hiring for at least two positions in its corporate development office.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Undressing demand for wearable technologies

Ben Kolada

Contact: Ben Kolada

Still in the fad phase, wearable technology is gaining market interest, driven by new devices being introduced both by tech companies and old-school consumer goods firms. The advent of these new Internet-connected form factors, such as ‘smartwatches,’ fitness and health devices, will spur the creation of new application markets in the technology industry.

Demand for wearable technology is specifically being seen in interest for an Apple iWatch, a smartwatch that many expect will be released later this year. According to a recent report by ChangeWave Research, a service of 451 Research, prerelease demand for the iWatch already matches what the iPad and Intel Mac saw before their respective debuts.

The likely launch of the iWatch and overall emergence of new wearable technology devices, such as Google’s Glass, Nike’s FuelBand, Jawbone’s UP and various devices from Fitbit, will create new markets in application software. For example, there’s already an investment syndicate, called Glass Collective, made up of VC firms Google Ventures, Andreessen Horowitz and Kleiner Perkins Caufield & Byers, that are ready to fund companies building new ways to use Google’s Glass device.

Our senior mobile analyst, Chris Hazelton, believes these devices will create extremely tight bonds between users, the cloud and very likely new technology players. For example, unlike smartphone and tablet apps that are used infrequently or once and discarded, Google Glass apps will be persistent, following and advising a user throughout their day.

If you already own a wearable tech device, or are planning to buy one, let us know what you think of this sector and which applications you think will become most valuable. You can tweet us@451TechMnA or contact us anonymously.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Will Sprint side with strategy?

Ben Kolada

Contact: Ben Kolada

DISH Network’s $25.5bn offer for Sprint Nextel represents a 13% premium to SoftBank’s October bid, but its lack of mobile experience may ultimately cause the company to lose the deal. Stock plays a major component of both transactions (32% for DISH versus 30% for SoftBank), meaning the future value of either deal will be dependent on which company – SoftBank or DISH – will be able to better execute in the mobile market. Arguably, the answer is SoftBank.

Without a doubt, SoftBank understands the mobile market, and therefore would understand Sprint’s business more than DISH. Mobile is an entirely new arena for DISH. SoftBank, on the other hand, generated some $22bn in mobile revenue alone last year. To put that in perspective, that’s nearly double the total revenue DISH generated over the same period.

Meanwhile, we’d also point out that DISH’s investors already have doubts about the deal. Following the announcement, the company’s shares fell more than 5% throughout the day, though they did recoup some of the losses by midday.

Although Sprint hasn’t yet provided an official response to the DISH bid, we expect that it will staunchly defend itself against DISH, much like it is defending Clearwire against a DISH takeover.

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Going mobile

Ben Kolada

Contact: Ben Kolada

In the past few years, mobile marketing M&A and IPO activity has been dominated by firms that pushed out ad impressions to consumers. The purchases of Quattro Wireless and AdMob more than three years ago were the most notable examples, with the two deals combining to create more than $1bn of M&A value. Turning to the other exit, the IPO last year of Millennial Media briefly created nearly $2bn of market value for that company. With these transactions, mobile ad publishing became an accepted form of mobile marketing.

But mobile advertising isn’t only about pushing ads out to consumers. In fact, this model may not even be the most effective. (That may be underscored by the performance of Millennial Media on the NYSE. Shares have lost about three-quarters of their value since the debut, and are now valued at just $500m.)

At the ad:tech conference, which wrapped up Wednesday in San Francisco, we noticed the emergence of a handful of startups attempting new ways to enable businesses to advertise themselves on smaller, mobile screens.

Rather than pushing out ad impressions, DudaMobile, for example, helps businesses ‘mobilize’ their own websites. Its software requires no coding knowledge. The company apparently has proven itself enough to recently expand its series B financing from $6m to $10.3m. In a similar vein, we’ve heard that bootstrapped Bizness Apps, which provides a template for small businesses to easily build custom-made apps, is experiencing considerable growth.

To our subscribers: What do you think is the next big trend in mobile advertising? Which companies or mobile advertising markets do you think are most valuable? Let us know @451TechMnA or anonymously at kb@the451group.com.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

An unhappy anniversary for Vocus

Brenon Daly

Contact: Brenon Daly

It’s been exactly a year since Vocus rolled the dice on its largest-ever acquisition, and in the view of Wall Street the company has come up snake eyes. The February 2012 purchase of iContact, which nearly cleaned out Vocus’ treasury and caused a bit of acquisition indigestion, spooked investors. Since the deal, shares of the marketing software vendor have been nearly cut in half.

The decline has left the company a relative bargain in a market that has seen platinum valuations, both in terms of trading multiples and M&A valuations. Vocus garners a market cap of $285m, or just 1.4x its projected revenue of about $200m in 2013. That paltry valuation comes despite an accelerating bookings rate of roughly 20% forecasted for this year, about $25m of free cash flow generation and a reengineered suite of offerings serving a neglected segment of the market (midsized enterprises).

The last point is a key one for Vocus, which went public in 2005 as a single-product company. In its initial years, Vocus sold to PR firms, primarily helping them distribute their releases. In 2011, the company began expanding its portfolio, both through internal development and M&A. It acquired two small companies that year that brought technology around marketing on Facebook and Twitter. By the end of 2011, it had integrated those deals along with internal efforts into a single marketing platform.

Early sales for the integrated suite were encouraging for Vocus, reflecting the fact that marketing automation requires a number of offerings. (Many other players in this space – including ExactTarget, Marketo and Constant Contact – have all used M&A to build out a suite.) It then reached for iContact to add the outbound marketing piece of technology.

The acquisition, which bumped up Vocus’ revenue by about one-third overnight, required a fair amount of integration. Vocus says that work is behind it, and it can focus on selling its marketing suite. Assuming the company does hit its guidance of 20% bookings growth this year, it will mark the first time since 2008 that it has grown at that rate. Of course, Vocus was only generating about one-third the amount of sales then that it expects this year. And even then, Vocus shares traded higher than they do today.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

Opera’s cautious move into video optimization

Ben Kolada

Contact: Ben Kolada

Coinciding with its fourth-quarter earnings release, mobile Web developer Opera Software has announced the acquisition of mobile video optimization startup Skyfire Labs for $50m in cash and stock, with an earnout potentially tripling that price. The deal is a strategic combination – bringing together Skyfire’s carrier-focused mobile video optimization offerings with Opera’s mobile browser products – but its conservative structure suggests that Opera isn’t yet confident enough to put all of its eggs into the video optimization market.

Using an enterprise value of $50m (Skyfire had $8m cash on its balance sheet), the purchase – Opera’s largest ever – is valued at 12.2x trailing revenue. However, if Skyfire’s sales live up to expectations, its price-to-projected revenue valuation would be a more palatable 2.9x. Architect Partners, which helped Skyfire raise its $8m series C round, advised the company on its sale. Skyfire had raised $41m in venture capital. (We’ve made our M&A KnowledgeBase record on the transaction, which includes full financial details and round-by-round funding information, freely available here.)

Besides the $50m upfront payment, Opera is on the hook for an earnout of up to $105m in cash and stock. We’d note that although Opera also just announced a $100m credit facility, it could elect to pay $79m of the earnout in stock.

Opera is no stranger to earnouts, using them in all six deals we’ve recorded for the company, but the sheer size of this earnout suggests that the company isn’t fully confident in the video optimization market’s potential. And rightfully so – nearly every video optimization vendor we know of has seen total revenue flatten over the past few years, and many are anxiously seeking exits. (For a longer report on the mobile video optimization market, click here.)

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Making sense of j2’s Ziff Davis acquisition

Ben Kolada

Contact: Ben Kolada

At first glance, j2 Global’s acquisition of Ziff Davis Media seemed to be a stretch. However, upon further review of j2’s M&A strategy and recently released financial statements for Ziff Davis, the company actually meets many of j2’s requirements for its diversification acquisitions: Ziff Davis has a strong management team, operates in a fragmented market and, perhaps most importantly, is increasing revenue.

Technology content provider Ziff Davis Media was a powerhouse in its time, but it struggled as consumers moved from print to digital media. Total revenue at the company declined from $300m in 2001 to $76m in 2007, when more than half of its revenue was still coming from print advertising.

Ziff Davis filed for bankruptcy in 2008, and was subsequently carved up in four transactions. The Ziff Davis chunk being acquired by j2 is owned by CEO Vivek Shah and Great Hill Partners. Shah, a digital publishing veteran with experience at Time Inc and the Fortune/Money Group, and his team helped turn around ailing Ziff Davis, bump up revenue and return it to profitability.

J2 released financial statements this week for Ziff Davis that show the company is in growth mode. Unaudited results for the nine months ended September 30 show revenue increased 70% over the prior year to $32m. In the 12 months ended September 30, the company generated almost $45m in revenue, with nearly $8m in EBITDA.

For anyone interested in what goes on in The 451 M&A KnowledgeBase, we’ve updated our merger record for j2’s acquisition of Ziff Davis and made it available for free. Click here to view the record.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

AOL’s MapQuest ‘Discovers’ Everlater

Ben Kolada

Contact: Ben Kolada

In a fairly rare M&A move, AOL has acquired online travel journal startup Everlater to expand its MapQuest offering into the travel industry. The announcement coincides with the launch of MapQuest Discover, an interactive travel planning and discovery tool. Although this appears to be AOL’s first acquisition specifically for MapQuest, it may not be the last.

Founded in 2008 and based in Boulder, Colorado, Everlater provides a free online travel journal for consumers, as well as a paid customer engagement and travel planning product called Concourse for companies in the tourism industry. The startup lists six employees on its site and had secured about $750,000 from incubator TechStars and venture firm Highway 12 Ventures. Terms of its sale were not disclosed.

The move by AOL is an attempt to reinvigorate its staid MapQuest mapping assets, with an apparent focus on consumers (MapQuest’s B2B licensing services revenue has been declining). The acquisition of Everlater also appears to be the first inorganic move AOL has made specifically to expand MapQuest beyond navigation to providing original travel content and planning features. (We’d note, though, that AOL has bought other local content companies, including Patch Media and Going Inc in 2009.)

To expedite the growth of MapQuest’s travel content and interactive features, AOL could do additional small acquisitions in the travel and tourism sector, similar to what TripAdvisor has done over the past half-decade. In the past five years, TripAdvisor has announced nearly a dozen travel-related acquisitions, including the recent pickups of Wanderfly, Where Ive Been and EveryTrail.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

j2 Global anxious for growth

Ben Kolada

Contact: Ben Kolada

Cloud communications vendor j2 Global has acquired 85-year-old media firm Ziff Davis Media for $167m, undoubtedly the biggest strategic stretch of the 40 acquisitions it has done. The announcement comes just two months after j2 was rejected in its attempt to buy online backup firm Carbonite. The rapid-fire M&A attempts, and the oddball pairing with Ziff Davis, give the impression that j2 will eagerly spend its cash to buy top-line growth.

Founded in 1927, Ziff Davis is a technology media firm, operating the websites PCMag.com, Geek.com, ExtremeTech.com, ComputerShopper.com and Toolbox.com (the latter two sites were acquired this year). It has been sliced and diced throughout its lifetime. According to The 451 M&A KnowledgeBase, in just the past three years Ziff Davis has done five divestitures.

Although j2 didn’t provide a clear rationale for the deal, it notes that the company has years of experience in digital media and online marketing and that this acquisition would expand that experience. It claims that its experience in this market comes from its own spending on advertising, as well as from its email marketing product, Campaigner, which j2 obtained only in December 2010 as part of its Protus IP Solutions purchase.

Reading deeper into the announcement, however, the primary rationale for this transaction seems simply to add to j2’s top line. With this acquisition, j2 expects its total revenue this year to exceed the top of its previously guided $345-365m range. Ziff Davis is expected to contribute $60m in revenue next year.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.