Category: mobile

Renewed rumors have BMC reaching for AirWatch in MDM play

Brenon Daly

Contact: Brenon Daly

The on-again, off-again rumors surrounding BMC and AirWatch are on again. Early word of the talks surfaced about a half-year ago, but we understand that a number of events may have interrupted discussions between the IT management giant and the mobile device management (MDM) startup.

For starters, BMC printed two transactions in January, including the purchase of Numara Software, a $300m acquisition that was the company’s largest deal in nearly four years. Additionally, Numara brought some rudimentary MDM capabilities from a tiny startup that it had acquired a couple of months before selling to BMC. Our understanding is that BMC is looking for more robust MDM technology than what it picked up with Numara, as well as its own purchase of tiny Aeroprise.

On the other side, valuations of MDM vendors have been skyrocketing. It was recently reported, for instance, that rival MobileIron raised its latest round at a valuation in the half-billion-dollar neighborhood. There was no word on what AirWatch would be going for.

However, any high-multiple acquisition could pose challenges – at least in terms of perception – for BMC, which has been under fire on Wall Street recently for its relatively paltry valuation. Last week, hedge fund Elliott Management bashed what it called ‘poor management execution’ at BMC, and renewed its call for a sale of the company. Elliott noted that BMC stock has underperformed both its rivals and the broader market recently.

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Google takes another swing at Office

Brenon Daly

Contact: Brenon Daly

Google has reached for the popular maker of mobile software suite Quickoffice, the fourth notable acquisition the company has made in its effort to take on Microsoft Office. Each of the purchases has given Google specific pieces of technology that have helped draw users away from Office, which stands as the dominant desktop productivity suite and has generated tens of billions of dollars of sales for Microsoft over the past two decades.

Looking to siphon off some of those incredibly high-margin sales, Google has scooped up startups offering online word processing (Upstartle with its Writely program), spreadsheet programs (iRows), as well as collaboration and sharing of Office documents (DocVerse). As it built on those deals over the past six years, Google has always pitched its offering – first in Google Docs, then in Google Apps and now in Google Drive – as a Web-based alternative to the largely desktop-based Office franchise. (Of course, Microsoft also offers a hosted, or cloud, version of its popular suite in the form of Office 365.)

With Quickoffice, Google is shoring up the technology around a productivity suite for the post-PC era, as Quickoffice is installed on more than 400 million devices. In addition to the broad user base, Google also gets some much-needed technology that should help iron out some of the wrinkles that can pop up when converting Microsoft Office documents to Google formats. Additionally, Quickoffice can run Office apps on the iPad, while Microsoft has yet to release an official version of Office for the rival tablet. (It is rumored to be working on one, however.)

While terms of the acquisition weren’t released, we would note that Quickoffice has a rather compelling business model, with an extremely low cost of customer acquisition. It gets paid by licensing its software suite to device makers and then generates business on top of that by upselling customers to subscription offerings. (We understand that ‘aftermarket’ business was running at about $5m a quarter recently.) Not bad for a business that was founded in 1996 inside the recently disappeared Palm Inc. For the record, Google has now acquired pieces of two wireless pioneers: Palm and Motorola Mobility.

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Google finally cleared on its ‘defensive’ deal

Brenon Daly

Contact: Brenon Daly

Like any weapon, intellectual property (IP) can be wielded both for offense and defense. That’s worth remembering now that Google has basically been cleared to (finally) close its $12.5bn acquisition of Motorola Mobility, which it announced last August. The purchase adds some 17,000 Motorola Mobility patents to an ever-growing portfolio at Google, which has been a busy buyer of IP from IBM over the past year, as well.

In order to win regulatory approval in various jurisdictions around the globe, the search giant went out of its way to assure government bodies – as well as mobile handset manufacturers located around the world – that its Android operating system would remain freely available to all. More than a few of the 50-odd vendors that put out Android-based mobile devices expressed fear that Motorola phones and tablets might get ‘favorite child’ status from Google as the OS provider got into the hardware business in a big way.

But Google has eased those concerns (for now, at least) and seems to be focusing on shoring up the defense of Android so that other OEMs can use it without worrying about legal fallout. There’s a fair bit of irony in that, as Google itself is currently a defendant in a patent-related lawsuit that came about because a tech giant announced a multibillion-dollar deal in part driven by IP. Oracle purchased Sun Microsystems in 2009 – at the time referring to Java as the ‘most important’ software Oracle had ever acquired – and then brought a case alleging that Google infringed on Java copyrights and patents in mid-2010.

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Audience tries to make IPO noise before Facebook debut

Contact: Thejeswi Venkatesh, Ben Kolada

Although Facebook’s road show may have delayed some companies’ IPO itineraries, audio processing vendor Audience is continuing with plans to begin trading on the Nasdaq on May 10. Facebook has dominated recent IPO chatter (a quick Google search for ‘Facebook IPO’ generates more than 312 million results, versus just five million for ‘Audience IPO’), but Audience’s market opportunity should help the company create some noise of its own.

Audience designs digital signal processors and associated algorithms that help separate human voice from background noise, thereby helping to improve voice quality on mobile phones. The technology also helps improve the responsiveness of speech-recognition software. Apple, for example, uses Audience’s chip in the iPhone 4S.

So far, the market has been receptive. The patient firm, which was founded in 2000 but didn’t start pushing product until 2008, has grown revenue fifteenfold over the past few years, from $6m in 2009 to $97m in 2011. That growth story should pay off in spades for its selling shareholders, notably NEA, Tallwood Venture Capital and Vulcan Capital, which collectively own 87% of the company (combined, they poured $75m into the firm).

Audience plans to raise $80m by offering 5.3 million shares in the range of $14-16 per share. Assuming it prices at the midpoint, Audience will garner a market cap of just under $300m, or three times trailing sales. That valuation is in the ballpark of where rival Maxim Integrated Products currently trades in the public markets. J.P. Morgan, Credit Suisse and Deutsche Bank are leading Audience’s IPO. This is likely to be the last tech IPO before Facebook’s debut.

Persistence may not pay off for Vodafone

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

After three deadline extensions and interest from competitor Tata Communications, Vodafone Group announced on Monday its latest attempt to acquire Cable & Wireless Worldwide (CWW). Vodafone is offering £1bn, or approximately $1.7bn, to buy CWW. However, its offer has already hit a roadblock. CWW’s largest shareholder, Orbis, which owns 19% of the company, has rejected the bid on the grounds that it undervalues CWW. Vodafone initially expressed interest in acquiring CWW on February 13.

Orbis’ argument does hold some ground. Although Vodafone’s offer represents a 92% per-share premium to when the deal was originally announced, it still values CWW below some precedent transactions. Vodafone is valuing CWW at half times revenue and just 2.7x EBITDA for the 12 months ending September 30, 2011. In comparison, US cable company Knology recently sold to WideOpenWest for 2.8x sales and 8x EBITDA, while SureWest Communications was valued at 2.2x revenue and 6.8x EBITDA in its sale to Consolidated Communications in February. For more business-focused comparisons, PAETEC was valued at 1.3x sales and 8.4x EBITDA in its sale to Windstream Communications in August 2011. Level 3 Communications paid 1.1x revenue and 7.3x EBITDA for Global Crossing in April 2011.

Given the strategic significance of this deal to Vodafone, we expect that the company could appease Orbis with a higher bid. We’ve previously written that Vodafone, which is light on its fixed-line capacity in the UK, would likely use the acquisition to enable more bandwidth availability for its mobile users. The UK wireless operator will be able to take advantage of CWW’s vast infrastructure to backhaul its own cellular services, rather than rely on third-party operators. Throughout the wireless industry, cellular operators are increasingly feeling their networks squeezed as users consume more and more high-bandwidth data. Further, with £7.7bn ($12bn) of cash and marketable securities in its treasury, Vodafone could certainly afford a higher offer.

Groupon diversifies its dealmaking

Contact: Brian Satterfield

Before its IPO last November, Groupon acquired 16 companies, 10 of which were competitors that expanded the daily deal heavyweight’s reach into regions such as South America, Asia, Africa and the Middle East. Having grown its coupon empire to cover most corners of the globe and established itself as the sector’s market leader, Groupon has since taken a broader approach to M&A, buying into areas that complement its core coupon business.

Since the capital infusion that accompanied its Nasdaq debut last November, Groupon has been on an acquisition spree. More than one-third of its total 25 deals have come in just the past five months. In fact, according to its recently filed annual report, the company completed six transactions in just the first two months of 2012. But with the exception of the purchase of Mertado in January, Groupon has strayed away from scooping up other daily websites, instead targeting businesses that allow the company to bolster its online community and commerce capabilities. More specifically, Groupon’s recent M&A moves have been primarily to obtain the startups’ expertise in information database development, search engine development, location-based technologies, merchant products and support, and transactional marketing.

Earlier this week, Groupon picked up San Francisco-based Ditto, the maker of an iPhone application that enables users to plan activities with friends based on their location. A Ditto blog post hinted that the deal was primarily geared toward Groupon’s need to add community features, the same rationale that likely drove the company’s purchase in February of online travel enthusiast community Uptake Networks. Groupon’s other post-IPO mobile play also came in February, when it reached for VC-backed Kima Labs, which developed an iPhone application that allowed consumers to make online purchases with their phones. That same month, the company made yet another e-commerce move when it took out online shopping recommendation software provider Adku.

It’s also worth noting that while Groupon has expanded its M&A strategy in terms of technology, its geographic focus has clearly shrunk. Eight of the nine companies it has acquired post-IPO have been based in the US.

Facebook’s big-money mobile maneuver

Contact: Brian Satterfield

Ahead of what’s shaping up to be a seminal IPO next month, Facebook has purchased San Francisco-based mobile photo application developer Instagram for $1bn in cash and stock. The deal not only stands as Facebook’s priciest ever, but also as the largest acquisition we’ve yet seen in the consumer smartphone application sector.

Until Monday’s reach for Instagram, Facebook had never even officially released a deal value, despite having made nearly 30 buys in the past five years. Of those transactions, nearly one-third (including all three of its other acquisitions announced this year) were geared toward adding key patents or employees that the social networking behemoth needed to build out features on its own platform. In the case of Instagram, though, Facebook specifically mentioned that it planned to continue operating the company as a stand-alone entity rather than attempting to completely integrate its photo editing and sharing features.

Founded in 2010, Instagram had accumulated a large user base despite employing just 13 people. Instagram’s flagship iOS application, which allows users to apply filters to mobile photos before sharing them, has racked up 30 million downloads since its launch. Demand for the Android version of the application, released only on April 3, was also high, with more than one million downloads in less than a week.

Instagram, which offers its applications for free, likely had next to nothing in terms of revenue, but that didn’t stop VC firms from injecting nearly $58m into the company over the past two years. Andreessen Horowitz and Baseline Ventures were responsible for the bulk of this investment, co-leading a $50m series B round in late March. The recent infusion was not only the largest ever for either firm but also yielded by far the highest return on investment. Baseline Ventures’ previous largest exit came in 2010, when salesforce.com purchased its portfolio company Heroku for $249m. Meanwhile, Andreessen Horowitz has come up big on mobile software for the second time – the firm’s only other $100m-plus exit came early last year, when then-PE-backed Skype paid $121m for video recording application developer Qik.

Millennial Media doubles on debut

Ben Kolada

Contact: Ben Kolada

Taking advantage of the emerging market for mobile advertising, platform vendor Millennial Media leapt onto the public stage Thursday, creating nearly $2bn in market value in its debut on the New York Stock Exchange. The company priced its 10.2 million shares at $13 each – the high end of its proposed range. Shares traded at about twice that level in early afternoon. Millennial Media is trading under the symbol MM. Morgan Stanley, Goldman Sachs and Barclays led the offering, while Allen & Company and Stifel Nicolaus Weisel served as co-managers.

Millennial Media, which has nearly 75 million shares outstanding, currently garners a market cap of $1.9bn. That values the company at 18 times trailing sales, in the ballpark of where we estimate Quattro Wireless was valued in its sale to Apple, but about half the valuation we believe AdMob received from Google. Those two companies are Millennial’s primary rivals, although Millennial stakes its claim as the largest independent mobile ad platform provider.

Interest in advertising technology has been building throughout both the equity and M&A markets. Earlier this month, for instance, telco SingTel announced that it was acquiring Amobee for $321m. (We estimate the startup, which provides mobile ad campaign management software, garnered roughly 9x trailing sales in its purchase by the Singapore telco giant.) Meanwhile, the Adtech pipeline is far from dry, even after a recent slew of big-ticket exits. Earlier this month, advertising intelligence firm Exponential Interactive filed its paperwork to go public. The company, which plans to trade under the symbol EXPN, increased revenue 35% last year to $169m.

Monitise pays out now for payoff later

Ben Kolada

Contact: Ben Kolada

Mobile banking and payments vendor Monitise made a big bet on Monday when it moved to consolidate its industry with the acquisition of startup Clairmail. At first glance, the deal should have set off alarms among Monitise’s investors. The all-stock transaction will significantly dilute Monitise’s shareholders, leaving them owning three-quarters of the combined company. However, its investors remained calm – Monitise’s share price closed down only 2%. Why? Although the deal is richly valued and dilutes Monitise’s shareholders, those same investors are all but assured of their own rich payoff eventually.

Another explanation for the muted shareholder response is that the transaction only seems overvalued on the surface. It is actually fairly valued by several metrics. Monitise’s £109m ($173m) offer values Clairmail at 9.3 times trailing sales, a smidgen below its own current 10x enterprise value (Monitise held $68m in net cash at the end of 2011, while Clairmail had $5m). Further, Monitise is also obtaining more valuable customers. Clairmail had 48 banking customers generating a total of $18m in revenue last year, or about $375,000 per customer. Monitise, meanwhile, had more than 250 customers, each of which generated an average of less than $150,000 in annual revenue. And because of Clairmail’s growth rate (its revenue jumped 90% in 2011), its price-to-projected-sales valuation is certain to be much lower. Further placating investors, Monitise is forecasting continued heady growth. The combined company, which would have generated $56m in revenue in 2011 on a pro forma basis, is projecting 2012 total revenue close to $100m.

There’s certainly no reason for alarm among the acquirer’s investors, considering valuations across the mobile payments industry are already high and the potential for Monitise itself to one day find a fruitful takeover offer. In July, eBay announced that it was buying Zong for $240m. And in June, Visa announced that it was buying Fundamo for $110m, or about 11x estimated trailing sales. The latter deal is of particular note, given the growing relationship between Visa and Monitise. Following the Fundamo buy, will Visa make a larger play in mobile payments, perhaps by acquiring Monitise? The two companies are already partners – Visa Europe made a $38m investment in Monitise in October, the two companies equally share a joint venture in India and Visa Europe president and CEO Peter Ayliffe sits on Monitise’s board. And as of February 28, Visa and Visa Europe combined owned 21% of Monitise’s equity.

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

Shakeout looming in MDM sector?

Ben Kolada

Contact: Ben Kolada

The crowded mobile device management (MDM) sector is likely to see a shakeout in the near future. By one account, there are already more than 80 firms vying for space in the growing MDM market. As the sector’s more notable vendors increasingly advance ahead of the competition, we expect laggard firms will either shutter their doors or be picked off one by one in small bolt-on technology acquisitions. But as the sector narrows, the future may shine brighter for firms that are making names for themselves.

As the smartphone and tablet take more overall computing share from laptops and desktops, the need for MDM will accelerate. Increasing adoption of tablets, in particular, is driving MDM demand. According to a report by ChangeWave Research, the survey arm of 451 Research, 23% of respondents said they plan on purchasing tablets for their employees in the first quarter of 2012, up from just 5% in the fourth quarter of 2010.

As the largest acquirers continue to consolidate the software stack, we expect to see them move into the MDM market. IBM has already announced a couple such acquisitions, picking up BigFix in July 2010 for an estimated $400m and Worklight in January for an estimated $70m. Dell and BMC are also expected to be eyeing this market, and would likely look at the frontrunners – firms like AirWatch, BoxTone, Good Technology, MobileIron and Zenprise, to name a few – as their top acquisition choices. But these firms aren’t likely to be had for cheap. We’ve already heard rumors that one of them is looking for a $400m-plus exit, and that another was previously in the sights of a $250m deal. Meanwhile, valuations will likely rise as these vendors continue growing. In 2011, Zenprise tripled its headcount, while MobileIron doubled its employee base. AirWatch’s headcount hit 400 last year, and it expects to double that this year.