Category: online advertising

IPO candidates feel the tremor

Contact: Tejas Venkatesh

Over the past few weeks, it appears sentiment on Wall Street has soured significantly. With the US Federal Reserve planning to wrap up bond purchases, the broader stock market volatility as represented by the CBOE volatility index hit its highest level all year earlier this week. As a result, unknown and unproven IPO candidates are bearing the brunt of that market uncertainty. That was evident today when both IT retailer CDW and video advertising network company Tremor Video priced below their indicated range. In CDW’s case, that came after the company had already cut the number of shares on offer by 16%.

For its part, Tremor Video sold 7.5 million shares for $10 each, below its indicated range of $11-13. In the process, the company raised $75m and debuted at an (undiluted) market cap of $485m. By midmorning, the stock headed further south and was changing hands on the NYSE at $9.50.

Tremor Video analyzes in-stream video content, detects user attributes and uses that information to optimize video ad campaigns for marquee brands like Procter & Gamble, Ford Motor and Walt Disney. The eight-year-old company, which raised about $120m in total funding, generated $113m in revenue for the year ended March 2013.

The sudden souring of sentiment is leading to a difference in expectations between investors and issuing companies. Tremor Video is the first advertising technology (adtech) IPO to price below its expected range. In its case, the performance of recent adtech IPOs didn’t help. Both Millennial Media and Marin Software are trading about 30% below their IPO price.

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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.

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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.

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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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IPO drought lifts, as Marin Software and Model N reveal their paperwork

Brenon Daly

by Brenon Daly

Both Marin Software and Model N revealed their IPO paperwork Wednesday evening, setting the pair up to be the first new technology companies to come to market since mid-November. Both planned offerings have a $75m cover raise, and given the new regulations around IPOs, won’t actually hit the market until mid-March at the earliest. But at least the end to the recent IPO drought is (apparently) near.

Although they share the same filing date, the two companies are very different. Model N sells revenue management software, primarily to the life sciences industry although it has also expanded to tech vendors recently. Model N, which is almost twice as old as Marin Software, sells both perpetual licenses and a subscription product. License sales and related maintenance account for the majority of Model N’s revenue, which totaled $89m in 2012. J.P. Morgan Securities and Deutsche Bank Securities are leading the offering.

Founded in 2006, Marin Software only really began selling its subscription-based digital advertising platform in 2009. Since then, the company has been growing quickly. Through the first nine months of 2012, it recorded $43m in sales, up 72% from the same period in 2011. Marin Software’s revenue retention rate has topped 100% in each of the past two years. Bookrunners are Goldman Sachs & Co and Deutsche Bank.

With the different vintages, business models and markets, Model N and Marin Software will undoubtedly appeal to different investor classes on Wall Street. Along with that, they will undoubtedly garner different valuations. Loosely, we figure Model N will debut at about a $400m valuation and Marin Software may come out at roughly $600m. After the dry spell that we’ve seen in the IPO market recently, $1bn or so of value creation from the two companies will be a welcome development in Silicon Valley.

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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.

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MediaMath strikes twice in Akamai deal

Ben Kolada

Contact: Ben Kolada, Tejas Venkatesh

Marketing analytics startup MediaMath and CDN giant Akamai have engaged in a two-pronged deal that should help accelerate MediaMath’s already astounding growth rate. MediaMath is acquiring Akamai’s Advertising Decision Solutions assets and data cooperative, and is gaining exclusive access to Akamai’s pixel-free technology, which tracks online user behavior without using tracking pixels.

Adding to its already successful TerminalOne platform, MediaMath is picking up Akamai’s advertising data management platform and opt-in data-sharing cooperative. MediaMath says the assets will help its advertiser clients better profile audiences and predict audience behavior.

Terms of the transaction also provide MediaMath with multiyear, exclusive access to Akamai’s pixel-free technology. The traditional method for advertisers to collect user data has been to install tracking pixels on users’ computers when they access websites. However, Akamai’s pixel-free technology bypasses that strategy. Since Akamai has access to a significant portion of Web traffic through its content delivery and site acceleration services, it can directly observe user behavior. Its pixel-free technology leverages its content delivery roots to track user online behavior without the need to install tracking pixels.

We’d note that even before the addition of Akamai’s assets, MediaMath had done quite well for itself. With primarily organic growth, the company, founded in 2007, grew revenue last year to $180m, more than double the $78m it recorded in 2011.

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DoJ raises its voice against Bazaarvoice deal

Brenon Daly

Contact: Brenon Daly

In a highly unusual move, the US Department of Justice (DoJ) filed a lawsuit Thursday afternoon against a company that has already closed an acquisition of a rival firm, alleging the deal is anticompetitive. The DoJ says Bazaarvoice did not report its $152m cash-and-stock purchase of fellow online customer review site PowerReviews to either the DoJ or Federal Trade Commission. The transaction was announced May 24 and closed quickly thereafter, on June 12.

The DoJ, which began investigating after the deal had already closed, didn’t specify exactly what part of the acquisition it would seek to unwind. The release said only that the lawsuit ‘seeks to restore competition’ in the marketplace, and DoJ representatives didn’t respond to requests for clarification.

For its part, Bazaarvoice said it spent six months explaining that there would be ‘robust and ample’ competition in the social commerce marketplace following the Bazaarvoice-PowerReviews combination. The company plans to fight the lawsuit and indicated it expects to be ‘fully vindicated.’

As we noted at the time of the acquisition – which was Bazaarvoice’s first purchase, coming just three months after its IPO – the deal represented a significant bet on being able to move down-market, expanding Bazaarvoice’s voice-of-customer platform to SMBs. At the time of the announcement, PowerReviews had more customers (1,100) than Bazaarvoice (737), but only slightly more than one-tenth the revenue.

Whatever the outcome, Wall Street’s reaction to the lawsuit was immediate. Bazaarvoice shares were unchanged at about $9 each for virtually the entire session Thursday. But when the DoJ announcement came out in the final hour of trading, the stock plummeted 15% to about $7.50. The selling pressure continued on Friday, with the stock dipping to $6.65 – the lowest level for the shares since their debut last February. All in, the DoJ’s lawsuit has trimmed $165m from Bazaarvoice’s market value.

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SEOmoz’s acquisition announcement gets listed

Ben Kolada1 Comment

Contact: Ben Kolada

Search engine optimization (SEO) specialist SEOmoz could also be considered a public relations expert. Rather than issuing a staid press release that follows the typical format, the company announced its acquisition of GetListed on Tuesday in rare form that included both style and substance. Having one characteristic without the other can cause a release to be a flop, but when combined together the impact can be profound.

Privately held SEOmoz announced on Tuesday the $3m cash and stock acquisition of GetListed, also privately held, using both a more formal press release and a ‘ransom note’ format.

The strategic rationale for the deal makes sense. The purchase of GetListed provides SEOmoz with software tools that SMBs use to analyze and utilize free local marketing outlets, such as Google Places. The deal adds a local component to SEOmoz’s otherwise geo-agnostic software.

But the substance of the announcement arguably carried more weight than the rationale of the fairly small transaction. Privately held companies are not required to disclose sensitive details of acquisitions, such as price, and very few choose to do so.

In providing both substance (the price of the transaction) and style (the ransom note format), SEOmoz was able to generate considerable media coverage. For example, a quick Google search for ‘seomoz’ and ‘getlisted’ generated more than three times as many results as a search for ‘urban airship’ and ‘tello’ – a pairing that was announced the same day.

Though perhaps a stretch, after seeing the success of its own public relations model, we wonder if SEOmoz may want to offer public relations capabilities to its customers. If it decides to go this route, one likely target would be young startup AirPR, which provides a platform for companies to find public relations professionals.

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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.

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