Category: Web 2.0

A responsible debut valuation for Responsys

Brenon Daly

Contact: Brenon Daly

Reversing a trend that has seen many of the major marketing software providers disappear inside larger players, Responsys is ready to step out onto the public market. The on-demand company, which filed its IPO paperwork just four months ago, plans to sell 6.6 million shares at $8.50-10 each. It is likely to begin trading Thursday. (See our full preview of the offering.)

At the high end of the range, Responsys would be valued at roughly $450m. That appears to be a fairly conservative valuation, at least when compared with recent acquisitions and even current trading multiples in the sector. We might suggest that Responsys – a company that’s solidly in the black and posting 40% growth – would garner a premium on its debut.

If it does indeed hit the market in the neighborhood of a half-billion dollars, Responsys will essentially match the exit prices over the past eight months of two of its main rivals. Last August, Unica got taken out by IBM for $523m (equity value), while Aprimo sold to Teradata for $525m in December. However, when we compare the three vendors, Responsys is growing at more than twice the rate of either of the two companies that went in a trade sale. (Aprimo had been on file to go public back in 2007, but the Credit Crisis scotched those plans.)

Despite the premium that we might expect for Responsys’ growth rate, the company is likely to start life on the Nasdaq at about 5.5 times trailing sales, roughly the midpoint of the valuations in the sales of Unica and Aprimo. Further, it would just match the current market valuation of Constant Contact, a low-end multichannel marketing firm that went public in October 2007.

The ever-increasing appetite of salesforce.com

Brenon Daly

Contact: Brenon Daly

Salesforce.com just keeps taking bigger bites. The company announced Wednesday that it will hand over $326m ($276m in cash and $50m in stock) for social-media monitoring company Radian6. Not only is it salesforce.com’s highest-priced acquisition, it also likely brings more revenue than any other deal the company has done, at least based on our estimates for previous transactions and the company’s guidance for Radian6. Salesforce.com indicated that the Canadian startup would contribute about $50m in sales during the current fiscal year, which is about two months old.

The purchase, which is expected to close by July, also puts an exclamation point on the changes in dealmaking at salesforce.com. The 11-year-old SaaS pioneer stayed out of the M&A market for the first half of its corporate life. And even when it started doing deals in 2006, the first half-dozen or so acquisitions were all small, valued in the low tens of millions of dollars. Salesforce.com only started announcing major purchases last year, with its $142m reach for Jigsaw Data followed by its $249m takeout of Heroku.

As sizeable as the deal is inside saleforce.com, it also looms pretty large inside the burgeoning social CRM market. Consider this: at roughly one-third of a billion dollars, salesforce.com’s pickup of Radian6 is more than 50 times larger than the acquisition of another social CRM startup just last week. Privately held Meltwater Group paid just $6m for JitterJam to bolster its social CRM offering, which the company hopes to be a $100m business within three years.

Big Data means Big Dollars for VCs

Brenon Daly

Contact: Brenon Daly

Just since last summer, the data-warehousing industry has seen a wave of consolidation sweep most of the sizable startups into the portfolios of larger vendors. While dramatically reshaping the industry, the concentrated dealmaking has also generated outsized returns for venture firms that have put money into some of the startups that are tackling the problems of ‘big data.’ By our calculation, the four recent data-warehousing exits – on average – have been 10-baggers for their backers.

The eight-month M&A spree started last July, when EMC reached for Greenplum. Two months later it was IBM’s turn to take out Netezza, the sole data-warehousing startup that had actually made it to the public market in recent years. In mid-February, Hewlett-Packard reversed its long-held strategy to stay with internal data-warehousing development and gobbled up Vertica Systems. And then just last week, the granddaddy of the industry, Teradata, snagged Aster Data Systems.

This run of deals has been a welcome development for venture capitalists, who have been starved recently for moneymaking exits. Consider this: the quartet of data-warehousing startups that have been snapped up have returned some $2.5bn to their investors, an astonishing 10 times the $245m that they collectively raised. (The total funding for the startups comes from The 451 M&A KnowledgeBase, which recently added venture information to many of the deal records.) Taking a dime and turning it into a dollar is a pretty nifty trick – and it’s one that most VCs haven’t been able to pull off across any sector of enterprise IT in a long, long time.

Select recent data-warehousing deals

Date announced Acquirer Target Price VC raised by target
March 3, 2011 Teradata Aster Data Systems $295m $57m
February 14, 2011 HP Vertica Systems $275m* (excluding earnout) $25m
September 20, 2010 IBM Netezza $1.8bn $73m
July 6, 2010 EMC Greenplum $400m* $90m

Source: The 451 M&A KnowledgeBase *451 Group estimate

Meltwater in the market

Brenon Daly

Contact: Brenon Daly

Having built a $100m business with its core media monitoring offering over the past decade, Meltwater Group is looking at picking up a small company or two this year to speed the development of the company’s next big line of business, CEO Jorn Lyseggen said earlier this week. Speaking at the Pacific Crest Emerging Technology Summit, Lyseggen said the bootstrapped private company is ‘leaning toward’ deals that bring specific IP that could bolster its recently launched products around media distribution and ad spending analytics, among other areas.

Meltwater used that strategy about a year ago to help expand an existing offering that monitored social media sources. The company already had a product, Meltwalter Buzz, before picking up BuzzGain, a 25-person startup. (We understand that Meltwater paid less than $5m for BuzzGain, its first acquisition.) Recently launched offerings by Meltwater, which claims 18,000 customers, include Meltwater Press, Meltwater Reach, Meltwater Drive and Meltwater Talent

Social CRM: haves and have-nots

Brenon Daly1 Comment

Contact: Brenon Daly, China Martens

Even though social CRM is still an emerging market, the deals have been flowing. And it isn’t just one-off, conventional activity, but just about every conceivable type of transaction: public-to-private deals, private-to-private deals, a private equity-backed rollup and even (apparently) a wind-down. Among the more notable deals in this broadly defined space has been RightNow reaching for tiny startup HiveLive last September to add a community offering to its core CRM product and Attensity cobbling together the parts of three companies to form a European giant about a year ago. Attensity was back in the market last month, adding Biz360 to bolster its voice-of-consumer product.

Activity picked up again earlier this week, as Lithium Technologies confirmed that it had acquired Scout Labs for a reported $20-25m. As my colleague China Martens reports, the purchase adds Scout Labs’ social-media monitoring and analytics capabilities to Lithium’s management platform for customer communities. We would highlight the fact that Lithium’s buy comes just four months after the company raised its third round of funding, an $18m tranche that brought total funding to $39m.

While Lithium was raising fresh money – and putting it to work on an acquisition – it appears that another social CRM startup was coming up empty in its effort to get more cash and has pulled the plug. Helpstream, which apparently raised about $10m in two funding rounds from Mohr Davidow Ventures (MDV) and Foundation Capital, has shut its doors, the former CEO has written in a blog post. Helpstream’s website no longer works and MDV has erased Helpstream as a portfolio company, despite leading the vendor’s second round. (Calls to the VCs went unreturned.)

If indeed Helpstream has dried up (as it were), we might point to two reasons why the company struggled. For starters, it was basically a SaaS helpdesk provider that then tried to get into the online customer service community-building game. And if its customers were confused by that, they would have been additionally puzzled by Helpstream’s ‘freemium’ business model. In the end, Helpstream managed to land just 40 paying customers, compared to 200 customers using the free version of its product.

No recession for mobile advertising M&A

-Contact Thomas Rasmussen

Following Google’s purchase of AdMob in November, we predicted a resurgence in mobile advertising M&A. That’s just what has happened and, we believe, the consolidation is far from having run its course. Apple, which we understand was also vying for AdMob, acquired Quattro Wireless for an estimated $275m at the beginning of the year. At approximately $15m in estimated net revenue, the deal was about as pricey as Google’s shopping trip for its own mobile advertising startup. And just last week, Norwegian company Opera Software stepped into the market as well, acquiring AdMarvel for $8m plus a $15m earnout. We understand that San Mateo, California-based AdMarvel, which is running at an estimated $3m in annual net sales, had been looking to raise money when potential investor Opera suggested an outright acquisition instead.

These transactions underscore the fact that mobile advertising will play a decisive role in shaping the mobile communications business in the coming years. For instance, vendors can now use advertising to offset the costs of providing services (most notably, turn-by-turn directions) that were formerly covered by subscription fees. Just last week, Nokia matched Google’s move from last year by offering free turn-by-turn directions on all of its smartphones. Navigation is only the beginning for ad-based services as mobile devices get more powerful and smarter through localization and personal preferences.

While traditional startups such as Amobee will continue to see interest from players wanting a presence in the space, we believe the next company that could enjoy a high-value exit like AdMob or Quattro will come from the ranks that offer unique location-based mobile advertising such as 1020 Placecast. The San Francisco-based firm, which has raised an estimated $9m in two rounds, is a strategic partner of Nokia’s NavTeq. As such, we would not be surprised to see Nokia follow the lead of its neighbor Opera by reaching across the Atlantic to secure 1020 Placecast for itself.

Amex buys into the alternative online payments revolution

-Contact Thomas Rasmussen

As the first significant deal that adds online payments technology to a legacy payment platform, American Express’ recent $300m acquisition of Revolution Money essentially amounts to a shot across the bow of eBay’s PayPal and Google’s CheckOut. The relatively rich purchase of four-year-old Revolution Money also stands as the third-largest alternative online payments buy to date, trailing only eBay’s pickups of PayPal and Bill Me Later. We estimate that Revolution Money, which had taken some $100m in venture funding, was running at around $10m-$20m in sales.

The alternative payments market is both large and fragmented, and is likely to see substantial consolidation in the coming years. It is also a space that has had difficulties in establishing a coherent offering, with early efforts ranging from ill-conceived ‘sci-fi-esque’ biometrics offerings to SMS-based payment methods. Until recently, it has mostly been marred by failed startups, poorly executed acquisitions and fire sales. Nonetheless, thanks to the continuing success of PayPal and new alternatives (Google Checkout, among others), as well as the boom in online micro-transactions and an uptick in general online shopping, the sector is again gaining favor, particularly as a way to cut transaction costs.

Looking ahead, we believe Amex’s acquisition of Revolution Money will serve as a wakeup call to other legacy payments vendors as well as financial institutions that might now look to do some catch-up shopping of their own. This inevitable consolidation should serve as good news for some of the established startups in the industry such as mPayy, Moneta, eBillme and Secure Vault Payments, among many others. These firms could well find themselves getting some overdue attention in 2010 as alternative online payments continue to gain currency.

Bets on casual games are paying off

-Contact: Thomas Rasmussen, Brenon Daly

Fittingly enough, on the one-year anniversary of our piece predicting continued consolidation of the social and casual gaming space, Electronic Arts announced the industry’s largest acquisition. The Redwood City, California-based videogame giant acquired Playfish on November 9 for $275m, although an earnout could mean that EA will pay as much as $400m over the next two years for the company. We estimate that Playfish, which will be slotted into the EA Interactive division, generated about $50m in trailing sales. Overall M&A continues to be strong in the still-niche gaming sector, with deal volume up about 25% from last year with about 35 transactions inked so far in 2009.

With the gaming industry seemingly in recovery mode after not-so-horrible earnings announcements from industry bellwethers EA and Activision Blizzard, we’re confident that more videogame and media companies will look to add social networking games. (After all, the big gaming players have used M&A as a way to buy a piece of a fast-growing, emerging market. For instance, EA spent $680m in cash four years ago for Jamdat Mobile to get into wireless gaming.) With Playfish off the board, which other social gaming startups might find themselves targeted by one of the big gaming vendors?

While there are literally hundreds of promising startups, most are too small to be important enough for a big buyer. Nevertheless, there are a few firms that have grown – both organically and inorganically – enough to make them attractive acquisition targets. For instance, Playdom, which develops games primarily for MySpace and Facebook, recently reached for a pair of smaller gaming startups. The company also recently raised $43m. Similarly, Zynga recently raised a funding round ($15m) and has also picked up two small startups this year. Two other names to watch in the emerging social gaming market are Digital Chocolate and Social Gaming Network Inc.

Is mobile advertising back?

-Contact Thomas Rasmussen

In a clear sign that mobile advertising has grown up, Google spent a whopping $750m in stock on Monday to pick up San Mateo, California-based AdMob in what we hear was a contested process. This transaction goes a long way toward securing control of mobile display advertising for Google and comes just days after the launch of Android 2.0. Although we’ve been projecting dealmaking in the mobile advertising market for quite some time, we’re nonetheless floored by the rich valuation for AdMob, a three-year-old startup that’s raised just shy of $50m. We estimate that the 140-person firm pulled in about $20m in gross revenue in 2008 and was on track to double that figure this year (we surmise that this translates to roughly $20m on a net revenue basis).

The double-digit valuation for AdMob reminds us more than a little bit of the high-multiple online advertising deals that we saw in 2007. Viewed in that context, Google’s purchase of AdMob stands as the third-largest ‘new media’ advertising purchase since 2002. Of course, like many of those transactions, this was not based on revenue, but instead on technology and market extension, which is consistent with Google’s strategy of acquiring big into core adjacencies.

Looking forward, AdMob’s top-dollar exit is sure to have a number of rival mobile advertising startups excited. One competitor that’s preparing to raise an additional sizable round of funding quipped at the near-perfect timing of this transaction. This is an industry that has seen its ups and downs over the past few years. When we first wrote about AdMob back in May it was in the backdrop of fire sales and failed rounds of funding. If nothing else, this deal will dramatically change that.

Microsoft has been actively playing catch-up to Google in advertising and search, and is sure to follow it onto the mobile device. As are many other niche advertising shoppers such as Yahoo, Nokia, AdKnowledge, Adobe-Omniture and traditional media conglomerates such as Cox. AOL has already made its move, reaching for Third Screen Media two years ago. (We would note that AOL’s $105m purchase of Third Screen is a rare case of that company actually being ahead of the market.)

Startups that could benefit from this increasing focus on the sector include AdMarvel, Amobee, InMobi, and Velti’s Ad Infuse. However, we suspect that some of the major advances – and consequently the most promising targets – are likely to come from players that are just now getting started, with fresh and profitable approaches to location-based mobile advertising.

Some recent mobile advertising deals

Date announced Acquirer Target Deal value Target TTM revenue
November 9, 2009 Google AdMob $750m $20m*
September 14, 2009 Nokia Acuity Mobile Not disclosed Not disclosed
August 27, 2009 AdMob AdWhirl Not disclosed Not disclosed
May 21, 2009 Limelight Networks Kiptronic $1m $2m*
May 12, 2009 Velti Ad Infuse <$1m* $1.3m*
March 11, 2008 Qualcomm Xiam Technologies $32m Not disclosed
August 21, 2007 Yahoo Actionality Not disclosed Not disclosed
May 15, 2007 AOL Third Screen Media $105m $3m*

Source: The 451 M&A KnowledgeBase *451 Group estimate

Is IAC looking to sell Ask.com?

-Contact Thomas Rasmussen

It looks like acquisitive IAC/InterActiveCorp could be gearing up to undo its largest buy ever, Ask.com. At least Barry Diller’s opening remarks during IAC’s conference call last week seem to indicate a desire to explore the possibility. The New York City-based Internet media company has successfully expanded into a content giant by snapping up dozens of Internet properties. IAC has inked 36 deals worth more than $4.5bn since 2002. Many of those purchases have been tiny (Airfarewatchdog.com, for instance), but IAC did make a significant pickup when it handed over $1.85bn for Ask.com in March 2005.

However, we suspect that Ask.com hasn’t delivered the kind of returns that IAC had hoped for, since the search engine remains far behind Yahoo, Microsoft and Google in terms of usage. Still, with roughly 4% of US search market share, Ask.com would be a significant addition to any acquirer in the competitive scale-driven space, where every percentage point counts.

Though we won’t rule out a financial buyout, which would have more than a few echoes of the just-closed Skype carve-out, we think a strategic buyer for Ask.com makes more sense. Two obvious suitors spring to mind: Google and Microsoft. Although Google recently made its intentions for more acquisitions known and even signaled a willingness to do large deals again, we do not think it is likely to pick up Ask.com. Rather than make a consolidation play, we expect Google to continue to snare startups to offer additional services to existing users, while also bolstering its recent moves into new markets such as online video and mobile communications.

On the other hand, Microsoft has displayed a willingness to spend a lot of money in its game of catch-up with Google. With an acquisition of Ask.com coupled with its impending Yahoo deal, Microsoft could come very close to capturing one-third of all search traffic. While that would undoubtedly help Microsoft, a divestiture of Ask.com could also benefit IAC. Granted, it would mean slicing its revenue roughly in half, but IAC would have a cleaner story to tell Wall Street. And it could use some help in that area. Investors give a paltry valuation to the cash-heavy company, valuing the business at less than one times sales on the basis of enterprise value. IAC sports a $2.6bn market capitalization, but holds $1.8bn in cash.

IAC’s historic acquisitions and divestitures, 2002 – present

Year Number of acquisitions Number of divestitures
2009 5 4
2008 7 0
2007 6 0
2006 3 0
2005 3 0
2004 4 0
2003 4 0
2002 4 0

Source: The 451 M&A KnowledgeBase