Online coupon service providers a hot commodity

Contact: Brian Satterfield

With Groupon’s IPO looming on the horizon, the online coupon business model is attracting more attention than ever before. That’s also coming through in deal flow, with the number of transactions in the emerging sector having increased more than six-fold so far this year compared to last year. The main driver for these deals is the push by deal-a-day sites to buy their way into new markets, mostly overseas. (We’ve already noted how Groupon got an incredible value on its primary international purchase, Berlin-based CityDeal.)

Like the online coupon market itself, M&A in the sector is accelerating at a dizzying rate after a very recent start. As a proxy for the overall daily deal market, consider the almost unprecedented growth of Groupon: the Chicago-based company launched in November 2007, generated less than $1m in sales in 2008 but then posted sales of $30m in 2009 and more than $700m last year. In terms of acquisitions, we only tallied the first online coupon transaction in the sector in April 2010. That was one of just five acquisitions in the market that we recorded in the first half of 2010. In comparison, we’ve already had 29 online coupon acquisitions this year – a 500% increase.

Geographic expansion is the primary factor driving the robust growth in this sector, as more than half of the 43 total online coupon deals that we’ve seen appear to be driven by a push into new markets, both domestically and overseas. Groupon, which has been the buyer in nearly one-quarter of all online coupon transactions, exemplifies this trend, pocketing a total of 11 competitors overseas. Meanwhile, the company hasn’t made a single consolidation move in its home market. That’s not surprising, given that Groupon’s international operations, which account for the majority of its revenue, are growing faster and run at a higher margin than its US business.

Online coupon transactions

Period Deal volume
Q1-Q2, 2009 0
Q1-Q2, 2010 5
YTD 2011 29

Source: The 451 M&A KnowledgeBase