Nokia browses for an advantage

Contact: Jarrett Streebin

In an effort to increase its appeal in emerging markets, Nokia has bought Novarra, the first of two deals in as many weeks. With the acquisition, Nokia obtains Novarra’s faster and more-efficient browser, which is important in emerging markets where bandwidth limitations exist. Nokia is also playing catch-up with players like Apple and Research In Motion that already have their own browsers.

Nokia ships more than 400 million phones annually, many to customers in emerging markets such as Africa, Asia and South America. Having a fast, low-bandwidth browser like Novarra will enable Nokia to better attract carriers in these regions and with the smartphone craze just starting to take off, the company gains an edge on competitors whose browsers require more bandwidth.

Although the deal value wasn’t released, we understand that Nokia paid roughly four times trailing sales for Novarra. The 10-year-old startup had received $88 million in funding from JK&B Capital, Qualcomm, Fort Washington Capital Partners, Kettle Partners and Colorado Investment Securities, with $50m of this coming in a round in 2007.

This move will also affect Novarra’s rivals such as Opera Software and Mozilla. The impact on Mozilla will be limited because its browser targets 3G smartphones like Nokia’s N900 to provide a rich, unconstrained mobile browsing experience. Opera is currently the market leader in mobile browsing, with more than 50 million active users, many of whom are using Nokia phones. Now, Nokia will have its own browser to compete. Although this will cut Opera’s market share, Vodafone has already announced that it will be preloading Opera on many of its phones in emerging markets. It could be that Vodafone needs a browser of its own, too.

Cyber Monday’s here

-Contact Thomas Rasmussen, Brenon Daly

Even though the receipts from Black Friday, the traditional retailers’ launch of the holiday shopping season, weren’t much bigger than they were last year, online retailers on Cyber Monday appeared to be ringing up a pretty good business this year. Amid all of the cyber-shopping, we couldn’t help but notice that there has also been a fair amount of buying of the shopping sites themselves. For instance, Amazon recently wrapped up its $847m all-stock acquisition of online apparel retailer Zappos. This stands as Amazon’s largest purchase, nearly three times larger than its second-largest buy. (We should also note that when the deal closed earlier this month, the equity was worth a whopping $1.2bn thanks to the recent surge in Amazon shares. The stock, which hit an all-time high on Monday, has risen some 62% over the past three months.) While overall M&A spending this year appears likely to be half the amount of 2008, online retail dealmaking is still going strong. We expect spending on Internet commerce acquisitions to come in roughly where it did in previous years, at some $2.3bn worth of transactions in the sector.

Meanwhile, another e-commerce vendor continues its push for a different exit. filed to go public in late September, and appears to be on track for a debut early next year. The online electronics retailer, which was founded in 2001, has more than doubled sales over the past four years while also posting a profit in each of those years. Although growth has slowed so far this year, Newegg still raked in $2.2bn in revenue and $70m in EBITDA for the four quarters that ended last June.

Given the recent trend in dual-track offerings, we wonder if Newegg might not get snapped up before it hits the Nasdaq under the ticker ‘EGGZ.’ Granted, this is pure speculation, but there are a fair number of parallels between Newegg and Zappos, which could mean that Amazon will reach for it. (Both Newegg and Zappos have developed profitable, growing businesses by specializing in a slice of the market that Amazon has tried – but failed – to dominate.) Additionally, electronics retailers such as Best Buy could well be interested in bolstering their online sales units with Newegg. Although Newegg and its underwriters haven’t set an initial valuation, we suspect that any buyer would have to be ready to hand over slightly more than $2bn to add Newegg to its shopping cart.

Online retail M&A

Period Number of deals Total deal value
2005 30 $1.27bn
2006 53 $3.78bn
2007 36 $2.62bn
2008 45 $1.36bn (excluding the sale of Getty Images)
2009 YTD 55 $2.34bn

Source: The 451 M&A KnowledgeBase

Is IAC looking to sell

-Contact Thomas Rasmussen

It looks like acquisitive IAC/InterActiveCorp could be gearing up to undo its largest buy ever, 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 (, for instance), but IAC did make a significant pickup when it handed over $1.85bn for in March 2005.

However, we suspect that 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, 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 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 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 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 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

How do you say ‘please come back’ in Korean?

-Contact Thomas Rasmussen

When SanDisk released its dismal earnings this week, dismayed shareholders hastily headed for the hills. The exodus caused SanDisk’s stock to plunge 25%. In the fourth quarter of 2008, the flash memory giant lost $1.6bn, pushing its total loss for the year to $2bn. This red ink from operations was exacerbated by the company’s $1bn of acquisition-related write-downs stemming from its $1.5bn acquisition of msystems in July 2006. In the days following the dire news, SanDisk has been trading at a valuation of around $2.2bn. That’s a far cry from the $5.6bn that Samsung offered for SanDisk in September.

To put the decline in perspective, SanDisk’s three largest outside shareholders – Clearbridge Advisors, Capital International Asset Management and Capital Guardian Trust, which collectively own more than 15% of SanDisk (as of September 30) – suffered a paper loss of more than $700m since the day Samsung walked away from the proposed deal. Given this, we wouldn’t be surprised if shareholder ire forced SanDisk to reconsider its strategic options this year. On its earnings call this past Monday, the company reiterated that its board is indeed open to deal with any interested parties, which begs the inevitable question: Who might be willing buyers?

With private equity largely stymied and longtime partner Toshiba repeatedly stating that it’s not interested in a deal, Samsung is still the most logical fit. It has the cash, has shown a willingness to pay a solid premium, and would integrate well with SanDisk’s overall portfolio of products. In addition to its valuable intellectual property assets (which would eliminate those ugly royalty fees) and flash and solid-state drive lineup, SanDisk would instantly give Samsung the second-largest share of the music player market, behind only Apple. Perhaps it’s time for SanDisk CEO Eli Harari to brush up on his Korean, or at least learn how to say ‘please come back’ in that language.