Tag: Bill Me Later

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.

Returning to eBasics

-by Thomas Rasmussen

Despite its stock trading near a five-year low and plans to cut 10% of its workforce, eBay managed to go shopping last week, picking up a pair of companies for a total of $1.3bn. The auction giant spent $945m on Bill Me Later, an online payment processor popular among big-ticket retailers, and $390m on Danish classifieds giant Den Bla Avis. The acquisitions mark a return by eBay’s recently appointed CEO John Donahoe to a focus on the company’s core operations. It also brings into sharper relief the largest strategic misstep by Donahoe’s predecessor Meg Whitman: the purchase of Skype. We believe that will soon be remedied, with the newly refocused eBay divesting its communications division.

It’s clear why eBay would want to return to its roots, and why the Bill Me Later acquisition makes a lot of sense. (The purchase of Den Bla Avis is another step in the company’s international expansion strategy.) Bill Me Later is a complementary acquisition to eBay’s PayPal payments division, which unlike the Skype acquisition has paid off handsomely. The payments segment now represents more than 25% of total revenue, or $2.2bn for the past 12 months, while Skype only brought in about $475m, or roughly 6% of total revenue. (Remember that eBay paid just $1.5bn for PayPal but handed over $2.5bn for Skype.) So who might want to pick up the Skype business?

Just because eBay has struggled to realize a return on its acquisition of Skype doesn’t mean another owner, particularly one focused on communications, couldn’t do well with the property. With about 340 million registered users, Skype is the undisputed leader in VoIP. That commanding market share is likely to attract attention from the existing telcos. It is particularly enticing once you factor in what is happening in the mobile space right now and Skype’s position to dominate mobile VoIP. So far, the wireless telcos have been fighting to keep Wi-Fi, VoIP and other services they do not control or profit from off their handsets. This is a battle they are quickly losing (case in point: Android, BlackBerry and iPhone). Much in the same way that the legacy telcos were quick to adopt wireless technology when it was still in its infancy rather than cling to the wires, it makes sense to try to profit from the trend rather than fight it. Another likely bidder for Skype is Nokia, which has been an avid acquirer of mobile content in its bid to move away from strictly hardware. In addition, Google, Microsoft and Yahoo might consider picking up Skype, since all three of these companies have used acquisitions to enter the emerging mobile communications market.

Performance of select eBay acquisitions

Date of acquisition Target Deal value Current TTM revenue Current revenue to deal value multiple
September 12, 2005 Skype $2.5bn $475m 5.2x
July 8, 2002 PayPal $1.5bn $2.5bn 0.6x
October 6, 2008 Bill Me Later $945m $130m (projected for calendar year ending December 31) 7.2x
October 6, 2008 Den Bla Avis $390m $58m (reported) 6.7x

Source: The 451 M&A KnowledgeBase