Contact: Ben Kolada
Amid double-digit revenue growth in the cloud infrastructure market, US telcos are increasingly buying their way into this industry in an effort to stem losses in their traditional wireline businesses. However, just as the hosting and colocation sectors are growing rapidly, so too are the major players being acquired. So far this year, we’ve already seen three of the largest hosters scooped up by eager telco service providers, with CenturyLink’s $2.5bn Savvis purchase being the most recent. If the remaining telcos don’t move fast enough, they could increasingly be squeezed out of the growing cloud infrastructure space. And competition for the remaining firms is expected to increase as foreign operators could look to enter the US market as well.
Atlanta-based Internap Network Services is among the short list of firms most likely to be taken out next. The company has a wide-reaching geographic footprint, with facilities spread throughout the US, Europe, Asia and Australia. The company’s large US and international presence makes it a particularly attractive target, especially for large CLECs such as tw telecom and PAETEC, or even cable MSO Comcast. However, its footprint could also attract foreign operators looking for synergies in their home markets, as well as entry into the US market. My colleague Antonio Piraino at Tier1 Research recently penned a piece reminding buyout speculators that just a few years ago Internap rebuffed a takeover offer from Indian telco Reliance Communications. He notes that Reliance may once again be a potential suitor, alongside Asian firms Pacnet and China Telecom or European provider Colt Technology Services Group.
Though opportunities for US acquisitions are diminishing, domestic telcos still have options. Given the hyper-competitive takeover market that is expected for remaining US hosters, US telcos may instead look for international deals. As seen by regional stalwart Cincinnati Bell’s CyrusOne unit expanding into London, US telcos are showing no fear of international expansion when it comes to their hosting and colocation businesses. If US telcos look abroad, we wouldn’t be surprised if they checked out Interxion. The Schiphol-Rijk, Netherlands-based firm operates 28 datacenters in 11 countries spread throughout Europe, and pulled in more than €200m in revenue in 2010, a 21% jump from the previous year.
-Contact Thomas Rasmussen
In 2008, online social networking was the buzzword of choice. But as is the case with most tech bubbles, it imploded nearly as quickly as it ballooned. The year that started with a bang (Bebo’s record $850m sale to AOL in March and Plaxo’s sale to Comcast for an estimated $150m in May) ended with a whimper. Several smaller social-networking companies sold in fire sales, resulting in severe VC write-downs. And we expect this to carry on well into 2009.
Consider the case of business-focused Xing, which finished last year with a $4.1m tuck-in of New York City-based socialmedian. When we checked in with Xing before the holiday break, M&A and attractive valuations were the dominant themes. We fully expect the company to follow up on this with more acquisitions in 2009, particularly as social-networking competition goes global. Based in Germany, Xing has used M&A to expand geographically. In addition to its US deal last month, in 2007 Xing picked up Spanish competitors eConozco and Neurona. Furthermore, we understand that Xing was one of the active bidders for Plaxo, which would have represented a significant drive into the US market. On the flip side, US social-networking giants Facebook and LinkedIn are actively trying to expand across the Atlantic.
For Xing, there are literally dozens of US business-focused vertical social networks that would fit in with its expansion strategy. And the company has the resources to do deals. (It’s the only significant publicly traded social-networking company, plus it holds $61m in cash, no debt and is cash-flow positive on roughly $50m in trailing 12-month revenue.) Companies that we think might make a good match for Xing include Fast Pitch, APSense, Zerodegrees, and, dare we say, even Twitter.
Social networking M&A fizzles
||Total deal value
Source: The 451 M&A KnowledgeBase
After a trickle of deals in 2007, this year has seen a flood of acquisitions of social networking sites as buyers look to sell advertising and services around these properties. Acquirers have spent some $1.15bn already on networking sites, compared to just $95m in all of 2007. This year’s M&A was boosted by several key service providers making significant bets on the market, including AOL’s $850m purchase of Bebo and Comcast’s acquisition of Plaxo for an estimated $150m. (Both deals, we should note, are larger than last year’s collective tally for social networking sites.)
And it’s not just the obvious acquirers picking up these online sites. Mobile phone maker Nokia shelled out an estimated $30m for geo-social networker Plazes, while Hoover’s, primarily known as a business directory, bought into the Web 2.0 trend with its tiny $4.2m acquisition of Visible Path. Even Barry Diller went shopping in this market, with his IAC/InterActiveCorp’s purchase of Girlsense.com.
Despite the broad interest and appetite for social networking sites, we wonder if supply hasn’t outstripped demand. At last count, there were more than 130 networks of various stripes. With only two companies (Facebook and LinkedIn) likely to go public anytime soon, that leaves a slew of sites hoping to connect with buyers. Coming off a 1,200% increase in M&A from last year, we can only surmise that the number of deals – and, more important, the valuations handed out to the sites – is likely to come down.
Acquisitions of social networking sites
Source: The 451 M&A KnowledgeBase