Welcome to middle age, Google

by Brenon Daly

Like a lot of us, Google has gotten more conservative as it has grown older. The search giant, which was born on this day 20 years ago, has dramatically slowed its once-frenetic M&A program, cutting the number of deals it announces each year to the lowest level since the recent recession. It’s almost as if Google has turned into a bit of a homebody as it hits the corporate equivalent of middle age.

So far in 2018, Google has announced just seven deals, according to 451 Research’s M&A KnowledgeBase. While Google’s pace of almost one acquisition per month leaves most other corporate acquirers in the dust, it is a dramatic slowdown from the recent rate at the company. (We would note that even as Google invests less in its inorganic growth initiatives, it continues to amply fund its organic growth initiatives. The company is currently spending $5bn per quarter on research and development.)

In terms of M&A, from 2010-2014 – when Google was, effectively, an adventurous teenager – the company averaged more than two deals each month. Our M&A KnowledgeBase shows that Google’s pace peaked in 2014 at 36 acquisitions, a head-spinning rate of three deals every month. For comparison, there are highly valued, large-cap tech companies with oodles of cash, like Google, that don’t even average three deals every year.

Of course, the recent decline in deals has more to do with strategy than chronology. In early 2015, Google appointed a former investment banker with a reputation for fiscal discipline as its CFO. It followed that up a few months later by overhauling its business and even adopting a new name, Alphabet. The impact was immediate.

As we noted about a half-year into the new era, the newly renamed Alphabet is focusing much more on ‘alpha,’ in the sense of being the top dog of internet advertising, as well as delivering ‘alpha’ to shareholders (Google stock has more than doubled since it made the changes). However, that has come at the cost of the second part of its name – the company is making far fewer M&A bets. That’s even more the case today, as Google rolls into its third decade of business.

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High water in the channel

Contact: Brenon Daly

In an unexpectedly strong debut, ChannelAdvisor created nearly $400m in market value in its IPO earlier this week. The 12-year-old company, which trades on the NYSE under the ticker ECOM, priced at the high end of its range and then shot up some 30% in its first session.

At the risk of bearishly mauling this bullish debut, ChannelAdvisor appears richly priced. With some 20.5 million (undiluted) shares outstanding, investors are saying the e-commerce channel advisory vendor is worth about $380m. That’s a steep valuation for a relatively small company (2012 revenue of just $54m) that’s only growing in the low-20% range and still has a negative ‘adjusted’ EBITDA figure, not to mention a net loss.

The roughly 7x valuation that ChannelAdvisor got in its IPO also looks pricey when compared with the value that a smaller rival got in its exit earlier this year. Back in February, channel intelligence sold to Google for $125m, which we understand worked out to about 4.5x trailing sales. Channel intelligence was roughly the same vintage as ChannelAdvisor, but only about half the size of the now-public company.

Still, it’s unusual for an IPO to trade at such a sharp premium to an M&A valuation, which should, theoretically, be higher because it reflects the full life value of a company. The gulf could indicate that either Google got a steal in its deal or that Wall Street may be paying too much for ChannelAdvisor.

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Undressing demand for wearable technologies

Contact: Ben Kolada

Still in the fad phase, wearable technology is gaining market interest, driven by new devices being introduced both by tech companies and old-school consumer goods firms. The advent of these new Internet-connected form factors, such as ‘smartwatches,’ fitness and health devices, will spur the creation of new application markets in the technology industry.

Demand for wearable technology is specifically being seen in interest for an Apple iWatch, a smartwatch that many expect will be released later this year. According to a recent report by ChangeWave Research, a service of 451 Research, prerelease demand for the iWatch already matches what the iPad and Intel Mac saw before their respective debuts.

The likely launch of the iWatch and overall emergence of new wearable technology devices, such as Google’s Glass, Nike’s FuelBand, Jawbone’s UP and various devices from Fitbit, will create new markets in application software. For example, there’s already an investment syndicate, called Glass Collective, made up of VC firms Google Ventures, Andreessen Horowitz and Kleiner Perkins Caufield & Byers, that are ready to fund companies building new ways to use Google’s Glass device.

Our senior mobile analyst, Chris Hazelton, believes these devices will create extremely tight bonds between users, the cloud and very likely new technology players. For example, unlike smartphone and tablet apps that are used infrequently or once and discarded, Google Glass apps will be persistent, following and advising a user throughout their day.

If you already own a wearable tech device, or are planning to buy one, let us know what you think of this sector and which applications you think will become most valuable. You can tweet us@451TechMnA or contact us anonymously.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Going mobile

Contact: Ben Kolada

In the past few years, mobile marketing M&A and IPO activity has been dominated by firms that pushed out ad impressions to consumers. The purchases of Quattro Wireless and AdMob more than three years ago were the most notable examples, with the two deals combining to create more than $1bn of M&A value. Turning to the other exit, the IPO last year of Millennial Media briefly created nearly $2bn of market value for that company. With these transactions, mobile ad publishing became an accepted form of mobile marketing.

But mobile advertising isn’t only about pushing ads out to consumers. In fact, this model may not even be the most effective. (That may be underscored by the performance of Millennial Media on the NYSE. Shares have lost about three-quarters of their value since the debut, and are now valued at just $500m.)

At the ad:tech conference, which wrapped up Wednesday in San Francisco, we noticed the emergence of a handful of startups attempting new ways to enable businesses to advertise themselves on smaller, mobile screens.

Rather than pushing out ad impressions, DudaMobile, for example, helps businesses ‘mobilize’ their own websites. Its software requires no coding knowledge. The company apparently has proven itself enough to recently expand its series B financing from $6m to $10.3m. In a similar vein, we’ve heard that bootstrapped Bizness Apps, which provides a template for small businesses to easily build custom-made apps, is experiencing considerable growth.

To our subscribers: What do you think is the next big trend in mobile advertising? Which companies or mobile advertising markets do you think are most valuable? Let us know @451TechMnA or anonymously at kb@the451group.com.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Consolidating the Google Apps ecosystem

Contact: Ben Kolada

The Google Apps ecosystem saw continued consolidation on Wednesday as UK Google Apps developer and reseller Ancoris announced that it was acquiring Appogee for an undisclosed sum. Google and other enterprise apps providers are using resellers to target the SMB market, a strategy that has spawned a plethora of application systems integrators. Consolidation in this sector has taken off in the past few years and is providing extremely fast growth for some companies.

Application software OEMs, such as Google but also including salesforce.com, have focused their efforts on targeting the enterprise segment, and instead have used resellers to penetrate the SMB market. Meanwhile, cloud services are now affordable for SMBs, and millions have migrated away from their old premises-based systems to modern cloud services.

VARs like Ancoris and Cloud Sherpas add functionality to the apps they resell, such as multiple domain setup, administrative capabilities and more fleshed-out instant messaging capabilities. Essentially, they’re making paid Google Apps more suitable for SMBs by answering shortcomings not addressed by default by Google.

Increasing adoption of cloud services combined with consolidation has played out particularly well for Cloud Sherpas, which has acquired eight companies in the past two years, including two so far this year. The company’s CEO has publicly said he expects revenue to break $100m this year, up from about $75m last year and less than $1m in 2009.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

A late April Fool’s

Contact: Ben Kolada, Tim Miller

Contrary to a published press release (and several media outlets that took the bait), Google is not acquiring Wi-Fi provider ICOA. A poorly written press release published Monday morning led many to initially believe the deal was being done for $400m. However, a cursory look at the announcement’s grammatical errors, as well as the 3,700x price-to-trailing sales multiple, gave clue that something was amiss.

The oddball pairing had the flavor of one of Google’s notorious April Fool’s pranks, but neither Google nor ICOA was laughing. Representatives from both companies told us the announcement was false and both denied publishing it. ICOA even went so far as to say they are not having this kind of conversation with anyone at the moment.

That’s not to say the prank didn’t have a purpose. One explanation the release was published is rooted in the volatility of penny stocks, and the relative ease of inflating a penny stock’s value. Following the announcement, shares of ICOA, which trade at less than a penny on the OTC Pink Sheets, shot up nearly five-fold on heavy trading volume. Throughout the swing, more than 300 million shares traded hands, compared with the stock’s three-month average daily trading volume of less than three million shares.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

Is Sucuri for sale?

Contact: Ben Kolada

Just a month after its newfound partner VirusTotal was scooped up by Google, antimalware detection and remediation startup Sucuri may be next on the auction block. Word has it that the two-year-old company is attracting takeover attention. That shouldn’t come as too much of a surprise, given the growth potential of the website antimalware monitoring market and the strategic importance companies are placing these days on their online presences.

Sucuri provides a website malware detection product and associated remediation service meant to prevent customers’ websites from being blacklisted by search engines, namely Google. The company’s software scans websites for malware infection and alerts the customer. Sucuri then provides a cleanup service to remove the malware. As businesses continue to transition from brick-and-mortar to e-commerce models, such services will become increasingly important to growing sales, especially during the upcoming holiday season. Given its short lifespan, we suspect that the company is currently generating less than $10m in revenue.

No word yet on which companies may be looking to acquire Sucuri, but the list likely includes mass-market hosting vendors and large security firms. Like its competitors, Sucuri’s go-to-market strategy so far has been partnering with hosting companies, though it also sells directly to customers. The company lists Web host ClickHOST as a partner, as well as a half-dozen WordPress hosting and site design vendors. As for possible security suitors, the most likely acquirers that immediately come to mind are Proofpoint, Kaspersky Lab, Websense, Symantec, AVG Technologies or AVAST Software.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

Comments requested

Contact: Ben Kolada

Comment aggregation and social engagement startup Livefyre has been busy lately. The company recently moved into a larger office and just launched a new product. Meanwhile, its 29-year-old CEO is hitting the fundraising circuit, hoping to secure additional VC financing to propel its growth.

Livefyre was founded by Jordan Kretchmer in 2009 with the mission of aggregating comments from social networking outlets on publishers’ websites. However, the startup has expanded beyond that. Its StreamHub product, which recently made its commercial debut, provides a real-time blogging and chatting platform to publishers. It aggregates comments, videos and images from social networks using customizable widgets. The company is also making a push to expand beyond its publishing customer base toward brands.

Livefyre is serving a niche of the greater digital marketing industry, and its products still have room for improvement, but publishers and brands are already finding value in what it offers. The vendor’s partners include WordPress and Google. It’s projecting $10m in bookings for this year.

To aid future growth, Livefyre is taking its message to venture investors. To date, it has raised $5.3m in venture capital from Greycroft Partners, Cue Ball, Hillsven Capital, Zelkova Ventures and ff Venture Capital. Livefyre wouldn’t comment on the amount it’s hoping to secure in its C round, but by this stage companies typically look for $5-10m. The financing will be used for hiring, product development and marketing and sales. Livefyre expects to close the round by year-end.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

Google grabs antivirus, antimalware scanning aggregator VirusTotal

Contact: Wendy Nather

Málaga, Spain-based VirusTotal, a company that provides free antivirus and antimalware aggregation services, announced that it has been acquired by Google, following the search giant’s acquisition last year of zynamics for code analysis and reverse engineering. No terms were disclosed, but given that VirusTotal is a labor of love by a team of seven engineers, we believe both sides got a good deal.

VirusTotal aggregates the results of scans from numerous antivirus engines and website scanners: a user can upload a file or submit a URL for scanning, and will receive any findings from the collection of tools. In return, VirusTotal gets to use the data from the upload and its results to add to its data store, which it will then share with all subsequent comers. The company has been firmly vendor-independent, and says it will continue to operate that way as a subsidiary of Google. (We do wonder, however, whether it plans to change the name of its company blog, currently titled ‘Inside VirusTotal’s Pants.’) The value to Google comes from VirusTotal’s position at the crossroads of antimalware research: the more people who use its service, the richer the data and intelligence will be.

The VirusTotal team makes very clear that its service is not intended to take the place of antivirus software, nor should it be used to compare commercial tools. And indeed, we can’t see it being a threat to the established antimalware vendors (in fact, the latest announced integration was Sucuri’s SiteCheck). It’s more an intelligence sink and source, and as a free service it has the best chance of collecting agnostic data that benefits the entire community. But that intelligence, together with its public and private API access, could also be used by Google internally in a number of ways, such as checking submissions to its Android store, or scanning sites before offering them as search results. The number of threat intelligence feeds is growing daily, and Google just picked up a meta-version of many of them for what we assume was a relatively low price – viewed from this angle, it was a smart move.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

Buying your loyalty

Contact: Ben Kolada

Gannett Co announced on Thursday the acquisition of Mobestream Media, maker of the Key Ring customer loyalty application. The deal is one of only a handful of mobile rewards and loyalty purchases announced so far, but as the market matures, we expect that many startups will be acquired and tucked into larger digital marketing vendors’ portfolios.

Like its pickup of social media marketing startup BLiNQ Media last month, Gannett bought Mobestream to build out its digital marketing portfolio. Mobestream’s Key Ring app allows smartphone users to store and receive merchant loyalty card information and digital coupons. The company’s retail customers also use its platform for marketing campaigns. So far, more than five million users have downloaded the app. Horizon Partners advised Mobestream on its sale (this is Horizon’s fifth M&A deal this year, but won’t be its last).

Because the mobile loyalty sector is still so young, there have only been a few acquisitions. However, there are more than a dozen startups operating in this sector, and purchases by Gannett and Constant Contact suggest that their products are better suited as part of a larger digital marketing portfolio.

As the mobile loyalty market matures, the leading startups will likely become acquisition targets for larger tech marketing vendors and publishers such as Google, Vocus, Teradata and Advance Publications. Several startups have already secured funding to propel their growth. In May, RewardLoop announced a $1m series A round, Beintoo took $5m in its A round and Belly secured $10m in its series B. Kiip followed in July with an $11m B round.

Select mobile loyalty M&A

Date announced Acquirer Target
September 7, 2012 MasterCard Truaxis
September 6, 2012 Gannett Co Mobestream Media [dba Key Ring]
January 19, 2012 Constant Contact CardStar
December 8, 2011 Plum District Chatterfly
July 8, 2011 Google Punchd Labs
November 9, 2010 Angoss Software Hitgroup.ca (mobile solutions assets)

Source: The 451 M&A KnowledgeBase

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