Tag: M&A

UBS: You buy us?

Brenon Daly

As it reported an ‘unsatisfactory’ loss of hundreds of millions of dollars, UBS AG also said Tuesday that it will carve off its investment banking business. The move represents a retreat from the ‘universal bank’ model the Swiss giant has pursued. And despite management’s statements, it makes a sale of the banking unit more likely. (Just as Time Warner splitting AOL’s legacy Internet access division from its online advertising business clears the way for a sale of the dial-up unit. That is, if there are any AOL subscribers left to sell.)

Washed away by the gallons of red ink spilling from the investment banking department is that UBS actually has a fairly robust advisory business, particularly for transatlantic tech deals. In terms of deal value, it ranked fifth in our recent league tables covering transactions between North America and the EU from mid-2007 to mid-2008. The previous year, UBS placed fourth. (An executive summary of the report is available here; download the full report here.)

Far and away, UBS was the busiest bank, advising on 13 transatlantic transactions over the past year. Both Lehman Brothers and Deutsche Bank advised on eight transactions. And UBS has kept its momentum, already claiming another tombstone since we closed our survey period on June 30. (UBS served as sole adviser for IBM in its purchase of Paris-based ILOG for $340m.) But given how things stand now, the next big deal UBS advises on could be the sale of its own banking business.

Selected UBS-advised transatlantic deals

Date Acquirer Target Price
July 2008 IBM (sole UBS mandate) ILOG $340m
April 2008 Apax Partners TriZetto Group (sole UBS mandate) $1.4bn
Feb. 2008 Reed Elsevier (co-adviser UBS) ChoicePoint $4bn
April 2008 Diodes (sole UBS mandate) Zetex Semiconductors $176m

Source: The 451 M&A KnowledgeBase

Steady flow of online video deals

Emerging online video markets have been keeping investors and acquirers busy, with Google making the latest move through its recent purchase of tiny startup Omnisio. The California-based startup, which received seed funding from Y Combinator, launched in March and offers an online video editing widget that enables users to slice and mash existing online videos, add text and audio commentary and create proprietary slideshow presentations. Google plans to integrate Omnisio’s technology and its three Australian ex-pat founders into its YouTube platform.

In the past two years, companies have spent more than $7bn on more than 50 deals in the (broadly defined) online video space. The largest of these was Google’s purchase of YouTube for $1.65bn in October 2006. Rival Yahoo has also been active. It picked up video sharing site Jumpcut two years ago, as well spending $160m for video distribution platform Maven Networks earlier this year and a total bill of nearly $1bn for related advertising networks BlueLithium and Right Media in 2007.

Meanwhile, traditional media bigwigs are also banking on online video and advertising markets. In March, News Corp and NBC launched their $100m joint TV venture, Hulu, just month after picking up Chinese startup Mojiti, which serves as the TV streaming platform for Hulu. Although professional video streaming services such as Hulu are expected to be able to secure ad dollars quicker than user-generated video sites, it’s still early in that market.

One market where we see tremendous opportunity is for ad-based mobile services. Consider nine-year-old MobiTV, which has been streaming to mobile devices since 2003. Operating on a subscription-based revenue model, MobiTV claims profitability. Last year, the company received $100m in its latest round of VC funding, and is actively looking to use that cash to buy its own advertising network. In this crowded and bustling marketplace, the top Internet and media behemoths would do well to pay attention to well-footed upstarts like MobiTV.

Selected online video deals

Date announced Acquirer Target Deal value
July 30, 2008 Google Omnisio $15m (reported)
Feb. 12, 2008 Yahoo Maven Networks $160m
Sept. 12, 2007 Hulu Mojiti not disclosed
Oct. 9, 2006 Google YouTube $1.65bn
June 27, 2006 Yahoo Jumpcut not disclosed

Big Blue shops across the pond

Brenon Daly

Despite a lingering cold front in transatlantic M&A, IBM recently announced plan to shell out $340m for ILOG. We noted in a mid-year report that spending by North American acquirers of EU-based targets has declined by roughly two-thirds from mid-2007 to mid-2008 compared to mid-2006 to mid-2007. The reason: the slumping dollar and grinding bear market that has cut the value of acquisition currencies for U.S. companies. (Both the greenback and the Nasdaq have lost about 15% of their value over the past year.)

Big Blue’s purchase of the Paris-based vendor of business rules engine technology isn’t likely to signal a rebound in ‘eastbound’ M&A, at least not a significant one. My colleague Adam Phipps notes the IBM-ILOG deal isn’t even among the Top 10 transactions, when ranked by deal size. The proposed combination comes in twelfth place in terms of purchases made by North American companies of EU-based companies over the past year.

A scratch-and-dent sale for Vignette?

Brenon Daly

With its shares currently bumping their lowest level in three years, Vignette has done little to help itself. In its second-quarter report Thursday, the dismaying decline in sales of its software continued. In the first half of 2008, Vignette has recorded just $20m in license sales, down from $30m in the first half of 2007. By way of understatement, CEO Mike Aviles acknowledged that Vignette’s software sales ‘are not where we want them’ but added additional marketing spending and recent changes in the company’s sales executives should help.

We’re not so sure those moves will help the struggling company. Vignette already spends one-third of its revenue on sales and marketing, and indicated that it may bump up that level for the rest of the year. (Not that the company has much insight into how business will run in the coming months. Consider its laughably broad guidance to Wall Street on its loss of the current quarter: It said it’ll lose something between 7 and 21 cents per share in the third quarter, representing a net loss in the period of $1.7-5m.)

One of the main reasons Vignette continues to struggle is that it’s going against some tough competition, including Oracle and IBM, as well as stand-alone content management players. For that reason, we could certainly see Vignette benefiting from being part of a larger company. And indeed, we’ve heard from two sources that the ongoing auction for Vignette has narrowed to two final parties. While we don’t know the specific names, we suspect Hewlett-Packard may well be one. (Don’t forget that the head of HP’s software division, Tom Hogan, knows Vignette intimately. Hogan served as CEO of the company from 2002-2006 before moving to HP.)

And the price for Vignette certainly isn’t prohibitive. With the stock having slid 40% over the past year, Vignette currently garners a market capitalization of just $280m. However, the debt-free company also has $90m in cash and equivalents in its bank account, lowering the net cost of Vignette to just $190m. That’s about the same level of sales it is likely to report this year. In the past, shoppers have paid 2.6 to 2.9 times enterprise value/revenue for their purchases of other publicly traded content management vendors. However, we doubt Vignette – with its slumping software sales and spendthrift marketing plans – will command that kind of multiple.

Selected significant content management deals

Date Acquirer Target Price EV/sales multiple
August 2006 IBM FileNet $1.6bn 2.6x
November 2006 Oracle Stellent $440m 2.9x

Source: The 451 M&A KnowledgeBase

Paid for potential

Expanding its operations into US markets, UK media giant Guardian News & Media – publisher of The Observer and The Guardian – picked up B2B blog network ContentNext Media earlier this month. Founded in 2002, ContentNext is the creation of ex-Silicon Alley Reporter managing editor and business journalist Rafat Ali. Its ad-supported online network includes the content-centric blog paidContent.org, mocoNews.net, ContentSutra.com and the UK version of paidContent.

We understand that ContentNext, which now employs 23 people, sold for around $30m, and we estimate the company was running at $4m in trailing revenue. For financial advice, ContentNext tapped Mark Patricof, managing director at MESA (Media & Entertainment Strategy Advisors), marking MESA’s third M&A advisory in online media this year. To date, ContentNext has kept its finances in the family. In 2006, the blog network raised its first and only round of financing, for less than $1m. Interestingly, its first and only investor also happens to be private equity patriarch Alan Patricof through his VC outfit Greycroft Partners.

Still, a 7.5x trailing revenue multiple had us scratching our heads at first, especially considering that the content network fetches only one million page views per month. But, looking closer, we see the deal being more about future potential and figure that an additional earnout is likely. In addition to a larger geographic reach for both publications (ContentNext will continue to operate independently), potential revenue from conferences also drove the deal. Further, ContentNext was not out shopping itself, but looking for a second round of funding, and we understand the deal was very ‘friends and family’ in nature. Judging from laudatory comments Rafat Ali and Simon Waldman, director of digital publishing, make about each other online, this certainly seems to be the case.

Transatlantic cold front in M&A

Brenon Daly

In terms of North American tech companies shopping in Europe, the past year has been a case of overlooking deals rather than being over there looking for deals. Eastbound M&A (or North American acquirers of EU-based companies) totaled just $12.5bn from July 2007 through June 2008. That’s down two-thirds from the $45.2bn worth of deals inked from mid-2006 to mid-2007. The primary reason: a 15% decline in the Nasdaq and the US dollar (relative to the euro) over the past year that has sapped buying power.

Of course, the slumping greenback offered European acquirers a bit of a ‘rebate’ on their purchases. And they took advantage of that, pushing westbound M&A (or EU-based acquirers of North American companies) to a new record. From July 2007 through June 2008, European acquirers spent $30.2bn picking up North American-based companies, a 38% increase from $21.9bn in the same period in the previous year.

But even that record amount of eastbound spending wasn’t nearly enough to offset the utter disappearance of their North American counterparts. Overall spending on transatlantic tech M&A fell by more than one-third, dropping to $42.7bn from $67.1bn in the same period of the previous year. We look at the numbers and the trends in a full report that’s available here.

Transatlantic deals

Period EU to North America North America to EU Total
July 2005-June 2006 $14.5bn $19.4bn $33.9bn
July 2006-June 2007 $21.9bn $45.2bn $67.1bn
July 2007-June 2008 $30.2bn $12.5bn $42.7bn

Source: The 451 M&A KnowledgeBase

TomorrowNot

Brenon Daly1 Comment

There will be no more tomorrows for TomorrowNow. SAP, which bought the software maintenance provider in January 2005, said Monday it’s shuttering the division. Even though the German giant is killing off TomorrowNow, the lawsuit involving its subsidiary will live on. Recall that Oracle sued SAP more than a year ago, alleging TomorrowNow illegally downloaded information about Oracle’s support program. (SAP initially acquired TomorrowNow as a way to siphon off some of the rich maintenance stream that Oracle collects for supporting its application. Ironically, SAP launched the program with the title ‘Safe Passage.’)

Since the original lawsuit was filed in March 2007, the scope of it has broadened. Oracle is now seeking $1bn in damages. With TomorrowNow facing that kind of a hit, it’s perhaps not surprising that SAP, which had been shopping the division for several months now, found no willing buyer. We can only imagine the lengths that SAP must have gone through to write around the potential $1bn liability in putting together a pitch-book for TomorrowNow. However SAP worded the ‘for sale’ ad, it failed to generate any interest, even with the person who probably knows more about the business than anyone else.

Seth Ravin, who founded and ultimately sold TomorrowNow to SAP, has since moved on and founded a similar business supplying discounted support for ERP applications, Rimini Street. Although Rimini Street may have looked at bulking up through acquiring TomorrowNow, reports indicated that the company passed on a deal. We can only imagine how much SAP wishes it go back in time and pass on the TomorrowNow deal, which has brought it so much trouble.

Troubled timeline

Date Event
Jan. 2005 SAP acquires TomorrowNow
March 2007 Oracle sues SAP, alleging illegal corporate espionage
Nov. 2007 SAP looks to sell off TomorrowNow
April 2008 Oracle expands lawsuit
Feb. 2010 Case scheduled to be heard in court

Assembling the deliverable

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Comcast’s digital content delivery software subsidiary ThePlatform made its first acquisition this week, picking up tiny social networking startup Chirp Interactive. Founded just one year ago, the San Francisco-based company has developed an interactive screen saver that collects updates from websites like Facebook and Flickr. Structured as an asset acquisition, ThePlatform will use the VC-backed company’s technology and select employees to build similar social features into its own content distribution and management system.

Comcast bought ThePlatform in 2006, early in its efforts to build a viable online video distribution business, and operates the business as an independent entity. Since 2006, it’s been reported that the cable giant has shelled out nearly half a billion dollars on five online deals since the beginning of 2006, including its purchases of movie review and ticketing website Fandango in April 2007 and social networking site Plaxo in May 2008. Comcast’s VC arm, Comcast Interactive Capital, has also been banking heavily on online startup. One recipient of Comcast’s capital is tiny video and advertising distribution company Revver, which incidentally was picked up by LiveUniverse in February.

Going forward, we ask where Comcast and its VC arm will be setting their sights. Well, mobile content distribution, of course. In fact, Comcast participated in a $12.6m seed-round funding of Boston-based mobile WiMax startup Cartiza earlier this month. It also joined Google, Time Warner and other industry behemoths in a $3.2bn round in WiMax company Clearwire in April. After building up a healthy reserve of content, a video and advertising distribution platform and increasing social networking capabilities, the need to converge these platforms on mobile devices is clear, and Comcast is making the moves to do just this.

Selected Comcast acquisitions

Date announced Target Target description Deal value
May 14, 2008 Plaxo Online address book synchronization $160m*
April 11, 2007 Fandango Online movie tickets & reviews $192m*
June 28, 2006 ThePlatform Digital media publishing & delivery $90m*

Source: The 451 M&A KnowledgeBase *Reported values

Tapping online TV ad revenues

After running up an M&A bill of more than $10bn on advertising deals last year, Internet titans are now taking the wraps off some of the platforms built on those acquisitions. This week, for instance, Google struck a content distribution deal with Family Guy founder Seth MacFarlane. Google will distribute a new Internet-exclusive cartoon series using the AdSense platform it picked up through its $280m acquisition of Applied Semantics back in 2003. Additionally, Google launched its Google Affiliate Network, which is essentially a re-branding of DoubleClick’s affiliate marketing product, Performics.

Through the AdSense deal, Google will syndicate two-minute ‘webisodes’ with accompanying advertisements to thousands of demographically chosen websites. Of course, other sites already offer Web video streaming. However, few of them have found a way to offer the content in a profitable way. Consider the online TV network Hulu, a $100m joint venture of NBC and News Corp that streams videos from its stand-alone website. Although it consistently sells out its ad inventories, Hulu still struggles to get viewers to its site, much less run profitably.

One boost to the flagging revenue outlook for this market may well come from online video advertising markets, particularly mobile video markets. While the top players, including Google, keep busy monetizing on previous acquisitions, we expect the scores of smaller players to get snapped up. Among those that might find themselves on a shopping list: VC-backed Qik, which streams live TV and video to mobile phones and enables users to upload content to social networking websites; a similar startup, Myframe’s Flixwagon, which has partnered with MTV Israel; and finally, decentral.tv’s Kyte.tv, based in San Francisco, is streaming video on the iPhone. If any of the big online advertising platforms want to go wireless, we expect they will probably take a close look at one or more of these startups.

Selected Google online advertising deals

Date announced Target Deal value Company description
April 13, 2007 DoubleClick $3.1bn Online advertising and marketing services
April 23, 2003 Applied Semantics $281m Online advertising and analytics platform

Source: The 451 M&A KnowledgeBase