Tag: mobile

Motricity’s equity activity

Brenon Daly

Contact: Brenon Daly

Although shares of Motricity have been trading on the Nasdaq since mid-June, it’s only been in the past few weeks that most of the action has taken place. We have already chronicled the difficult birth of the company, which had to trim both its offer size and price to go public. Debt-heavy Motricity ended up raising only half the amount that it expected in its June IPO.

Born under a bad moon, Motricity appeared destined to live out a life of quiet woe on the public market. And for the first three months, that’s exactly how it played out for the mobile data platform provider. Shares changed hands in the single digits. Then the stock took off, tripling from September to November. (That run was enough to tempt Carl Icahn, a significant shareholder in Motricity, to look to lighten his load in December. However, the activist investor pulled the planned secondary last week.)

For its part, the company has found its own use for equity: an acquisition. Earlier this week, Motricity picked up mobile advertising and analytics startup Adenyo for $100m upfront and (perhaps) another $50m in an earnout. Terms call for Motricity to use an unspecified mix of cash and stock to cover the bill. Adenyo, advised by Citadel Securities, did get a collar on shares as part of the final consideration. But for now, the once-volatile shares of Motricity have been holding steady at about $20 each, which is at the high end of the collar’s range.

Disconnected at Palm

Brenon Daly

Contact: Brenon Daly, Chris Hazelton

Palm Inc has lost a key set of hands. In an SEC filing Friday, the troubled company said that the head of its software and services, Michael Abbott, will be cleaning out his desk by the end of this week. (No word yet if he’ll also have to give back his smartphone.) The departure is significant because Abbott was responsible for building third-party developer support for Palm’s smartphone platform, which has lagged well behind the developer communities for Apple’s iPhone and Google’s Android OS. It also underscores one of the key problems at Palm, which we explored in more depth in a recent report.

Specifically, Palm has precious little to show for its efforts to stay relevant in the mobile world. Here’s our back-of-the-envelope math: the company will spend in the neighborhood of $300m on sales and marketing and another $200m on R&D for the current fiscal year, which ends next month. (The levels are basically annualized totals from the first three quarters of the current fiscal year.) We would also add that they are significantly higher than spending levels at rival vendors. For instance, Palm spends 2.5 times more on R&D (as a percentage of revenue) than Blackberry maker Research In Motion.

Adding together sales and marketing plus R&D spending at Palm, we get about $500m, compared to projected revenue of about $1.1bn. And what does the company have to show for that half-billion-dollar outlay? Palm’s already tiny slice of the smartphone market actually got smaller this fiscal year. And yet, despite that dismal return on investment – not to mention a key executive departure – speculation continues to swirl that Palm will get snapped up. Most often, HTC, Lenovo or even Motorola are named as suitors for Palm. However, in our report, we note key reasons why those vendors wouldn’t be interested. For our money, Dell still seems the most-logical buyer of Palm.

Wayfinder finds its way to a decent exit

Brenon Daly

Contact: Brenon Daly

Even in write-offs, it’s not impossible for companies to come out ahead. That’s what we were thinking when we saw the news that Vodafone pulled the shutter down on the Wayfinder Systems business that it acquired a little more than a year ago. Of course, in the year since the second-largest wireless operator picked up the turn-by-turn navigation vendor, a lot has changed in that market. Most notable, it’s gone from a paid service to a free offering, thanks to Google and, more recently, Nokia.

That development has erased hundreds of millions in market cap from the two main suppliers of traditional navigation devices, Garmin and TomTom, and turned them into laggards on Wall Street. (Since Google announced in late October that it was adding free turn-by-turn navigation to a small number of Android devices, Garmin stock has shed 5% and TomTom has flat-lined, while the Nasdaq has posted a 12% gain.) Given the pressure that’s been felt by those two giants – both of which garner more than $1bn in annual revenue – we have to wonder if Wayfinder isn’t pretty content with selling the business back in December 2008.

It isn’t hard to see a scenario in which a tiny company ($14m in trailing revenue) that traded on an obscure stock exchange (the Nordic Growth Market) would have been deeply wounded – even fatally so – by the commoditization of its business. (That’s what happened to Nav4All, for instance.) Instead, Wayfinder managed to sell the business for about $30m, representing a 200% premium and a decent valuation of two times trailing sales. The alternative strikes us as pretty bleak. Had it not done the deal, Wayfinder could very well have been in the process of winding itself down. As it was, Vodafone wound it down, but at least Wayfinder and its backers pocketed a bit of money before that.

Signing off on a deal

Brenon Daly

The bear just keeps grumbling – and we don’t mean the bear market. Instead, we’re talking about the all-the-rage bear hugs that companies are giving each other. The latest: Nuance Communications’ $40m unsolicited offer for Zi Corp. (Incidentally, the new hostilities come as a pair of previous unsolicited deals – Cadence Design Systems’ run at Mentor Graphics and Electronic Arts’ move on Take-Two Interactive – head toward largely civil conclusions.)

Nuance’s offer is a classic opportunistic squeeze play, right down to the timing. The acquisition-hungry company launched the bid just hours after Zi reported second-quarter results that did nothing to shore up its already weak standing on Wall Street. (Among the lowlights for Zi: Sales in the second quarter fell by one-third, and it burned through half its cash, which fell to just $2.6m from $5m at the beginning of the year.)

Still, Nuance sees some value in Zi, and Chris Hazelton, who heads up The 451 Group’s Mobile Practice, agrees. He notes that Zi’s handwriting-recognition technology would complement Nuance’s existing mobile offering. Handwriting recognition is particularly important in Asia, where symbols rather than letters are used in many writing systems. Of course, Asia is also a booming market for mobile products.

Nuance has already shown that it’s ready to go shopping in the mobile market. About a year ago, it spent $265m for Tegic Communications to get a keypad technology platform. And make no mistake, mobile is becoming an increasingly important slice of business for Nuance, which was formerly known for basic speech recognition on PCs. In Nuance’s most-recent quarter, revenue in its mobile business grew more than twice as fast as overall revenue, and the company projected that the division would account for 20% of total sales in the current fiscal year, up from just 13% last year.

We wouldn’t be surprised in the least if Nuance ended up ahead of its projection for its mobile business. The reason: We fully expect it to acquire Zi, which would add about $15m to the top line. Zi doesn’t want to sell – and told Nuance as much in an SEC filing – but we wonder how long the money-burning company can fend off Nuance. We’re guessing most Zi shareholders, who saw the stock sink to just 30 cents earlier this month, would like Zi to use its handwriting technology product to sign off on Nuance’s bid of 80 cents per share.

Selected unsolicited tech deals

Date launched Bidder Target Status
Aug. 2008 Nuance Zi Corp Zi has declined to negotiate
June 2008 Cadence Design Mentor Graphics Cadence dropped bid last week
May 2008 Barracuda Networks Sourcefire Sourcefire has declined to negotiate
March 2008 EMC Iomega EMC closed acquisition a month later
Feb. 2008 Electronic Arts Take-Two Interactive EA dropped tender offer, but talks continue
Feb. 2008 Microsoft Yahoo Microsoft dropped bid after three months

Source: The 451 M&A KnowledgeBase