Oracle has gone silent

Contact: Brenon Daly

While investors will be tuning in for Oracle’s Q3 report after the market’s close today, we can’t help noting that there hasn’t been much news from the consolidator recently. It has yet to announce a deal in 2011, an uncharacteristic dry spell for a company that averaged an acquisition every six weeks in each of the past two years. In Q1 2010, Oracle announced three transactions and even in the recession-wracked Q1 2009, the software giant announced a pair of deals – but nothing so far this year.

In fact, Oracle has been out of the market since it spent $1bn on Art Technology Group in early November, nearly five months ago. And it’s not just Oracle that’s currently on the M&A sidelines. Fellow big-name buyers such as Microsoft, Symantec, EMC and Nokia have all yet to open their accounts in 2011. Even serial shopper IBM was also on that list until earlier this week, when it announced its purchase of Tririga

Out with the old, in with the new

Contact:  Brenon Daly

Just over the past week, we’ve been struck by the fact that after in-house development efforts came up short, companies simply reached out of house for other companies that were doing the same thing – only better. In one case, it was to buy; in another case, it was just to partner.

Take Hewlett-Packard’s purchase earlier this week of Vertica Systems. (Subscribers can see our full report on the transaction, including our estimates of the undisclosed deal terms.) The purchase came just three weeks after HP said it was phasing out its Neoview platform, which never caught on in the otherwise fast-growing data-warehousing market. (We’re just guessing, but the move might have also been rooted in personal reasons, as well as financial reasons. Neoview was closely associated with HP’s former CEO Mark Hurd, who has been taking shots at his former shop ever since he joined Oracle.)

Although that acquisition doesn’t entirely line up with Nokia’s ‘strategic alliance’ with Microsoft, there are more than a few echoes. In both cases, a tech giant – armed with tens of millions of R&D dollars, not to mention dozens of engineers dedicated to the effort – was in danger of slipping into irrelevancy in an explosively growing market. The agreements represented dramatic about-faces for HP and Nokia. But that’s probably better than both trying to put a good face on what the market has said is a losing effort.

Nokia + Microsoft = Love?

Contact: Brenon Daly

Maybe it’s the fact that today is Valentine’s Day and love is in the air, but we’ve been thinking about the recent closeness of Nokia and Microsoft in a whole new way. Recall that the Finnish handset maker said on Friday that it’ll be basically breaking up with its own OS to start dating Windows Phone. ‘You’re just not doing it for me anymore,’ the hardware told the software before also asking Symbian to clean its stuff out of their previously shared house. ‘Don’t forget your toothbrush.’

By dumping its longtime partner, Nokia has cleared the way for a new relationship with Microsoft, which looks like a compatible union to our eyes. After all, both giants are on a slow fade right now, largely watching while the rest of the mobile industry passes them by. (To put that into human terms, we can’t help but envision Nokia and Microsoft as a somewhat elderly couple, more likely to watch On Golden Pond (on VHS, no less) than to head out to the theater and catch The Social Network, for instance.)

Have these companies truly been struck by Cupid’s arrow? Is the ‘strategic alliance’ just a bit of handholding before a proper marriage? Well, from our view, an acquisition – although still unlikely – is less unlikely than before. Why? For one thing, the block to this long-rumored pairing has always been that Microsoft wouldn’t want to jeopardize its relationships with other device makers by settling fully on Nokia.

But frankly, that’s less of a concern now if only because Windows Phone has been left behind, even by hardware makers that have long relied on Microsoft for software to power their computers. For instance, Dell has largely embraced Google’s rival OS, Android, for its tablets. And Hewlett-Packard went out and dropped $1bn on Palm Inc to have its own OS for devices rather than continue to run Microsoft’s mobile OS. Given that many of its former partners have already paired off, maybe Microsoft believes the time is now to tie up with Nokia, for better and for worse.

No recession for mobile advertising M&A

-Contact Thomas Rasmussen

Following Google’s purchase of AdMob in November, we predicted a resurgence in mobile advertising M&A. That’s just what has happened and, we believe, the consolidation is far from having run its course. Apple, which we understand was also vying for AdMob, acquired Quattro Wireless for an estimated $275m at the beginning of the year. At approximately $15m in estimated net revenue, the deal was about as pricey as Google’s shopping trip for its own mobile advertising startup. And just last week, Norwegian company Opera Software stepped into the market as well, acquiring AdMarvel for $8m plus a $15m earnout. We understand that San Mateo, California-based AdMarvel, which is running at an estimated $3m in annual net sales, had been looking to raise money when potential investor Opera suggested an outright acquisition instead.

These transactions underscore the fact that mobile advertising will play a decisive role in shaping the mobile communications business in the coming years. For instance, vendors can now use advertising to offset the costs of providing services (most notably, turn-by-turn directions) that were formerly covered by subscription fees. Just last week, Nokia matched Google’s move from last year by offering free turn-by-turn directions on all of its smartphones. Navigation is only the beginning for ad-based services as mobile devices get more powerful and smarter through localization and personal preferences.

While traditional startups such as Amobee will continue to see interest from players wanting a presence in the space, we believe the next company that could enjoy a high-value exit like AdMob or Quattro will come from the ranks that offer unique location-based mobile advertising such as 1020 Placecast. The San Francisco-based firm, which has raised an estimated $9m in two rounds, is a strategic partner of Nokia’s NavTeq. As such, we would not be surprised to see Nokia follow the lead of its neighbor Opera by reaching across the Atlantic to secure 1020 Placecast for itself.

Is mobile advertising back?

-Contact Thomas Rasmussen

In a clear sign that mobile advertising has grown up, Google spent a whopping $750m in stock on Monday to pick up San Mateo, California-based AdMob in what we hear was a contested process. This transaction goes a long way toward securing control of mobile display advertising for Google and comes just days after the launch of Android 2.0. Although we’ve been projecting dealmaking in the mobile advertising market for quite some time, we’re nonetheless floored by the rich valuation for AdMob, a three-year-old startup that’s raised just shy of $50m. We estimate that the 140-person firm pulled in about $20m in gross revenue in 2008 and was on track to double that figure this year (we surmise that this translates to roughly $20m on a net revenue basis).

The double-digit valuation for AdMob reminds us more than a little bit of the high-multiple online advertising deals that we saw in 2007. Viewed in that context, Google’s purchase of AdMob stands as the third-largest ‘new media’ advertising purchase since 2002. Of course, like many of those transactions, this was not based on revenue, but instead on technology and market extension, which is consistent with Google’s strategy of acquiring big into core adjacencies.

Looking forward, AdMob’s top-dollar exit is sure to have a number of rival mobile advertising startups excited. One competitor that’s preparing to raise an additional sizable round of funding quipped at the near-perfect timing of this transaction. This is an industry that has seen its ups and downs over the past few years. When we first wrote about AdMob back in May it was in the backdrop of fire sales and failed rounds of funding. If nothing else, this deal will dramatically change that.

Microsoft has been actively playing catch-up to Google in advertising and search, and is sure to follow it onto the mobile device. As are many other niche advertising shoppers such as Yahoo, Nokia, AdKnowledge, Adobe-Omniture and traditional media conglomerates such as Cox. AOL has already made its move, reaching for Third Screen Media two years ago. (We would note that AOL’s $105m purchase of Third Screen is a rare case of that company actually being ahead of the market.)

Startups that could benefit from this increasing focus on the sector include AdMarvel, Amobee, InMobi, and Velti’s Ad Infuse. However, we suspect that some of the major advances – and consequently the most promising targets – are likely to come from players that are just now getting started, with fresh and profitable approaches to location-based mobile advertising.

Some recent mobile advertising deals

Date announced Acquirer Target Deal value Target TTM revenue
November 9, 2009 Google AdMob $750m $20m*
September 14, 2009 Nokia Acuity Mobile Not disclosed Not disclosed
August 27, 2009 AdMob AdWhirl Not disclosed Not disclosed
May 21, 2009 Limelight Networks Kiptronic $1m $2m*
May 12, 2009 Velti Ad Infuse <$1m* $1.3m*
March 11, 2008 Qualcomm Xiam Technologies $32m Not disclosed
August 21, 2007 Yahoo Actionality Not disclosed Not disclosed
May 15, 2007 AOL Third Screen Media $105m $3m*

Source: The 451 M&A KnowledgeBase *451 Group estimate

Navigating for relevance in a changing landscape

-Email Thomas Rasmussen

It’s becoming increasingly evident that once-dominant makers of personal navigation devices, such as Garmin and TomTom, have lost their way. They have seen billions of dollars in market capitalization erased as smartphone manufacturers have encroached on their sector, largely through M&A. Consider the most-recent example of this trend: Research in Motion’s acquisition of startup Dash Navigation earlier this month.

RIM’s buy is more of a catch-up move than anything else. Rival Nokia has already spent the last few years – and several billion dollars – acquiring and building a dominant presence in the location-based-services (LBS) market. And let’s not forget about the omnipresent Google. Starting with its tiny 2005 purchase of Where2, the search giant has quietly grown into a LBS powerhouse that we suspect keeps even the larger players up at night.

The Dash Navigation sale may well signal the start of some overdue consolidation, a trend we outlined last year. Specifically, we wonder about the continued independence of TeleNav, Telmap and Networks in Motion. TeleNav, for instance, is the exclusive mapping provider for the hyped Palm Pre through Sprint Navigation. But with the trend for open devices, we wonder how long that will be the case.

What’s the outlook for mobile payment startups?

-Contact Thomas Rasmussen

The consolidation in the mobile payment market that we outlined recently is still on. Startup Boku announced on Tuesday a $13m venture capital infusion in the form of what we understand was a $3m series A round followed quickly by a $10m series B round a little over a month later. Benchmark Capital led the latest round, with Index Ventures and Khosla Ventures also pitching in some cash. The money was used to acquire two competitors, Paymo and Mobillcash. We estimate that very little of the cash was used to buy the vendors. We understand that the purchase of Paymo, which raised a reported $5m itself, was primarily done in stock. The deals were largely a way for Boku to gain customers and technology, as well as expand its international reach. It’s increasingly important for mobile payment startups to do something to stand out among the dozens of rivals also trying to crack this market. What’s unusual about Boku is that this strategy is playing out so quickly. The company only incorporated in March.

The real question for Boku and other promising startups in the mobile payment space such as RFinity is what will ultimately happen to this hyped market. Despite hundreds of millions of dollars poured into startups, they haven’t been able to generate much revenue, certainly not to the level that would make them viable businesses at this point. We believe the best outcome for these firms is an exit to a larger strategic acquirer. An example of this that may well be in the offing is Obopay, which took an investment from Nokia a few months ago. We suspect that could be a ‘try before you buy’ arrangement for the Finnish mobile company. Research in Motion and others could look to use acquisitions to catch up, as well.

However, we wonder how long it will be before other smartphone providers, platforms and mobile operators do as Apple has done. Micro-transactions are a huge selling point for the new iPhone 3.0 update and, frankly, one of the few bright spots for the mobile payment sector. However, all transactions for iPhone applications are done through Apple itself, leaving companies such as Boku out in the cold. If other vendors – including RIM, Palm Inc, Google, Microsoft and even application platforms like Facebook – stay in-house to develop the technology, there isn’t much need to go shopping. That could well hurt the valuations of mobile payment startups, even those that survive this current period of consolidation.

Will mobile payment startups pay off?

-Contact Thomas Rasmussen, Chris Hazelton

In 2006 and 2007, mobile payment startups were a favorite among venture capitalists. The promise of dethroning the credit card companies by bypassing them had VCs and strategic investors throwing hundreds of millions of dollars after such startups. During this time, a few lucky vendors managed to secure lucrative exits. Among other deals, Firethorn, a company backed with just $14m, sold to Qualcomm for $210m and 3united Mobile Solutions was rolled up for $70m as part of VeriSign’s acquisition spree. Recent prices, however, haven’t been anywhere near as rich. Consider this: VeriSign unwound its 3united purchase last month, pocketing what we understand was about $5m. Similarly, Sybase picked up PayBox Solution for just $11.4m, while Kushcash and other promising mobile payment startups have quietly closed their doors.

Last week, Belgian phone company Belgacom took a 40% stake in mobile payment provider Tunz. Tunz has taken in a relatively small $4m in funding since launching in 2007, but with VCs sidelined, we believe this investment was a strategic cash infusion to keep alive the company behind Belgacom’s mobile payment strategy. It may well be a prelude to an outright acquisition. With valuations clearly deflated and venture capitalists nowhere to be seen, we believe mobile service providers are set to go shopping for payment companies. Who might be next?

Yodlee, mFoundry and Obopay are three companies that have made a name for themselves in the world of mobile banking and payments. Each has secured deals with the major banks and wireless companies, but still lacks scale. Further, all of them are facing increased competition from deep-pocketed and patient rivals such as Amazon, eBay’s PayPal and Google’s CheckOut. Still, we believe they are attractive targets for wireless carriers or mobile device makers, who are increasingly on the lookout for additional revenue streams.

In fact, Obopay received a large investment from Nokia last week as part of its $70m series E funding round. Nokia’s portion is unclear, but Obopay tells us the stake gives Nokia a seat on its board. (Additionally, we would note that this investment comes directly from Nokia, rather than its venture arm, Nokia Growth Partners, as has typically been the case). This latest round brings Obopay’s total funding to just shy of $150m. Although we wonder about the potential return for Obopay’s backers in a trade sale to Nokia, the mobile payment vendor would clearly be a great complement to Nokia’s growing Ovi suite of mobile services. (We would also note that Qualcomm put money into Obopay and considered acquiring the company, but instead went with Firethorn.) Likewise, Yodlee and mFoundry’s roster of strategic investors and customers reads like a short list of potential buyers: Motorola, PayPal, Alltel (now Verizon), along with other large banks and wireless providers. Yodlee says it has raised more than $100m throughout its 10-year history, and mFoundry has reportedly raised about $25m.

Bygone buyouts

While overall tech spending on M&A has fallen about one-third so far this year, the once-bustling leveraged buyout (LBO) business has virtually disappeared. Just how much? It’s literally dimes instead of dollars. Buyout spending has plummeted from more than $100bn during the first three quarters of 2007 to just $12bn so far this year. That’s about the level of LBOs in 2004, before buyout shops were really looking at tech companies and before banks were comfortable lending for deals in the unproven and cyclical industry. (Of course, we have new problems in the credit market these days.)

Still, LBOs are getting done, despite the disappearance of debt and, in some cases, even the banks that were backing the buyouts. Earlier this week, for instance, Bedford Funding took home on-demand talent management vendor Authoria for $63m, the first of what we expect to be several deals by Bedford in the fragmented human capital management market.

Also, Nokia said earlier this week that it plans to sell its security appliance unit to an unnamed financial buyer. Several sources have indicated that one of the lead suitors for Nokia’s firewall and VPN business is Vector Capital. The San Francisco-based buyout shop already has experience with a security hardware company, having teamed with Francisco Partners to acquire WatchGuard Technologies, the maker of the Firebox UTM appliance for the midmarket, for $151m in July 2006.

PE deal flow

Period Deal volume Deal value
Q1-Q3 2004 38 $13bn
Q1-Q3 2005 42 $28bn
Q1-Q3 2006 67 $38bn
Q1-Q3 2007 102 $101bn
Q1-Q3 2008 67 $12bn

Source: The 451 M&A KnowledgeBase

Not ‘Finnish’ with M&A

Finnish cell phone giant Nokia launched its mobile file-sharing Ovi application last week, coming quickly on the heels of the rollout of Nokia Music and other high-profile offerings. Much like Google and its Android and Chrome products, Nokia used technology that it acquired to form the core of its recently launched products. Specifically, its file-sharing technology came when it picked up Avvenu late last year.

And more M&A may be in the cards. Nokia recently told us that it is bullish on making further acquisitions to boost its service offerings. The company is aiming to evolve from strictly a mobile handset maker to a service-oriented handset maker – and strategic acquisitions are expected to play a big role in this transformation. (Of course, Nokia isn’t the only hardware company looking to do deals to get out of its core commodity market and into a more profitable – and defensible – service offering. PC maker Dell has spent some $2bn over the past two years increasing its service portfolio, buying companies offering everything from storage to email archiving to remote services.) What services could Nokia look to add and what companies might it acquire to do so?

With its music, games and mapping services well established, Nokia’s lack of a video service is strikingly curious. We suspect the company will quickly move to fill this gap. Two potential targets come to mind. Startups kyte and Qik both specialize in mobile video, and have already gotten a lot of interest from big mobile companies. In fact, kyte has drawn money not only from large telcos such as TeliaSonera, but also from Nokia’s own investment arm, Nokia Growth. Another venture that was recently brought to our attention is a startup called ZoneTag. It’s a Yahoo Labs startup that does location-based photo tagging. The software was developed for Nokia phones with the support of Nokia research and we hear the two divisions have a very good relationship.

Nokia’s recent mobile software acquisitions

Date Target Deal value
June 24, 2008 Symbian $410.8m
June 23, 2008 Plazes $30m*
January 28, 2008 Trolltech $153.5m
December 4, 2007 Avvenu Not disclosed
October 1, 2007 Navteq $8.1bn

Source: The 451 M&A KnowledgeBase *Official 451 Group estimate