Breaking up the M&A way

Contact: Ben Kolada

Though previously engaged in a joint venture (JV) named Monitise Americas, mobile banking startup Monitise and Fidelity National Information Services (FIS) have been growing apart. Through a series of moves, the two companies, though still partners, seem to be getting ever closer to completely severing their relationship.

The eventual breakup appears to be spearheaded by Monitise. For just over three years, Monitise and FIS owned a JV named Monitise Americas. However, in November 2011, Monitise brought the JV completely under its own control, perhaps as a prelude to its next major M&A play.

Following the severing of that venture, FIS threw its weight behind Monitise competitor mFoundry, participating alongside MasterCard and existing investors in an $18m round of financing for mFoundry that was disclosed in December 2011. Not only was FIS’s involvement here a competitive slap in the face, but the inclusion of MasterCard in the round put another nail in the coffin, as MasterCard rival Visa and its affiliates have been longtime investors in Monitise.

In response, just three months later, Monitise announced its $173m all-stock acquisition of North American counterpart Clairmail. Clairmail was a direct competitor to mFoundry, similar in both headcount and product portfolio.

With tension mounting, FIS recently announced that it is acquiring the remainder of mFoundry that it doesn’t already own for $120m in cash. If the relationship between FIS and Monitise continues, it certainly won’t be as amicable as before. Although Monitise still called FIS a partner in its most recent annual report (released in September 2012), the feeling may no longer be mutual.

Breaking up the M&A way

Date Event
November 2011 Monitise buys out the remainder of Monitise Americas that it didn’t already own from FIS.
December 2011 FIS invests alongside MasterCard in Monitise competitor mFoundry.
March 2012 Monitise acquires mFoundry rival Clairmail for $173m.
January 2013 FIS acquires the remainder of Monitise/Clairmail competitor mFoundry that it didn’t already own for $120m.

Source: The 451 M&A KnowledgeBase, 451 Research

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

Monitise pays out now for payoff later

Contact: Ben Kolada

Mobile banking and payments vendor Monitise made a big bet on Monday when it moved to consolidate its industry with the acquisition of startup Clairmail. At first glance, the deal should have set off alarms among Monitise’s investors. The all-stock transaction will significantly dilute Monitise’s shareholders, leaving them owning three-quarters of the combined company. However, its investors remained calm – Monitise’s share price closed down only 2%. Why? Although the deal is richly valued and dilutes Monitise’s shareholders, those same investors are all but assured of their own rich payoff eventually.

Another explanation for the muted shareholder response is that the transaction only seems overvalued on the surface. It is actually fairly valued by several metrics. Monitise’s £109m ($173m) offer values Clairmail at 9.3 times trailing sales, a smidgen below its own current 10x enterprise value (Monitise held $68m in net cash at the end of 2011, while Clairmail had $5m). Further, Monitise is also obtaining more valuable customers. Clairmail had 48 banking customers generating a total of $18m in revenue last year, or about $375,000 per customer. Monitise, meanwhile, had more than 250 customers, each of which generated an average of less than $150,000 in annual revenue. And because of Clairmail’s growth rate (its revenue jumped 90% in 2011), its price-to-projected-sales valuation is certain to be much lower. Further placating investors, Monitise is forecasting continued heady growth. The combined company, which would have generated $56m in revenue in 2011 on a pro forma basis, is projecting 2012 total revenue close to $100m.

There’s certainly no reason for alarm among the acquirer’s investors, considering valuations across the mobile payments industry are already high and the potential for Monitise itself to one day find a fruitful takeover offer. In July, eBay announced that it was buying Zong for $240m. And in June, Visa announced that it was buying Fundamo for $110m, or about 11x estimated trailing sales. The latter deal is of particular note, given the growing relationship between Visa and Monitise. Following the Fundamo buy, will Visa make a larger play in mobile payments, perhaps by acquiring Monitise? The two companies are already partners – Visa Europe made a $38m investment in Monitise in October, the two companies equally share a joint venture in India and Visa Europe president and CEO Peter Ayliffe sits on Monitise’s board. And as of February 28, Visa and Visa Europe combined owned 21% of Monitise’s equity.

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

Visa plays with virtual goods

Contact: Jarrett Streebin

This week marked another major entrance into the virtual goods market with Visa snapping up PlaySpan for $190m in cash. The deal comes a half-year after Google struck the first significant transaction in the market, paying a reported $55m for Jambool. With the market for social games and virtual goods amounting to real money, it’s likely that these giants won’t be the last buyers here.

We predicted these sorts of deals in our recent virtual goods Sector IQ. In fact, we named PlaySpan as one of the startups likely to get taken off the market. However, we matched it up with eBay’s PayPal. Our reasoning: PlaySpan would have provided an avenue to improved developer relations for PayPal, where it has struggled, as well as massively boosted its market share. Instead, credit card behemoth Visa took out the Santa Clara, California-based startup and it’s likely that PayPal will suffer as a result, particularly in its all-important relations with developers.

Consumers are becoming more and more comfortable not only buying virtual goods, but also buying real goods in games. This should continue to fuel the amazing growth in this emerging market. Both PlaySpan and Jambool are particularly well-positioned to capture this business because the back-end technology and security required for purchasing goods – even if they are make-believe goods – is incredibly complex. Most developers prefer to leave that to outside providers like Jambool and PlaySpan, just like online retailers left the transaction part of their business to PayPal for years. Given that Google and Visa have bought into this market in the past few months, it’s clear that virtual goods are here to stay.