Rebellion Media set on consolidating digital media

Ben Kolada2 Comments

Contact: Ben Kolada

Rebellion Media was founded just earlier this year, but has already announced enough acquisitions to make itself appear like a veteran player in the digital media sector. From its first acquisition announcement, Sortable.com, announced July 11, the company has been printing a deal a week. In fact, Rebellion is buying companies at such a breakneck pace that official announcements are playing catch-up to Rebellion’s corporate website, which already lists all of the brands it has acquired so far.

Waterloo, Canada-based Rebellion Media isn’t hiding its intentions, saying on its website that it will continue to be ‘aggressive’ in M&A. The startup has so far announced acquisitions of content, mobile and Web development and e-commerce-related vendors. Targets so far have been located in its home country, Canada, but future deals are likely throughout North America and beyond.

The company primarily targets content and reference Internet properties in the health and wellness, technology, entertainment and sports verticals. But it isn’t restricting itself to this group. Rebellion recently announced the purchase of Jingu Apps, an LBS-based mobile instant messaging and friend-finding service. The company has reinforced its acquired assets with its traffic and monetization platform called TRACE, which stands for ‘Traffic, Revenue and Content Engine.’

Rebellion isn’t yet working with bankers, instead preferring to use M&A knowhow that its executives garnered from their prior experiences. CEO Ted Hastings was previously president of digital media rollup shop Cyberplex. As for funding, the company has taken an undisclosed amount of financing from American Capital. Although we weren’t given specific guidance on who or where Rebellion might acquire next, future transactions could be in the SEM/SEO and e-commerce sectors.

Rebellion Media’s announced M&A

Date announced Target Target summary
July 31, 2012 Universal Properties Owns domain names for purposes of Web development and search engine optimization.
July 24, 2012 Jingu Apps LBS mobile instant messaging application that enables BlackBerry and iOS users to connect with nearby users of WhatsApp, Hookt, LiveProfile, Touch and Kik mobile social networks and communities.
July 17, 2012 Scott Hastings (10 sports websites) Group of combat sports news and reference content websites, including www.fighters.com, www.fightline.com, www.mmatraining.com and www.mmaconvvert.com.
July 11, 2012 Sortable.com Provides online electronics buying advice and reference content that allows consumers to compare and rate products.

Source: The 451 M&A KnowledgeBase

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Eloqua hits right message at right time

Brenon Daly

Contact: Brenon Daly

The key to marketing is the right message at the right time. And in that regard, marketing automation vendor Eloqua hit both points squarely as it came public on Thursday. The company priced its shares at the high end of its expected range ($11.50 each) and then registered a mid-teen percentage gain in the aftermarket. The IPO created some $420m in market value.

Eloqua’s pitch is fairly simple: Its subscription-based platform makes the sales process for its roughly 1,100 customers more efficient. As corporate budgets continue to flow to marketing, Eloqua has actually been able to accelerate its growth rate as its revenue has increased.

The company was putting up revenue growth in the 30% range in late 2010, but has bumped that up to the 40% range over the past year. (It finished 2011 with sales of $71m, putting it on track for about $100m in sales this year. Assuming it does hit that level, it would represent a doubling of revenue since 2010.)

Wall Street, of course, pays for growth, so Eloqua is delivering the right message on the top line. Further, the revenue is coming in a relatively predictable manner: Eloqua sells only through subscriptions, which is a lot smoother than the traditional big-or-bust license model. Subscriptions account for roughly 90% of total revenue at Eloqua, with another coming 10% from professional services.

The timing of the offering, which has been on file for almost a year, also fits fairly well in the broader market right now. While consumer Internet offerings continue to get roughed up, investors have been supportive of enterprise-focused companies. Eloqua sells primarily to the B2B market, with enterprise customers accounting for about 60% of total revenue, and the remaining 40% coming from SMB customers. Add all that together, and it’s a solid start for Eloqua in its debut.

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Google’s admission of failure?

Ben Kolada

Contact: Ben Kolada

Google has finally found a way to monetize Facebook’s platform. After failing to acquire Facebook when it had the chance several years ago, and now with its own attempts at social networking a bit spotty, official word came on Tuesday that Google is acquiring social marketing startup Wildfire Interactive. Google is reportedly paying $250m for Wildfire, a respectable price tag that likely values the target at 7-10x revenue.

Google’s own ‘Insights for Search’ search analysis engine shows interest in Orkut, its attempt at a social network that found most of its popularity outside the US, and its Google+ social network trending downward over the past 12 months. Meanwhile, interest in Facebook has remained remarkably high.

In acquiring Wildfire, Google is recognizing its social shortcomings, and not a moment too soon. There has been rapid consolidation of social marketing startups in just the past three months.

Sector stalwarts Vitrue and Buddy Media have already been acquired by Oracle and salesforce.com, respectively, leaving only a few hot startups left. Beyond Wildfire, we’d point to GraphEffect, Hearsay Social, Syncapse and Lithium Technologies as the next to go. And there will likely be bidding competition for these firms. Large CRM vendors SAP and Microsoft could make a play here, as well as Teradata, which could buy into social to build on top of its recent purchases of marketing specialists Aprimo and eCircle.

Recent select M&A in social marketing

Date announced Acquirer Target Deal value
July 31, 2012 Google Wildfire Interactive Not disclosed
July 10, 2012 Oracle Involver Not disclosed
June 4, 2012 salesforce.com Buddy Media $689m
May 23, 2012 Oracle Vitrue $325m*
April 18, 2012 Marketo Crowd Factory Not disclosed

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

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Oracle adds network virtualization with Xsigo

Brenon Daly

Contact: Brenon Daly, John Abbott

A week after VMware made its network virtualization play with the blockbuster purchase of Nicira Networks, Oracle has expanded its own virtualization portfolio by reaching for I/O virtualization startup Xsigo Systems. Although both startups loosely fall into the category of ‘software defined networks’ (SDNs), Xsigo itself used that description only sparingly to talk about its business. And if we look deeper at the two deals by the serial acquirers, we see they’re actually quite different.

For starters, the targets were at very different stages of commercial deployment. Nicira only had a handful of customers, and we understand that it still measured its revenue in the single digits of millions of dollars. In contrast, Xsigo indicated that it had tallied roughly 550 deployments since it began shipping its product some five years ago. It was generating revenue in the tens of millions of dollars, according to our understanding.

Further, the strategic drivers for each of the networking acquisitions are quite different. For VMware, the purchase of Nicira represents its grand plan to do to switches through virtualization what it has already done to servers through virtualization. For Oracle, there’s arguably a more focused goal for Xsigo, at least in the near term. My colleague John Abbott speculates that Xsigo’s technology is likely to be deployed as a means of providing a broader virtualized network fabric to surround Oracle’s Exa family of systems, boosting the number of available network and storage connections and making them more suitable for hosting cloud services. Look for our full report on Oracle’s acquisition of Xsigo in tonight’s Daily 451.

Facebook saves faces with Instagram, at least for now

Brenon Daly

Contact: Brenon Daly

There wasn’t much to be wildly bullish about in Facebook’s initial financial report as a public company on July 26. At least that was the view on Wall Street, as shares of the social networking giant slumped around 10% to their lowest level since the mid-May IPO. The one bright spot, however, is the continued stunning growth of Instagram.

Just ahead of the financial release, Instagram indicated 80 million people are now using the photo-sharing application. That’s more than twice the number of users that Instagram had when Facebook announced the acquisition in April. Additionally, some four billion photos have been shared over Instagram.

Of course, it’s important to note that Facebook hasn’t actually closed the acquisition. Moreover, even when it does close, there won’t be much – if any – direct impact on Facebook’s financial statements from Instagram, which is free to use. (The payoff from mobile advertising, which was the primary driver for the acquisition, is some time off for Facebook.)

Not to be cynical, but we couldn’t help but think that there might be (just maybe) something going on behind the scenes around the timing of Instagram’s boastful release. Investors have a much more jaundiced view of CEO Mark Zuckerberg’s impetuous decisions – including his hasty agreement to drop $1bn on Instagram – now that they are losing money on him.

So perhaps it was important for Facebook to show that it is getting an early return on its largest-ever acquisition. That might have been even more important because social gaming company Zynga – whose fortunes are tied to Facebook in many ways – got pummeled on Wall Street after indicating people just aren’t into its games as much as they once were. One specific area of weakness that Zynga indicated: Draw Something, which Zynga picked up as part of its largest-ever acquisition.

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After setting sail for IPO, Avast changes its tack

Brenon Daly

Contact: Brenon Daly

In the half-year leading up to AVAST Software pulling its IPO paperwork on July 25, the market moved steadily against it. A number of high-profile consumer-focused offerings – and, importantly, their subsequent after-market trading – have burned a lot of investors, making them hesitant to buy shares of a security vendor selling entirely to consumers. Additionally, there’s the overhang about the health of Europe, where AVAST has its headquarters and where it still does half its business.

In terms of perception, it also didn’t help AVAST that the IPO of fellow European security software vendor AVG Technologies earlier this year has been a money-loser. AVG priced its shares at the low end of its expected range, and has been underwater since then. The stock is currently changing hands at about $10, one-third lower than where the company initially sold it.

Amid those bearish grumblings on Wall Street, business at AVAST also started to slow. After soaring along with 50% bookings growth in 2011, the pace in the first quarter dipped to 38%. Meanwhile, its margins also ticked lower this year compared with 2011.

Granted, both the revenue growth and the company’s incredibly rich margins are at levels that most companies could only aspire to reach. For instance, AVAST – a company that generates around $100m in bookings with just 207 employees – runs at around a 65% Free Cash Flow (FCF) margin. It currently nets more than $10m each quarter.

But we suspect that business model wouldn’t have gotten much appreciation on Wall Street – at least not initially. If AVAST had gone ahead and priced at the high end of its expected range, it would have debuted at about eight times trailing bookings and 13x trailing FCF. That’s hardly an outrageous valuation, particularly when compared to the rich multiples enterprise-focused vendors have drawn in their recent IPOs. To put a point on that, consider this: at around an $800m debut valuation, AVAST would be worth just one-fifth the amount of the most-recent security IPO, Palo Alto Networks.

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With new CEO at Symantec, is Big Yellow planning a big unwind?

Brenon Daly

Contact: Brenon Daly

Is Big Yellow planning to slim down? That’s the question that was echoing around Wall Street on June 25 after Symantec showed Enrique Salem the door following another lackluster quarterly performance.

Symantec reported fiscal Q1 revenue was essentially flat with the year-earlier period, as its storage and server management unit (the company’s largest single business) actually shrank in Q1. Even when the unit grows, it lags Symantec’s other main business of security. For the full previous fiscal year, the storage business increased just 4%, compared to a 20% rise in security sales.

That discrepancy – along with the fact that Symantec shares have lost about one-third of their value since the security company got into the storage business with its mid-2005 acquisition of Veritas – has prompted calls from investors to unwind Veritas. We understand Symantec has been exploring that option since Salem took the top spot three years ago. One of the more intriguing ideas we heard was Symantec swapping its storage business for the RSA unit at EMC. However, we gather the separation of the units, along with tax implications, made that too complicated.

Incoming CEO Steve Bennett, who has been chairman of Symantec for a year, has indicated that he will review Symantec’s portfolio. Wall Street, of course, read a fair amount into that, as well as the CEO changeover. One source noted that Bennett had overseen a handful of divestitures during his tenure as chief executive of Intuit, including shedding the construction management software unit and unwinding the company’s Blue Ocean acquisition. However, we would characterize those moves as a typical bit of corporate housecleaning – a far cry from the teardown that some investors are calling for at Symantec.

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VMware’s new era with Nicira

Brenon Daly

Contact: Brenon Daly

Having built a business valued in the tens of billions of dollars by virtualizing computing, VMware is now using its largest-ever acquisition in an effort to bring virtualization to networking. VMware will hand over a total of $1.26bn for startup Nicira. It’s a significant gamble for VMware, both strategically and financially.

The purchase is more than three times the size of VMware’s next-largest acquisition, and is roughly equal to the amount the virtualization kingpin has spent on its entire M&A program since parent company EMC spun off a small stake in VMware a half-decade ago. (VMware will cover the cost of the purchase from its treasury. As of the end of June, it held $5.3bn in cash and short-term investments, and it has generated $2bn in free cash flow over the past year.)

VMware has positioned Nicira, a company that only recently emerged from stealth, as a key component of its effort to put software at the core of datacenters. VMware has done that with servers – and to some degree, storage as well – by using software to essentially commodify hardware. It’s an approach that appears to undermine a once-cozy relationship with networking partner Cisco Systems. Incidentally, shares of the switch and router giant are currently at their lowest level in about a year, and it announced another round of layoffs at almost exactly the same time that VMware announced its big networking acquisition.

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RealPage getting social, acquiring RentMineOnline

Ben Kolada

Contact: Ben Kolada

With seemingly all consumer-facing tech now trending toward social, why shouldn’t property management software vendor RealPage get in on the game as well?

The company took a step in that direction on Monday, when it announced the $6m acquisition of SaaS startup RentMineOnline, a rental-marketing startup that enables property managers to set up campaigns that residents use to recommend their rental property to friends through email and social networks.

RealPage is handing over $6m, with an earnout of up to $3.5m based on an unspecified revenue milestones. Excluding the earnout, the deal values RentMineOnline at 4x trailing sales (it generated approximately $1.5m in revenue for the 12 months ended June 30). The San Francisco-based company was founded in 2007 and had taken funding from fbFund, Partners in Equity, Seed Camp, and Alex Hoye, the former CEO of GoIndustry, which closed its $31m sale to Liquidity Services earlier this month.

The deal is a complementary addition to RealPage’s LeaseStar service. In announcing the acquisition, RealPage stated the intent was to build up its LeaseStar multichannel managed marketing service, which enables property owners and managers to market and secure rental leads more effectively.

And for a bit of irony, although RentMineOnline was headquartered in San Francisco, we expect its platform will have a greater effect in almost any market but the City by the Bay. Rental costs in San Francisco have skyrocketed recently, leading to a ‘beggars can’t be choosers’ environment where apartment seekers are likely to take whatever option is available, whether the apartment was recommended or rejected.

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Dell’s hard drive into software

Brenon Daly

by Brenon Daly

Dell plans to more than triple the size of its software business in the coming years, underscoring the tech giant’s transition away from its origins as a box maker. The software division is currently running at around $1.5bn, and John Swainson, the recently appointed president of Dell Software, laid out a target of $5bn in sales for the unit. M&A will continue to help move the company toward that target, he added.

In many ways, the transition that Dell is going through is one that IBM has already been through. Indeed, Swainson and a number of other executives (Tom Kendra and Dave Johnson, among others) that are charged with building out Dell’s software portfolio helped do the same thing at Big Blue. Each of the three executives spent a quarter-century at IBM.

Dell has been a steady buyer of software, with all six of its acquisitions so far this year adding to the company’s software portfolio. The largest, of course, is the recently announced $2.5bn purchase of Quest Software, expected to close later this quarter. While that acquisition brought some much-needed heft to Dell’s software portfolio, Quest was viewed by many as a mixed bag of businesses, including some (such as data protection) that directly overlapped with existing Dell products.

For the software business, Swainson also set out the rather ambitious goal of growing it in the ‘mid-teen’ percentage range. Clearly, that was a long-range goal, one that implies a significant acceleration of existing business as well as a regular contribution from acquisitions. Still, the projection seems like a bit of a stretch. Consider that IBM – a model for Dell – has increased revenue in its software business just 2.5% so far this year.

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