Vertical takeoff

Tue, 02 Sep 2008 22:16:54 +0000

Verticals are all the rage in social networking these days. Last week alone, there were two high-profile acquisitions. Amazon.com acquired Shelfari, the Facebook for bookworms, reportedly for slightly less than $10m. And Lifetime Entertainment Services acquired the parenting social networking portal ParentsClick, with seven employees and decidedly less than $5m in revenue, for an estimated $10m. Both deals sprang from previous partnerships. Shelfari was incubated by Amazon with an initial investment of $1m. According to sources, ParentsClick and Lifetime have had a longstanding technology and Web development relationship. After fielding offers from the usual suspects, ParentsClick saw value in a marriage with Lifetime.

This comes on the heels of other vertical social networking M&A. We believe this uptick in acquisitions, despite growing disinterest in traditional social networks, is a sign of a shift in focus to niche verticals. Venture capitalists have recognized this as well, and from what we hear a large shift in funding, especially among early-stage investors, is taking place. So what other vertical social networking sites are ripe for the picking?

LinkedIn, arguably the most successful among the verticals, springs to mind. The social networking site for professionals has been profitable for two years and is on track to make $100m this year from advertising and subscriptions. Founder Reid Hoffman has indicated to us in the past that he is open to offers if the price is right. Having recently attained the $1bn valuation we alluded to in the past, however, the site is now too expensive for most. And Hoffman seems content to wait for the struggling public markets to recover.

This is the exception to the rule, however; most other sites will be acquired. One such example is Flixster, a Shelfari-like social networking site for movie buffs. NewsCorp and Amazon could want to either eliminate an obvious and growing competitive threat or supplement their own Rotten Tomatoes and IMDB portals. With more than 40 million users, we estimate that Flixster could fetch more than $100m.

Select vertical social networking deals in 2008

Date	Acquirer	Target	Deal value
August 27, 2008	Lifetime	ParentsClick	$10m*
August 25, 2008	Amazon.com	Tastemakers [dba Shelfari.com]	Less than $10m (reported)
June 23, 2008	Nokia	Plazes	$30m*
June 10, 2008	Forticom	Nasza-Klasa.pl	$42.3m
June 3, 2008	Electronic Arts	ThreeSF [dba Rupture]	$15m
May 16, 2008	Vodafone	ZYB Technologies	$48.7m
February 11, 2008	Avid Life Media	Hot or Not	$20m (reported)
January 30, 2008	Hoover’s	Visible Path	$4.2m

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

Rise in social networking deals

Mon, 18 Aug 2008 23:58:28 +0000

After a trickle of deals in 2007, this year has seen a flood of acquisitions of social networking sites as buyers look to sell advertising and services around these properties. Acquirers have spent some $1.15bn already on networking sites, compared to just $95m in all of 2007. This year’s M&A was boosted by several key service providers making significant bets on the market, including AOL’s $850m purchase of Bebo and Comcast’s acquisition of Plaxo for an estimated $150m. (Both deals, we should note, are larger than last year’s collective tally for social networking sites.)

And it’s not just the obvious acquirers picking up these online sites. Mobile phone maker Nokia shelled out an estimated $30m for geo-social networker Plazes, while Hoover’s, primarily known as a business directory, bought into the Web 2.0 trend with its tiny $4.2m acquisition of Visible Path. Even Barry Diller went shopping in this market, with his IAC/InterActiveCorp’s purchase of Girlsense.com.

Despite the broad interest and appetite for social networking sites, we wonder if supply hasn’t outstripped demand. At last count, there were more than 130 networks of various stripes. With only two companies (Facebook and LinkedIn) likely to go public anytime soon, that leaves a slew of sites hoping to connect with buyers. Coming off a 1,200% increase in M&A from last year, we can only surmise that the number of deals – and, more important, the valuations handed out to the sites – is likely to come down.

Acquisitions of social networking sites

Period	Deal volume	Deal value
Jan.-Aug. 2008	20	$1.15bn
Jan.-Dec. 2007	9	$95.1m
Jan.-Dec. 2006	2	$5.1m
Jan.-Dec. 2005	1	$580m
Jan.-Dec. 2004	4	$129.8m

Source: The 451 M&A KnowledgeBase

Visible Path – Inorganic Growth

Vertical takeoff

Rise in social networking deals