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Berkery Noyes Releases Online and Mobile Industry M&A Report For Third Quarter 2016

Wednesday, October 12, 2016

NEW YORK — October 12, 2016 — Berkery Noyes, an independent mid-market investment bank, today released its third quarter 2016 mergers and acquisitions trend report for the Online and Mobile Industry. The report analyzes M&A activity during the three-month period and compares it with data for the six previous quarters.

Total volume declined 11 percent on a quarterly basis, from 764 to 677 transactions. Aggregate value decreased 23 percent, from $61 billion to $47.1 billion. When compared to the first three quarters of 2015, volume year-to-date stayed about the same while value gained 30 percent.

Regarding high profile acquirers during third quarter 2016, Verizon completed several transactions focused on the Internet of Things (IoT). Along these lines Verizon announced its acquisition of Fleetmatics, which offers cloud-based fleet and mobile workforce management solutions, for $2.4 billion, as Verizon continues to expand its reach into web-connected vehicles; and Sensity Systems, an IoT platform that embeds network technology in LED streetlights to create a smart lighting solution for facilities and municipalities. In addition to Fleetmatics, Verizon made a similar acquisition in the second quarter with the announced acquisition of Telogis, a developer of telematics and fleet logistics systems used by major automakers. Outside of the IoT sector, Verizon in the third quarter also announced its acquisition of Yahoo’s core operating business for $4.8 billion through AOL. Note that Verizon acquired AOL for $4.1 billion in 2015.

Transaction volume in the SaaS & Cloud segment was nearly constant from second to third quarter 2016. Looking at valuations, SaaS & Cloud acquisitions received a median revenue multiple of 3.3x and median EBITDA multiple of 14.5x thus far in 2016, as opposed to 2.1x and 11.1x for the entire Online & Mobile market.

M&A activity in the E-Commerce segment experienced a 24 percent quarter-to-quarter decline. This followed a 12 percent gain in the second quarter, which was the segment’s peak throughout the 21 months covered in the report. The largest E-Commerce deal in third quarter 2016 and year-to-date was Wal-Mart Stores’ acquisition of Jet.com for $3.3 billion, as the retail giant looks to bolster its online operations to better compete with Amazon and others. Meanwhile, the segment’s highest value sponsored transaction during the quarter was Thoma Bravo’s acquisition of Trader Corporation, a digital automotive marketplace, for $1.2 billion.

As for the E-Marketing & Search segment, volume was flat over the past three months but rose three percent relative to the same time period in 2015. High profile segment transactions during the third quarter included Dentsu’s announced acquisition of a majority stake in Merkle, a data marketing firm that specializes in customer relationship management, for $1.5 billion; Orient Hontai Capital’s announced acquisition of a majority stake in AppLovin, a mobile marketing automation platform, for $1.4 billion; and a Chinese consortium’s acquisition of Media.net, an advertising technology company, for $900 million.

“The demand for cloud-based digital marketing software is due in part to its cost effectiveness and easy deployment features,” said Vineet Asthana, Managing Director at Berkery Noyes. “Several major digital marketing companies have been taken private this year, perhaps most notably Marketo. Additional areas of focus for acquirers will likely be on products and tools that distribute branded content, as well as analytics and machine learning tools.” Asthana continued, “Beyond just basic online display, there is also growing use of video advertising and social media. In terms of mobile, geo-fencing and iBeacons are an emerging tool being used whereby end users receive automated push notifications on their mobile phones based on GPS location.”

The number of mobile application deals declined eight percent over the prior quarter and six percent year-over-year. Transactions by high profile acquirers in the mobile space during third quarter 2016 included Snapchat’s acquisition of Vurb, a mobile search and discovery engine, for a reported $110 million; Khan Academy’s acquisition of Duck Duck Moose, a creator of educational children’s mobile applications; Pinterest’s acquisition of InstaPaper, a tool that allows users to save web pages to read offline; Microsoft’s acquisition of Genee, a virtual scheduling assistant based on artificial intelligence that will be integrated into Office 365; Expedia’s acquisition of Trover, an application designed for travelers to share geo-tagged photos; and Google’s acquisition of Moodstocks, which develops machine learning based image recognition technology for smartphones.

After staying consistent in the second quarter, deal volume in the Communications segment decreased 14 percent on a quarterly basis. Notable segment transactions in the third quarter included LogMeIn’s announced merger with Citrix GoTo, a family of products delivers collaborative communication solutions for small and medium sized businesses, for $1.8 billion; Salesforce.com’s acquisition of Quip, a cloud-based word processing application and productivity suite, for $582 million; and Nuance Communications’ acquisition of TouchCommerce, which offers omni-channel solutions to engage customers through online chat, guides, personalized content, and other automated tools, for $215 million.

A copy of the ONLINE AND MOBILE INDUSTRY M&A REPORT FOR THIRD QUARTER 2016 is available at the Berkery Noyes website.