Google’s smartphone redial 

Contact:Scott Denne

For a first marriage, it’s common to overlook a spouse’s flaws, harbor unrealistic fantasies about life together and spend unjustifiable sums on the wedding. A second marriage tends to be a more measured affair, with a conservative price tag and thoughtful evaluation of how the pairing fits into one’s broader life goals. The same applies to Google’s second purchase of a mobile phone company, as the search giant is paying $1.1bn for certain assets of HTC almost three years after unwinding its tie-up with Motorola Mobility.

While today’s deal marks a big commitment, it’s well short of the $12.5bn it spent for Motorola six years ago. Its reach for HTC differs from that earlier one – most of which it unwound in a 2014 divestiture to Lenovo – in more ways than price. With Motorola, Google envisioned itself becoming a marquee manufacturer of smartphones. This time, Google is making a more tactical move in the mobile market.

Google is obtaining the HTC team (and a license to related patents) that it used to build its Pixel phone, a collaboration that’s showing early signs of paying off. According to 451 Research’s VoCUL surveys, less than 1% of consumers with a smartphone own one made by Google, although the number planning to buy a Google phone sits near 3%. Even with those gains, Google’s phone business remains a long distance from matching Apple or Samsung.

But catching up to those companies, at least in hardware sales, isn’t likely the goal. Those same 451 surveys show that Google’s mobile OS, Android, has a larger market share than Apple’s iOS and more consumers prefer Android for future purchases. In that sense, the HTC pickup isn’t so much a break from its Motorola deal, but a continuation of the gains made from it.

Leading up to its acquisition by Google, Motorola’s sales were in a tailspin that continued after the transaction. Yet Google was able to build a broad ecosystem for Android during that time. That’s what it has in mind in nabbing the HTC team. Google is focusing its own hardware efforts on building high-end devices not mainly to sell devices but to showcase what’s possible with Android, making it easier for other hardware providers to develop functionality they’ll need in the competition against Apple, ensuring that Google’s software (and its cash-cow search engine) retains a place in the mobile market.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Ingenico moves past POS with $1.7bn Bambora buy

Contact: Jordan McKee, Scott Denne

Ingenico scoops up yet another European payments service provider to fuel its evolution beyond a point-of-sale (POS) terminal supplier. Today’s $1.7bn pickup of Nordic mobile payments vendor Bambora marks its third acquisition of 2017, the payment giant’s busiest year of dealmaking to date.

Its two previous deals of the year brought it international expansion – into Ukraine and India. Yet where Ingenico has spent the most money has been growth beyond its core POS business into services and other payment channels. Prior to todays’ transaction, its $1.1bn purchase of e-commerce payments company GlobalCollect in 2014 had been its largest acquisition. It also spent $485m for transaction-processing services firm Ogone a year earlier. Since that deal, Ingenico has inked eight acquisitions, according to 451 Research’s M&A KnowledgeBase.

With the bulk of its revenue indexed to brick-and-mortar commerce – and more specifically, hardware sales – Ingenico realizes that it must craft a digital strategy that will ensure its relevance as more transactions flow into card-not-present channels. By reaching for omni-channel capabilities, Ingenico expands the role it can play within its retailer client base while embedding itself further in their commerce options.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Enterprise mobile’s moment passes 

Contact:Scott Denne

The surge of smartphones over the past decade delivered a shock to businesses, changing everything from how they manage employees to how they engage with customers. Such sudden transformation leads to confusion, and confusion often leads to big acquisitions at salacious multiples. It appears that mobile enterprise technology vendors are no longer benefiting from that disorientation as deals dwindle and buyers look for tuck-ins and consolidation plays rather than strategic gambles.

Case in point: VMware’s purchase of Apteligent earlier this week. In the startup’s early days, it appeared to be defining a new category of mobile application performance monitoring. Instead, it’s folding into VMware’s workforce management tools at a price that’s likely short of the $50m that venture capitalists plunked into it.

Or take Tangoe. At just $305m, the sale of the device management firm leads the pack of enterprise mobile tech deals in 2017. It sold to Marlin Equity Partners for 1.6x trailing revenue and about one-quarter of its market cap at its zenith. Last year’s largest mobile enterprise transactions – a pair of telematics providers picked up by Verizon and Microsoft’s reach for app developer tools specialist Xamarin – all went off at above-market multiples.

The pace of deals – not just the type – is also shaping up differently from last year. Acquirers spent $6.4bn on enterprise mobility vendors in 2016, according to 451 Research’s M&A KnowledgeBase. This year, just $510m has been spent on 42 transactions, on track for less than half of last year’s volume. Investors are matching the drooping appetites of acquirers. By our reckoning, there has been just $112m of fresh venture capital poured into these businesses. That’s about the same rate as last year, when these companies drew about one-quarter the amount of funding that they did in 2013 and 2014.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

‘Eyeballing’ the farcical Snap IPO

Contact: Brenon Daly 

It might seem a bit out of step to quote the father of communism when looking at the capital markets, but Karl Marx could well have been speaking about the recent IPOs by social networking companies when he said that history repeats itself, first as tragedy and then as farce. For the tragedy, we have only to look at Twitter, which went public in late 2013. The company arrived on Wall Street full of Facebook-inspired promise, only to dramatically bleed out three-quarters of its value since then.

Now, in the latest version of Facebook’s IPO, we have last week’s debut of Snap. And, true to Marx’s admonition, this offering is indeed farcical. The six-year-old company has convinced investors that every dollar it brings in revenue this year is somehow three times more valuable than a dollar that Facebook brings in. Following its frothy offering, Snap is valued at more than $30bn, or 30 times projected 2017 sales. For comparison, Facebook trades at closer to 10x projected sales. And never mind that Snap sometimes spends more than a dollar to take in that dollar in revenue, while Facebook mints money.

Snap’s absurd valuation stands out even more when we look at its basic business: the company was created on ephemera. Disappearing messages represent a moment-in-time form of communication that people will use until something else catches their eye. (Similarly, people will play Farmville on their phones until they get hooked on another game.) Some of that is already registering at the company, which has seen its growth of daily users slow to a Twitter-like low-single-digit percentage. Any slowing audience growth represents a huge problem for a business that’s based on ‘eyeballs.’

And, to be clear, the farcical metric of ‘eyeballs’ is a key measure at Snap. In its SEC filing, the company leads its pitch to investors with its mission statement followed immediately by a whimsical chart of the growth in users of its service. It places that graphic at the very front of the book, even ahead of the prospectus’ table of contents and far earlier than any mention of how costly that growth has been or even what growth might look like in the future at Snap. But so far, that hasn’t stopped the company from selling on Wall Street.

Nuance voices desire to expand in customer service with TouchCommerce buy

Contact:  Scott Denne Sheryl Kingstone

Nuance Communications breaks a two-year M&A dry spell with the $215m purchase of TouchCommerce. Building off its earlier acquisitions of Varolii and VirtuOz in 2013, today’s announcement gets Nuance deeper into the customer service segment with analytics software and tools for both self-service and agent-assisted service via multiple mobile and desktop channels.

Amid flat revenue and a cost-cutting program, Nuance hadn’t announced a new acquisition since its tuck-in of document software provider Notable Solutions in July 2014. In previous years, it directed some of its M&A spending toward customer service, although most went toward building out its medical transcription division – its largest business and one that declined slightly through its last fiscal year and the first two quarters of its current one.

Nuance isn’t the only one increasing its investments in customer service. According to 451 Research’s M&A KnowledgeBase, acquirers have spent $1.4bn on that category so far in 2016, putting it on pace to be the second-largest year on record. Our data suggests that the investments, particularly in mobile-heavy players like TouchCommerce, is warranted. According to a recent 451 Research Voice of the Connected User Landscape survey, 37% plan to deploy customer self-service capabilities over the next 24 months.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Mobvista sees path to a broader gaming platform with GameAnalytics in the fold

Contact: Scott Denne

Mobvista makes its second international deal of the year with the acquisition of mobile behavioral analytics vendor GameAnalytics. Fueled by its recent listing on China’s NEEQ exchange, an over-the-counter board for Chinese startups, Mobvista is expanding from its roots as a mobile ad network into a broader platform for gaming monetization. Its previous transaction, the $25m purchase of NativeX, brought it reach into the US market as well as video advertising and other rich media formats.

Today’s pickup of Copenhagen-based GameAnalytics gets it software that provides game developers with audience behavioral and segmentation data that can be deployed for marketing campaigns or product development. The move mirrors Tapjoy’s (much earlier) transformation from a mobile ad network into a gaming monetization platform with its reach for South Korea’s 5Rocks two years ago. Other competitors selling a broad platform for game developers include Chartboost and Unity Technologies, a game engine developer that announced a $181m funding round earlier this week.

Mobvista is one of an expanding number of China-based businesses using M&A to grab a bigger share of the mobile app ecosystem. So far this year, Chinese companies have acquired 10 mobile assets for a total of $9.2bn – both numbers are higher than the total at the same point in any other year, according to 451 Research’s M&A KnowledgeBase. This year’s deal value total, bolstered by Tencent’s $8.6bn acquisition of Supercell, is already double that of any other previous year. Mobile apps are a large and high-growth market in China. According to 451 Research’s Mobile Marketing and Commerce Forecast, mobile advertising revenue in China will increase 86% this year to $11.6bn and account for more than one-quarter of the global market.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Still early days for IoT security

Contact: Christian Renaud Brenon Daly

The Internet of Things (IoT) market is transitioning from early (over) hype to production deployments, causing problems with operational security. This has raised the visibility of an increasing number of IoT startups, ranging from legacy operational technology (OT) security vendors that have been ‘IoT washed’ to IT security providers and pure plays. In a just-published report, we profile 11 startups looking to take advantage of the growing interest in IoT security. (Collectively, these companies have received about $115m from venture investors, and we would note that they represent a small subset of all IoT security technology startups.)

In terms of exits, 451 Research’s M&A KnowledgeBase tallies just nine security-related transactions that we believe were driven entirely, or in large part, by IoT. Spending on just those rather narrowly defined IoT security deals totaled $966m, with one pairing (Belden-Tripwire) accounting for the vast majority of the total.

The fact that security isn’t spurring more IoT acquisitions isn’t all that surprising, when viewed against how M&A has played out in other emerging tech markets. Vendors tend to focus on the opportunities – rather than the threats – that come with the new, new thing. Consider the SaaS space, which essentially changes the delivery of software. Literally, thousands of SaaS applications have been acquired in recent years, whether through consolidation or expansion into adjacent areas.

However, only a handful of transactions have gone toward securing the app, despite the fact that 451 Research surveys have shown that concerns about security are the primary obstacle for SaaS adoption, just as they are for IoT deployments. (For instance, just two of the 43 acquisitions that SaaS kingpin Salesforce has done since its founding have involved security, and both have been tiny deals.) As IoT deployments broaden and become more complex, we expect security to account for more than its current 3% of deal flow. Again, to see which startups might be figuring into upcoming deal flow, see our full report on IoT security M&A.

IoT MA as % of overall

Vonage pushes further into business communications with Nexmo buy

Contact: Mark Fontecchio

Vonage pays $230m for Nexmo, which offers enterprise voice and text messaging APIs. The deal, Vonage’s largest in 451 Research’s M&A KnowledgeBase, pushes the VoIP provider further into the realm of unified business communications. Vonage has now spent about $600m on M&A in the past few years to pivot from a consumer-focused VoIP supplier into a business communications vendor. The gamble has paid off, with the company’s overall sales growing once again and its business revenue jumping exponentially.

Nexmo is Vonage’s biggest reach yet. Its previous nine-figure (or close to it) acquisitions – starting with Vocalocity in 2013, Telesphere Networks in 2014 and iCore Networks last year – involved business-focused VoIP providers, so Vonage stayed within its wheelhouse. With its cloud-based voice, messaging and chat APIs, Nexmo broadens Vonage’s horizons into business communications services, helping companies more easily embed voice and messaging services within their mobile apps. For that privilege, Vonage is paying a healthy multiple on Nexmo’s trailing 12-month revenue (see estimate here). The multiple is Vonage’s highest to date and one of the largest we’ve seen in mobile messaging and application development. Nexmo’s revenue is also growing at a fast 40% clip, according to Vonage.

Vonage’s overall sales grew 3% to $895m last year, but its business revenue more than doubled to $219m. Two years ago, the company had $8m in business revenue. Now its business revenue is higher than all of rival 8×8’s sales. By our math, at least three-fourths of that increase in business revenue came from its purchases of Telesphere, iCore and SimpleSignal. Meanwhile, its consumer revenue dropped 12% to $676m. Vonage’s challenge has been – and will continue to be – how quickly it can replace its disintegrating consumer revenue with business dollars, whether that be through continued M&A or more organic growth.

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What happened to Alphabet’s M&A bets?

Contact: Brenon Daly

As part of an effort to provide more strategic focus as well as financial transparency, Google reorganized and renamed itself Alphabet last October. In the half-year since that change, the company has lived up to the ‘alpha’ part of its new moniker, handily outperforming the Nasdaq, which is flat for the period. But when it comes to ‘bet,’ it hasn’t been placing nearly as many M&A wagers as it used to.

So far in 2016, the once-prolific buyer has announced just two acquisitions, according to 451 Research’s M&A KnowledgeBase. That’s down substantially from the average of six purchases that Google/Alphabet has announced during the same period in each of the years over the past half-decade. (Nor do we expect this year’s totals to be bumped up by Google buying Yahoo, as has been rumored. That pairing would roughly be the sporting world’s equivalent of the Golden State Warriors nabbing the Los Angeles Lakers.)

The ‘alpha’ part of Alphabet is, of course, the Google Internet business, which includes the money-minting search engine, YouTube, Android and other digital units. This division generates virtually all of the overall company’s revenue and is the primary reason why Alphabet is the second-most-valuable tech vendor in the world, with a market cap of over a half-trillion dollars. For more on the company’s progress in dominating the digital world, tune in on Thursday for its Q1 financial report and forecast.

Google/Alphabet M&A

Period Number of announced transactions
January 1-April 18, 2016 2
January 1-April 18, 2015 6
January 1-April 18, 2014 8
January 1-April 18, 2013 4
January 1-April 18, 2012 4
January 1-April 18, 2011 8

Source: 451 Research’s M&A KnowledgeBase

Facebook’s success in mobile media can’t be left to F8

Contact: Scott Denne

As Facebook opens its annual F8 developer conference today, it’s worth noting that while the company is clearly ascendant in mobile, it’s not dominant in digital media, where it is very much the challenger to Google. Facebook’s growth is impressive. Revenue spiked 44% to $18bn (80% of that in mobile) in 2015, a number it reported just after its 11th birthday: Google passed the $20bn mark in nine years and today is nearly quadruple that size. In the next phase of growth, where Facebook is positioning itself as a mobile media vendor, not just a social media vendor, Facebook faces a distinct set of challenges than Google was up against when it grew from its base in search to owning the Web.

Once Google sewed up the search market, it faced scant competition as it soaked up much of the digital advertising landscape and was the clear winner in the first phase of digital media. The same isn’t true of Facebook. It finds itself facing an incumbent in Google and its future lies in the outcome of a comparatively fluid media market. Now that it’s emerged as the dominant social media platform, the company is taking a subtler approach as it seeks to win the next phase of digital media. In addition to facing a strong incumbent, Facebook is saddled with higher expectations – its stock trades at 16x trailing revenue, while Google was valued between 5-6x at the same moment in its own history.

Facebook plans to own the next phase of digital media by offering measurement, metrics and distribution to enable advertisers and publishers to transition into mobile. The best indication of the difference in strategy is that while Facebook was widely expected to launch a media-buying platform along the lines of Google’s DoubleClick Bid Manager, its recent relaunch of Atlas instead focused on measurement and attribution. And most importantly, it focused on measurement of people and demographics, the lingua franca of today’s television business, not cookies and intent – the currency of display advertising. While Google made a mint dismantling the print media market, Facebook is pursuing a potentially more lucrative opportunity in capturing the shift of TV budgets to digital and hoping to do so wherever those dollars land – in-apps, in online videos, on its network or in any new format that could emerge from mobile.

Facebook’s bet is that once advertisers see that mobile works, more will shift to that medium and the company will be the largest beneficiary. It’s well positioned to do that. Nearly one billion people per month engage with the social network across multiple devices, making Facebook better positioned than anyone to link different devices into a common digital currency. The challenge in that strategy is that Facebook must not only be the dominant social network (to power its measurement capabilities), it must also remain the dominant mobile media provider – the money’s in selling the media, not the measurement.

That’s a more difficult and unpredictable path than the one it (or Google) faced in building out a browser-based business. Innovation and change is no longer limited to what can be done at a desk and on a PC. The mobile medium is still nascent. The next phase of digital media will play out across many types of devices (phones, TVs, watches and more to come), and many of those devices are part of consumers’ lives in a way that a TV set or PC never was. All of this makes the future of mobile media challenging to predict. Facebook’s need to own the unpredictable explains its wildly valued – though reasonable – purchases of Instagram, WhatsApp and Oculus VR and will be justification when the company bets on the next new media. Over the next two days, we’ll be watching to see what Facebook thinks that might be.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.