It’s been an interesting year for technology M&A and while the deal numbers may not have set the world on fire, there is plenty of evidence that the stars are aligning for 2012 to be a blockbuster year. The sector hasn’t been immune from the subdued M&A sentiment in 2011, with overall deal activity relatively flat globally but as a recent report by Ernst & Young LLP's Transaction Advisory Services points out, it’s likely to be a different story next year as the growing demands of today’s digital consumer will spur significant strategic activity among technology companies and PE firms.
The key driver of this activity is the transformative impact mobile, cloud and wireless technology has had on the way we work and play, and trends like crowdsourcing, group buying and cloud computing are only going to accelerate in 2011. With that in mind, here’s a look at some of the biggest hits and misses of 2011 both at home and abroad.
Crowdsourcing hits the right note
Starting at home, it has been a great year for locally-grown crowdsourcing outfits, many of whom have attracted serious attention from Silicon Valley. One big beneficiary was 99designs Limited, which managed to secure $35 million in funding from venture capital heavyweight Accel Partners. Accel was an early investor in Facebook and Groupon, and the partnership with the Melbourne-based online marketplace for crowdsourced graphic design solutions has by all accounts been a match made in heaven. The funding has already seen 99designs spread its wings into Canada and the UK with expansion plans to further ramp up in 2012. Accel has a happy history of striking it rich down under and last year pumped $60 million into Atlassian and $110 million into OzForex. Atlassian has really been the poster-child of local start-up success so far and 99designs is seemingly generating a similar sort of buzz, which leads us to our next big crowdsourcing story of the year, Kaggle.
The data analytics outfit, started in Melbourne just a year ago by former treasury and Reserve Bank of Australia (RBA) economic statistician Anthony Goldbloom, has hit the big league with its idea of crowdsourcing academics and number crunchers to solve complex data problems.
Kaggle has received the blessings of some of the biggest names in the tech industry, raising $US11 million in Series A financing led by Index Ventures, Khosla Ventures and PayPal co-founder Max Levchin, who has come on board as chairman. With so many prominent names on its list of investors, Goldbloom’s idea of taking data analysis and predictive modelling that one step further has obviously hit the right note at Silicon Valley and is another example of how picking the right niche and the right model can pay off for a start-up.
The success of 99designs and Kaggle is not only great news for crowdsourcing but for the local start-up sector in general, because the likes of Accel, The Founders Fund – headed by PayPal co-founder Peter Thiel and Facebook's first president, Sean Parker– and General Catalyst are all on the lookout for the next big thing and reckon it could well come from Australia.
Group buying floats Packer’s boat
The other big phenomenon that really came into its own this year was online retail and group buying with James Packer snaring a substantial stake in two of Australia’s most successful online retail channels, Catch of the Day and Scoopon.com.au for $80 million. Packer’s fund management company, Ellerston Holdings, also picked up a piece of Deals Direct for $10 million this year. The mogul’s move not only highlights how group buying has exploded this year but also reinforces the point that online retail is here to stay.
The push into the sector was kick started by Yahoo!7 in January when it bought Spreets – co-founded by Dean McEvoy and Justus Hammer – for $40 million. However, the stars of the sector this year are brothers Gabby and Hezi Leibovich who have not only put Packer’s millions to good use but also managed to bring US daily deals heavyweight Groupon to its knees. The Leiboviches have expanded their deal umbrella with the launch of GroceryRun, which offers to save its members an average of 50 per cent off their normal grocery bill. The idea behind the site is pretty simple, buy large volumes of excess non-perishable branded goods from suppliers and move the stock out of warehouses and into an online platform. It’s a formula that has already been put to work by the likes of Supermarketdeals.com.au, which launched in June, and Off your Trolley, which opened in March. However, Leibovich is confident he has one advantage that the others don’t – a recognisable brand with a database of 1.5 million members and great word of mouth support which means minimal marketing costs. There are more sites expected to make an appearance in 2012 and the Leibovich group discounts empire, along with the likes of Kogan.com’s Ruslan Kogan, have been at the pointy end of the disruption missile that has sent traditional retailers into a spin. The one obvious thing to look out for next year is whether the likes of Myer, David Jones and Harvey Norman are able to make a bigger online splash, the other thing to keep an eye out for is the consolidation in the group buying sector which should pick up pace in 2012.
Cudo’s consolidation cue
One daily deals site that could potentially make some waves on that front is Nine and Microsoft’s Cudo, which is set to welcome a new CEO in 2012. Cudo’s founding chief executive Billy Tucker has decided to move on to reportedly focus on his new online venture 57 Signals and he is handing the torch over to former ninemsn head of corporate strategy and business development, Mike Sneesby.
Sneesby’s appointment has also come with some interesting comments from ninemsn boss Mark Britt, who has flagged that it’s time for Cudo to get into the next phase of its growth strategy and the quest to become a more mature e-commerce business could involve some absorbing some of its rivals. It was only a few months ago that there was talk that Cudo itself could be on the block for $60 million. The sales talk was stumped due to a reported lack of buyers, but the reverberations from Nine’s complicated debt refinancing will no doubt have some say on how Cudo travels next year.
Archer Capital makes a killing on MYOB
Moving to private equity, the $1.2 billion sale of accounting software firm MYOB was music to the ears of Archer Capital and Harbour Vest Partners. After paying $450 million for the company, Archer almost had UK’s Sage Group lined up as a buyer but had to settle for US private equity outfit Bain Capital. Still, there wouldn’t have been too much consternation at Archer given that it had turned $450 million into a whopping $1.2 billion and essentially brought MYOB’s value back to its dotcom heydays. In hindsight, selling MYOB for a $450 million was probably not the best thing and it’s a lesson that other local targets will now no doubt keep in mind.
The MYOB sale could make life very interesting for its listed local rival Reckon. Global giant Intuit has an 11 per cent stake in the $300 million company known for its QuickBooks and Quicken accounting products and the two are working to commercialise Reckon’s APS accounting practice management software for distribution to accounting firms in United States and Canada. As this relationship blossoms, there is a strong chance that Reckon could be in Intuit’s crosshairs.
Speaking of local targets, Brisbane-based software company Markinson Constellation has been picked up by international software and services group, Constellation Software. Markinson, a specialist business software provider to small and mid-sized businesses (SMBs), will join Constellation’s Friedman Operating Group and operate as an independent division within Friedman. The financial terms of the deal were not disclosed.
Big money deals on Wall Street
There was obviously a lot more money on offer in the US with the likes of SAP, Google and Microsoft all spending a lot of money. SAP’s $US3.4 billion acquisition of SuccessFactors is a hefty punt by the company that is now serious about jumping on board the cloud. SAP is keen to move beyond its core strength of a non-premises software company and the SuccessFactors buy, along with Oracle’s $US1.5 billion purchase of RightNow, highlight just how competitive the cloud space is going to become in 2012. Expect more deal in 2012, with Taleo seen as a top takeover candidate by many.
Google has bought a lot of things this year but the biggest purchase by far was the $US12.5 billion deal to acquire Motorola Mobility. The deal still needs regulatory approval and Google has a lot riding on this. Not only does it allow the search engine giant to “supercharge” its Android ecosystem, but also Motorola’s extensive patent portfolio will also come in mighty handy against Apple and Microsoft.
My final big overseas pick is the $US8.5 billion deal between Microsoft and Skype. Microsoft may have had a comparable service option in Lync, but Skype brings with it instant brand recognition and a broad base of consumers. Expect to see Skype start to make its way into Microsoft products and combined with the positive buzz surrounding Kinect, this could be another driver that keeps Microsoft chugging along. By the way, Skype also brings with it a whole slew of communications patents and you can never have too many them these days.
IPOs fail to live up to the hype, RIM’s year to forget, HP’s transformation blues
The biggest letdown of 2011 has been the highly touted tech floats that delivered little bang and even less buck, with Zynga the latest example. Groupon and Pandora have both failed to live up to the hype since their listings and the same looks to have happened with Zynga, with the online games developer’s stock slipping five per cent on debut. Unlike Groupon, Zynga is profitable, but it looks like the market isn’t too keen on its over-reliance on Facebook and the level of control by CEO Mark Pincus. With Facebook set for its own listing foray next year, the IPO picture is looking increasingly grim and might not clear up in time for Facebook.
Research in Motion (RIM) has had a 2011 it would rather forget and a lot of problems in the company have all come to roost. The core product is losing its appeal, the table offering was a disaster and there is a real push for a change at the top. All together something has to give at RIM next year and it could even become a takeover target if it doesn’t get itself out of its funk.
Another company that endured a tough year was Hewlett Packard and while newly appointed CEO Meg Whitman is trying to figure out what to do with the PC business, she will also have to consider whether the $US10.3 billion buy of enterprise software maker Autonomy, made by her predecessor Leo Apotheker, was worth it. Paying 12 times Autonomy’s 2010 revenue certainly didn’t enamour Apotheker with the investor community but the thing to lookout for next year is whether Autonomy provides HP with the remedy to forget its blues and forge ahead as a re-defined industry player.
These were just some of things that kept me enthralled this year and I am sure readers can come up with their own lists of companies and trends which failed to hit the mark and which ones to keep an eye on. I would love to hear your thoughts and until then, have a great Christmas and see you all in 2012.