TECH DEALS: 99designs on a new canvas

Tech Deals

The technology sector has started 2011 with a bang on the M&A front with heavyweight deals coming in thick and fast and there are more hits and misses in the pipeline. According to global deal tracking firm Dealogic, the dollar value on tech M&A deals worldwide has hit the $47.3 billion mark in the first quarter. M&A activity is clearly heating up as cashed up companies scramble to bolster their presence whether it be in the cloud computing, social media or the hardware sector. So the big guys are looking to consolidate, the banks are willing to lend and the smaller tech players are looking to make themselves as attractive as possible and there is no sign of things slowing down at the moment. With that in mind here's what's been making news in the sector in just the last week or so.

99designs, Accel Partners, MYOB

Australian tech company 99designs Limited has reportedly attracted the attention of venture capital heavyweight Accel Partners. Accel, was an early investor in Facebook and Groupon, and has now invested $35 million into 99designs. Melbourne-based 99designs is the top online marketplace for crowdsourced graphic design solutions and was spun out in 2008 by Mark Harbottle and Matt Mickiewicz, the team that put together the online web development forum SitePoint. This is Accel's third deal with an Australian tech firm in the last nine months, having already invested money in Atlassian Software and OxForex Limited. So Accel certainly likes the view down under and Accel partner Andrew Braccia has told the WSJ that the Australian tech scene was full of “opportunity and promise”.  Meanwhile, the co-founder and former chief executive of accounting software giant MYOB, Craig Winkler, has reportedly taken a stake in restaurant booking site YumTable. According to The Australian, YumTable is the brainchild of Madewell Enterprises, an internet company formed by Winkler and other former MYOB executives. The site provides diners with information on best restaurant deals and the facility to book tables.

CenturyLink, Savviss

We start with the $US2.5 billion play by US telco CenturyLink, formed out of the 2008 marriage between Sprint spin-off Embarq and CenturyTel, to nab information technology firm Savvis in a push to muscle in on the cloud computing space. CenturyLink has lobbed a $US40 a share cash and scrip bid offering Savvis shareholders $30 a share in cash and $10 in shares. That's an 11 per cent premium on Savviss' last closing price before the offer was unveiled. The acquisition is going to help CenturyLink expand its data storage services for global companies and get the jump on the likes of Hewlett-Packard, EMC and Dell that are all on the trail of acquisition in the cloud computing space. The last big deal in the space was in January when Verizon Communications offered $US1.4 billion for Terremark Worldwide. The $2.5 billion price tag may look hefty but is still pales against the $US10.6 billion buy of rival telco Qwest Communications earlier this month.

Facebook unveils daily deals aspirations

Facebook has cast its eye on the daily deals market with the social network evidently hoping that its global reach will be a significant help when it comes to reaching out to consumers. Facebook has begun testing its own daily deals service in five US cities – Atlanta, San Francisco, San Diego, Dallas and Austin, with plans to expand into other cities in due time. The special deals coupons, which Facebook users can purchase directly on its service, are specifically geared toward group activities rather than individual items. Facebook will of course take a cut of each transaction, but it hasn't revealed just how much that cut is. The likes of Groupon and LivingSocial may have pioneered the business of serving up coupons to deals savvy consumers but Google and Facebook are now keen to join in the fun. Google has launched its own deals site Google Offers which is designed to help potential customers find deals through a daily email and Amazon.com recently pumped $175 million in to LivingSocial. Speaking of LivingSocial, the company has taken aim at New Zealand's fledgling online coupon market, with an initial launch in Auckland in April and has reportedly already signed up more than 130,000 customers. The push certainly helps LivingSocial get the jump on its rival Groupon which has also been linked to a similar move into New Zealand in the past. In fact LivingSocial has been tipped by some to overtake Groupon by 2012. The site recently received over $400 million in funding from a mix of investors including Amazon and Lightspeed Venture Partners, taking its total funding to over $673 million. Google did attempt to buy Groupon for $6 billion late last year and with some expecting the daily deals market to grow to $US3.93 billion in 2015 it's no wonder that the industry heavyweights are keen to carve a out a little piece of the pie for themselves.

But is the social network's valuation on thin ice?

Lack of ambition has never been a problem for Facebook founder Mark Zuckerberg and with the network on an expansive growth tangent it's easy to forget that not everyone is convinced about just how much the company is worth. Facebook is aiming to go public in the next year or so and some investors are evidently worried about the issue. A report by Reuters last week pointed out that a group of Facebook shareholders, said to include current Facebook employees as well as early investors, are looking to sell $1 billion worth of shares on the secondary market that would place the company's total valuation at $70 billion. That's right, $70 billion for a company that earned $US355 million in net income in the first nine months of 2010 on revenue of $US1.2 billion. In fact the Reuters report said that the investors had earlier tried to offload shares at a price that valued the company at $90 billion, but couldn't find any buyers. The move basically points to a growing wariness among investors that Facebook's growth just can't keep with the skyrocketing valuation. Facebook may be chockers when it comes to potential but turning that into a multi-billion dollar company could still be a stretch.

MySpace, News Corporation

Social networking portal MySpace has been sore point for Rupert Murdoch's News Corporation empire for some time and there is new speculation that the media giant may be close to finding a willing buyer. News Corp has reportedly received bids from a number of private equity firms and companies and the Wall Street Journal reports that the list of suitors includes the likes of Thomas H. Lee Partners, Redscout Ventures and Criterion Capital Partners, the owner of social networking site Bebo. The paper adds that News Corp is only looking for bids over the $US100 million mark and there's a good chance that a number of prospective suitors may join forces to get their hands on MySpace. News Corp bought MySpace in 2005 for $US580 million and it has been a sorry tale for the site since then with falling traffic and revenue. The News Corp unit that includes Myspace reported an operating loss of $US156 million for the quarter ended December 31, primarily because of the site's poor performance and the WSJ reports that we will have to wait until June before News Corp tells us who has taken the MySpace millstone off its neck. 

Sony's PS3 data breach

The hack attack on Sony's PS3 network has certainly taken the shine off the company's release of its Android powered tablet and things have clearly taken a turn for the worse with talk of legal action against the consumer electronics giant. There is growing anger among users that Sony didn't do enough to keep the private data of customers protected and one lawsuit has already been officially filed in the US. The plaintiffs in this case are reportedly asking for compensation and for Sony to purchase a credit card monitoring system capable of spotting if stolen details are currently being used fraudulently. The security and privacy breach has had serious global implications with more than 700,000 Australians affected and The Australian reports that the NSW police fraud squad has advised users to check with their issuing bank before deciding whether to cancel their cards. There are many out there who are saying that perhaps Sony has itself to blame for the fiasco, with management more interested in prosecuting customers rather than protecting their data. One person who knows this all too well is George Hotz, AKA Geohot, who was sued by Sony for posting code that can jailbreak Sony PlayStation consoles. Geohot's prosecution had riled the hacker community and interestingly Sony settled the case just days before the breach. Hotz in his blog made a pointed observation, not without some hint of irony that Sony should hire more security experts and less lawyers. At the moment it probably needs both.

Wrapping up

Youtube co-founders Chad Hurley and Steve Chen have taken the social bookmarking site Delicious off Yahoo's hands for an undisclosed sum. The site will now be a part of the new company started by Hurley and Chen called AVOS.  Finally, Russia's answer to Google, Yandex, is eyeing a public listing. Moscow-based Yandex has filed a prospectus stating that it is aiming to raise $1 billion and list its shares on Nasdaq. Yandex recorded net income of $134.3 million for 2010 and like Google relies on online advertising for its revenue.