Tech Deals is a weekly column covering the latest deals in one of the busiest sectors for M&A. To read previous articles go to our Tech Deals page.
Facebook IPO, M&A thoughts
Facebook has got the ball rolling in its quest to become a public internet behemoth, with a valuation somewhere between $US75 billion and $US100 billion, and while the focus so far has been on whether investors should buy into the hype it might be handy to consider just how ambitious a public Facebook will be on the M&A front.
M&A may not be Facebook’s strongest suit but a look at the social network’s IPO documents would indicate that maintaining its growth momentum may require founder Mark Zuckerberg and his team to start thinking about how they are going to spend their cash. According to the documents, Facebook generated $US3.7 billion in 2011 revenue, with 85 per cent of that coming from advertising. However, the outlook for ad sales isn’t rosy. Facebook’s ad sales grew 104 per cent in 2011, but are only expected to climb 58 per cent in 2012, and 21 per cent in 2013. One way to keep the revenue gravy train rolling is to diversify its stream and better monetise its user base.
Another potential headache highlighted by Facebook in its IPO filing is that its mobile business is not making any money, despite its 425 million users, and smartphone makers hold all the cards when it comes to the integration of Facebook on their devices.
Both of these issues could play a role in how acquisitive a post-IPO Facebook decides to be and what’s on its list of targets.
Facebook’s strategy so far has been to acquire talent rather than product but that might change soon with analysts touting a number of potential targets. Tullet Prebon M&A analyst Sachin Shah has told Reuters the social network may look to acquire Yahoo’s American assets or target ailing BlackBerry maker, Research in Motion’s (RIM) patents. Advertising is Facebook’s bread and butter but competition from Google and Bing poses a serious threat and that’s where Shah reckons a move on Yahoo, minus its Asian assets, makes sense for Facebook. According to Shah, another prospective avenue could be sites that help Facebook provide solid content to its users to keep them on the site. That could be online travel sites like Trip Advisor or Expedia, or content sites like Netflix or Hulu.
Another prospective target that is generating a lot of chatter is social games developer Zynga which currently accounts for about 12 per cent of Facebook’s revenue. The outfit behind Farmville and Mafia Wars, which didn’t have a very happy IPO experience last year, has a very close relationship with Facebook. Zynga pays Facebook for advertising space on the network and a 30 per cent cut of the revenue generated when players purchase virtual goods on the games with real money. It’s these payments, along with the money for the ad space, that makes up Zynga’s contribution to Facebook’s revenue.
Facebook has acknowledged that a downturn for Zynga, or any moves by the games developer to switch platforms, will hurt revenue and there are plenty of people out there who reckon that Facebook will inevitably absorb Zynga if only to ensure it never falls into the hands of the competition.
Finally, the ruminations from Facebook’s management about the need to make the most of its mobile business could justify a move on RIM’s patents. There is plenty of talk that Facebook is mulling a smartphone of its own. And while critics point out that a foray into devices takes the company away from its core competencies, if Facebook wants greater control over mobile platforms then RIM and its treasure trove of patents might be a good fit.
Closer to home, listed satellite company NewSat Limited is within touching distance of the funding it needs to get its Jabiru satellite off the ground. Jabiru will be the only Australian-owned commercial satellite in orbit after it is launch and the after a whirlwind 2011 NewSat founder and CEO Adrian Ballantine will be pleased that his dream of becoming a satellite operator is close to fruition.
The final piece of the puzzle is the US$180 million capacity contract deal with Asian satellite operator MEASAT Satellite Systems (MEASAT). The deal takes NewSat’s pre-launch contracts to $US526 million, well and truly over the $US400 million it needs to satisfy the requirements of French government-backed COFACE and US based Export-Import bank. It also provides multiple transponders covering South Asia and South East Asia for the 15 year life of the Jabiru-1 satellite. MEASAT is a blue chip customer with five satellites in orbit and provides satellite communication services to international broadcasters, DTH platforms and telecom operators.
NewSat has now locked in capacity contracts with four outfits: MEASAT, TrustComm, 3A Technologies and Quicklink, and has chosen Lockheed Martin to construct the satellite and France’s Arianespace to launch it.
According to NewSat, the reputation of MEASAT will provide value and credibility to the project and the deals with Lockheed and Arianespace mean the banks won’t have too much problem providing the funding before the end of fiscal 2012.
With a market cap of $150 million and its share price at 61 cents, NewSat is a very close to making its transition from a satellite capacity reseller to a fully-fledged operator and Jabiru’s launch in 2014 will go a long way to giving the company the sort of publicity it needs to make a mark with investors
iiNet , Internode
iiNet has wrapped up the acquisition of Internode a month ahead of schedule with the ISP saying that the “administrative conditions” associated with the acquisition have been satisfied. iiNet boss Mike Malone said that the response to the acquisition by customers was positive and Internodes’ Simon Hackett has pointed out to his faithful flock that Internode is still running as a separate operation. Just how long that will be is open to conjecture, but for the moment it’s steady as she goes.
Accounting services business Xero has raised a further $15.5 million from existing strategic investors and acquired practice management company Max Solutions, developers of the job, time and invoice management solution WorkflowMax. The acquisition is worth $4.6 million and Max Solutions founders Gavin George and Chris Spence will become part of the Xero team. Xero’s strategic investors include: Sam Morgan, independent Xero director and board member of Fairfax Media, former MYOB co-founder Craig Winkler, and Valar Ventures, the New Zealand investment vehicle of PayPal co-founder Peter Thiel.
Listed mobile and technology company Mobile Embrace has raised $1.1 million in a private placement, with the funds set to be used to further accelerate the growth of its integrated mobile advertising and marketing business and for working capital.
Meanwhile, Deloitte Australia has absorbed Melbourne-based SAP consultancy Logro Consulting. Logro’s team, including director Links Chithiray, have moved under Deloitte’s banner. Chithiray has been made a Deloitte partner and will lead a group within the firm's enterprise information management (EIM) division.
Finally, IBM has acquired Israel-based smartphone and tablet application developer Worklight Limited. Financial details of the acquisition were not disclosed but the deal is reportedly worth between $US50 million and $60 million.