Deal Focus: LivingSocial acquires three international deal sites

June 27, 2011

Daily deal site LivingSocial announced today it acquired three international deal sites, giving Groupon a run for its money in deals markets abroad. In its first move into Asia, LivingSocial purchased Ensogo, which provides deals to Thailand and the Philippines, and DealKeren, which provides deals in Indonesia. It also made a major play in the Middle East (a market Groupon has historically had trouble winning over) with its purchase of GoNabit. These acquisitions, along with an announcement the company will now provide deals in the Netherlands, brings the total number of countries in which LivingSocial operates to 21.

Daily deal companies first found success in major U.S. cities and then spread to smaller regions in the U.S. With a now saturated U.S. market, international expansion is the clear next step. Ensogo (barely a year old and parent company to DealKeren) is a top social shopping website in Thailand, Philippines, and Indonesia, serving more than 800,000 members and was backed by Rebate Networks. United Arab Emirates-based GoNabit, founded in January 2010 and operating in UAE, Kuwait, Egypt, Lebanon and Jordan, provides deals suitable for children through its Dubai Family services (which builds off the LivingSocial Families offerings), as well as travel-specific deals through GoNabit Getaways.

Today’s acquisitions by LivingSocial make it clear it is not backing down from competing against its biggest rival, Groupon, which has recently expanded abroad with a feverish pace. Both companies are buying scale as opposed to building up their services internally. Since May 2010, the two companies have made 22 acquisitions (LivingSocial: 9; Groupon: 13), 18 of which have been for deal sites outside of the U.S.  The other acquisitions were either advertising or technology-related. While deal values for the majority of the recent acquisitions were not disclosed, its safe to assume that much of the cash they have received through venture rounds is going towards M&A – not R&D.

Even with recent criticism from the industry about the business practices of these deal sites (TechCrunch recently ran a month-long guest series describing business owner’s bad experiences with Groupon), there is still optimism about the future of the “deals” space. Internet retailer Amazon feels the deals space is still worth entering:  Amazon invested $175 million in LivingSocial in December, and announced earlier this month it is using the service to source its own new deal site, AmazonLocal (although deals will eventually come directly from Amazon). And despite financial information showing Groupon has been running at a loss since the beginning of 2010, there is still interest in Groupon’s impending $750 million (minimum raise) IPO at a rumored $20-$30 billion valuation.

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Posted by Signal Hill

VCs Ready To Bring Focus Back To IT

January 4, 2011

The venture capital spotlight is ready to turn back onto the IT sector in 2011, after giving up ground to cleantech and life sciences companies over the past few quarters. A recent survey by the NVCA shows that investments in IT, internet & digital media, cloud computing and mobile/telecom are all anticipated to increase in the year ahead. Between 77-82% of respondents (a combination of VCs and CEOs) expect increases in healthcare IT, cloud software and consumer Internet investments throughout 2011. VC exits for technology IPOs are also predicted to increase, while 81% of respondents suggested that venture-backed acquisitions will also increase.

If VC investments from the fourth quarter of 2010 are any sign of what is to come, then these predictions are not far off. The chart below shows a handful of the biggest VC investments during the fourth quarter – a trend of investments we expect will continue and even spur M&A in the coming months. Social media-based companies in particular received a number of big investments this year, including e-commerce companies such as LivingSocial, and internationally in shopping sites Vostu (Brazil) and Prevalia (Spain). Group buying megalith Groupon recently raised $500 million (with the ability to raise another $450 million) after turning down Google’s $6 billion acquisition offer, while Facebook also pulled in $500 million from Goldman Sachs. These investments, which value the companies north of $6 billion, reinforce the idea VCs are anxious to grab a piece of the pie, especially in social media and e-commerce. Similarly, investments in cloud applications, including the $25 million picked up by both Meebo, web IM platform, and Cloudera, cloud data-management software provider, show the increasing value investors are finding in the maturing technology.

The VC market is beginning to come back to life and that is a great sign for M&A as well. Recent data from Dow Jones shows that 62 Web-based startups worth a total of $4.1 billion were acquired in 2010. That is nearly double total deal volume for both 2008 and 2009 thanks to hungry acquirers like Google, Facebook, IBM and social gaming company Zynga. Preliminary M&A deal valuations year-to-date are at their highest points since the peak of the market in 2007, according to Signal Hill Updata’s proprietary database [see our upcoming 2011 IT M&A Outlook to be published in January]. We have no doubt that a full pipeline of deals, hearty investments in the venture capital world, and an increasingly recovering IPO market will spur even greater M&A growth in 2011.

Select Large IT VC Investments, Q4 2010-Q1 2011
VC 2010-2011 IT
(click image to enlarge)

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Posted by Signal Hill

Three Keys To Internet Success: Serendipity, Aggregation, Usability

December 6, 2010
Don More Signal Hill Updata

Don More, Partner

The Internet is no doubt one of the hottest IT spaces of the moment, with M&A in the sector valuing more than $5.5 billion during the first three quarters of 2010. As the sector continues to morph into a combination of e-commerce, social content and beyond, there seems to be a certain recipe that the most valuable companies all have. In my opinion, there is a three-legged stool to Internet success: (1) Serendipity, (2) Aggregation, and (3) Usability.

Serendipity, a relatively new term in the industry, is basically the idea of showing users what they want even if they don’t ask for it. Google executive Eric Schmidt recently said that the future of the search engine could be a “Serendipity Engine” – in other words, search occurring when you’re not even using the search engine, always running in the background displaying results. As a recent TechCrunch article noted, personalization and serendipity are similar, although “personalization merely acknowledges intimacy, whereas serendipity pretends to have happened on it as if by accident.” Many e-commerce sites have components based on serendipity, such as suggestions for other stories you may like under a news article or other items you may wish to purchaseswhile online shopping. Firms using Online Behavioral Advertising, or targeted ads, have also caught on to the idea of serendipity – for example, when an advertisement appears for the very same item you were shopping for on another website a day or two earlier. The right amount of serendipity can increase site stickiness, as well as potentially increase sales for e-commerce vendors.

Aggregation has become one of the most crucial elements of successful Internet properties. Whether it is goods, people, applications, services or content, users increasingly are looking for a one-stop shop for everything. This is why social services such as Twitter have become so popular – it allows users to communicate with friends, receive news, etc. all in the same place. The success of e-commerce giant Amazon.com is also due to aggregation and other vendors have jumped on the bandwagon, such as former shoe-only site Zappos.com which now offers all types of apparel and accessories to increase competition. Google’s shopping engine also builds off this model.

Usability is also incredibly important when it comes to Internet properties. How easy it is for users to benefit from a site or service makes a dramatic difference when it comes to sticking around on a site and for many, ultimately making a sale. One could argue that with the right amount of serendipity, as well as efficient aggregation, the usability of a site is thus dramatically increased.

Inevitably, high valuations attach to web assets with these characteristics. For example, the rumored acquisition of Groupon by Google for $6 billion (which Groupon walked away from over the weekend) hits all of these points– bombarding subscribers with daily deals, allowing users to simply click through an email and make a purchase, and with its latest Groupon 2.0 announcement, aggregating a number of deals for subscribers to peruse. These three things translate to market momentum which is what drives high multiples. Groupon’s rumored price, for example, is not high multiples-wise if one connects the dots to projected 2011 revenue.

There are many Internet sites available that provide a little bit of each of these three things, and we expect there will be a number of combinations and M&A transactions throughout 2011 as companies try to reach this balance. “Bargains” for venture capital and private equity investors, as well as strategic acquirers, might be investing in or buying companies that have one or two of the three touchstones and just need to fix the third, such as improving the front-end or building a better data store.

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Posted by Signal Hill

Deals and Offers Sites See Investment Influx

November 1, 2010

Social and group buying companies have been hot beds for investment during the first few weeks of Q4, despite the fact that venture capital investments were down for Q3.  Over the last two weeks alone, six different social buying and deal sites, including ShopSocially, SignPost and DailyD, brought in venture investments, while Living Socially, Groupon’s biggest competitor, continued consolidation in the sector.

Living Social announced last week that it acquired UrbanEscapes, a social trip planning company currently serving Philadelphia, New York, Boston and DC. Living Social has raised more than $40 million in venture capital investments since it was founded in 2008 and recently statistics show it leads Groupon in unique monthly visitors. eBay is also attempting to utilize the social shopping market with its announcement that it has partnered with Groupon; US-based eBay customers can sign up for Groupon deals through the eBay site and earn 5% back in eBay Bucks, the online auction giant’s free rewards program.

We previously wrote about the room for strategic growth in this area and how international reach would drive competition in this market. That has indeed continued to be the case. Spanish group buying site Groupalia pulled in €5 million just last week, while Privalia Venta, a Spanish, invite-only shopping site, raised $95 million from Index Ventures and General Atlantic to tackle new markets.

New, innovative start-ups are springing up every week, and whether they have built significant customer bases or are based off of much smaller groups of friend recommendations, these sites are successfully engaging new customers, and creating new, ancillary revenue sources. These startups are also leveraging data from social media networks — data that ultimately provides metrics about shopping habits that are invaluable to advertisers, not to mention a company’s bottom line. The factors are a recipe for success, and we expect innovation, and eventually strategic acquisitions by older e-commerce giants, to continue to promote growth in the sector.

Venture Investments in Group Buying/Deal Sites, October 2010
(click image to enlarge)

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Posted by Signal Hill

Desire For Global Reach Drives E-commerce M&A

July 9, 2010

Interest in the e-commerce sector is igniting, especially as more start-ups begin to hit the scene. A number recent deals involved well-established companies expanding their footprint into the global marketplace. The U.S. e-commerce market (businesses catering to buying and selling through the Internet), is estimated to reach $248 billion by 2014, and with areas such as Asia and Europe home to a majority of the world’s Internet users, there is no question why companies are pursuing this strategy.

Asian e-commerce firms in particular are expanding their reach into other economies. Japanese e-commerce giant Rakuten acquired French e-tailer PriceMinister for $245 million in June and U.S.-based online retail marketplace Buy.com for $250 million in May. Alibaba.com, a China-based e-commerce firm, also moved into U.S. territory with its acquisition of Vendio, an e-commerce services provider, at the end of June.

Latin America has been popular as well. In June, Groupon acquired Chilean deal site ClanDescuento and started new site ClubeUrbano in Brazil. And just last week, luxury products giant LVMH (Moët Hennessy Louis Vuitton) agreed to acquire a 70%, controlling stake in Sack’s, a Brazilian online retailer of fragrances, cosmetics and toiletries. Brazil has one of the fastest-growing economies in the world, with e-commerce growth of 30% year-over-year for Q1 2010. Latin America as a whole has the fastest growth rate in the world for Internet users, making up 8% of the global Internet audience. Latin American users also spend more time online, on average, than users across the globe, particularly with social networking sites due to their social culture.

With the increasing popularity of social buying and invite-only shopping sites, especially in the start-up world, there are dozens of possibilities for strategic M&A in the e-commerce space. We expect to see a continued interest in international reach, coming from both U.S. companies and abroad. The global economy may have its weaknesses, but consumer spending is still up quarter-over-quarter for Q2 compared to 2009. Companies that are able to exploit this situation will be the most sought-after properties in the marketplace.

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Posted by Signal Hill

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