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A little bit about me

Hi. While this blog is a part of Seed Catalyst’s website, I realised over the initial few weeks that a lot of you are first introduced to the firm via the blog rather than our home page.

So to introduce myself - I’m a business consultant working with early stage technology firms to help streamline their strategy and go-to-market approach and support them for fund raising. 

With this blog, I aim to capture key market trends that I see in the industry, the ecosystem and cross-plays in some of the more interesting and upcoming sectors, as well as cover interesting companies that I meet. 

I will also be addressing vexing and interesting valuation and deal/term-sheet structures that would be of interest to technology start-ups at various stages of their growth.

So let’s get started...

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Snapshots of October - Syniverse, BilltoMobile, Nymgo and others PDF Print E-mail
Blog - Mergers Acquisitions
Monday, 01 November 2010 20:26


A few notes from October which never made it to a separate blog entry:


Interesting seeing Carlyle’s acquisition of Syniverse last week. At an acquisition price of $2.6B, we’re talking about a revenue multiple of 5.4x and a profit multiple of 37.6x. Let’s compare this with OnMobile, an emerging market competitor, at a P/E of 43x. Also comparable is Syniverse’s acquisition of Verisign’s messaging business last year. While not comparable in scale and scope, it serves to set a level. The deal was $175 million in cash. The transaction added $43.1 million in revenues to Syniverse in the quarter ended June 2010. Averaged across 4 quarters (with a 10% error margin), we are talking about a revenue multiple of 1.1x.

The sector also saw SAP’s acquisition of Sybase in May 2010 at $5.6 billion heralding the acquiror’s move into mobile infrastructure. Of Sybase’s $1.17 billion in 2009 revenues, $197 million was messaging revenues. As a result the multiples are not perfectly comparable but once again a range – revenue multiple was 4.8x and earnings multiple was 34x.

Even after the Verisign acquisition, Syniverse’s biggest division continued to be roaming revenues followed by messaging and then network services like SS7 hub services, number portability and other database services.

One of the interesting pieces of information from Syniverse was the changing mix of events in the roaming clearing house events. While SMS continues to dominate, the growth of data revenues is noteworthy.




 So why private equity? And why the higher multiples?

The firm has focused on a transaction based business model which enables recurring revenues from customers. We’re talking about close to 95% recurring revenues of which greater than 85% are transaction based. The beauty of this model is that once the corporate sale is complete, the revenues will keep augmenting as take up of the service increases and transactions grow.

Mobile payment vendors will be keeping an eye on this transaction – after all that is one of the key missing elements in Syniverse’s product portfolio.


So lets take a look at mobile payment firms but not the traditional kind:

BilltoMobile, a company I’ve written about earlier, has signed a deal with AT&T in addition to Verizon. For the newcomers, BilltoMobile enables mobile oriented web shopping i.e. to buy a good online you enter the mobile number (for enabled merchants of course); user gets a text message with a code which is entered on the website and voila, c’est tout!

No reaching for the credit card or the wallet every time a micro-transaction needs to be completed.

Since they integrate with operator billing systems, charges are lower than premium smsing though higher than credit card fees for merchants.

Target market: Games publishers, virtual good providers, digital content providers

Validation: 14 mobile operators tied up along with 10,000 online merchants

Boku has been attempting the same model in the US for a while now but with operators charging upto 50% of the transaction as fee, the model was not very feasible. Feasible with volumes perhaps but then the pie keeps dividing as the number of players multiply.

AT&T is attempting a trial with all three – BilltoMobile, Boku and Zong. The operator will be charging a lower rate than standard (which can be as high as 35% compared to 2% credit card fees) with a per user cap of $25.

Frankly, I’m wondering what Zong is doing in the pack considering that their solution is aimed at eliminating the mobile operator from the payment chain. Well...perhaps not eliminating.....but the payment is linked to the credit card rather than the mobile bill. The role of the mobile operator is only in the sending of the premium code. Identification, authentication and billing is out of their sphere of influence.

Since they are all being integrated by one operator, it will be interesting to see which one has the highest pick-up. From the start-ups perspective, the focus should be significantly on merchant sign-ups.


And now a look at private equity firms:

There has been a lot of talk recently about Second market and SharesPost. Facebook recently had to take corrective action both from a valuation and regulation perspective with a 5:1 share split.

Now there is a new platform being launched for secondary trading in private equity assets - Secondcap.

How does it work?

The seller identifies the assets up for sale and the platform notifies relevant GPs and potential LP buyers. The selling GPs are allowed to identify the buyers they want admitted into the auction. Once the parties are approved, the process is the same - with NDAs, due-diligence, indicative offers and eventual sale.

The platform goes live in January 2011.

The timing is certainly right. There has been an increase in secondary transactions last year. The activity is expected to continue as assets are merged and/or reallocated across PE funds. One difference - now we should be moving from the fire-sale side of the spectrum to higher or at most at-par valuations. 

And just a note on a VC investment

A very unusual investment – Intel Capital invested in Nymgo, a VoIP provider with the cost differentiation. They do offer some amazing rates and in just two years of existence have seen over 2 million downloads. Utilisation – over 300 million minutes. Just to put that in context – as of end FY2009, Skype had 560 million registered users and accounted for about 12% of the world’s international calling.

So why VoIP in such a crowded market?

Well, the company is based in UK-Lebanon. The investment must be more from the perspective of market development as well as investment of Intel’s $50 million Middle-East and Turkey fund.

So are we saying that for standard services like VoIP there may be a higher pick-up of local players in emerging markets?

Onwards bound.......November......

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