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Group Buying Acquisition & Valuation Report

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Group Buying Acquisition & Valuation Report Powered By Docstoc
					                       2010-2011
 Daily Deal / Group Buying Industry
M&A Activity and Valuation Multiples




                        http://www.cbinsights.com
2010-2011 Daily Deal / Group Buying Industry M&A Activity and Valuation Multiples



Table of Contents

Executive Summary ................................................................................................................. 4
Daily Deal M&A Activity and Trends ....................................................................................... 8
   Quarterly M&A Activity – 2010 to Present ............................................................................... 8
   Breakdown of Acquisition Rationale – Industry Entry vs. New Market Entry vs. Capabilities ... 9
   M&A Deal Terms – Cash vs. Stock........................................................................................10
   Geographic Breakdown of Daily Deal M&A Activity ...............................................................11
      United States vs. International M&A ...................................................................................11
      Geographic Distribution of United States M&A ...................................................................11
      Geographic Distribution of International M&A .....................................................................12
   Stage/Maturity of Companies Being Acquired........................................................................13
   Ranking of Daily Deal Acquirers by # of Transactions ...........................................................14
   Complete Details on Acquisition Activity by Acquirer (Target Names, Location and Date) .....15
Daily Deal M&A Valuation Multiples ......................................................................................18
   Valuation Multiple – Price per Number of Subscribers ...........................................................18
   Valuation Multiple – Price per Voucher Sold ..........................................................................19
M&A Premiums .......................................................................................................................20
   M&A Price per Subscriber vs. Organic Cost of Acquired Subscriber ......................................20
   M&A Price per Subscriber vs. Organic Cost of Acquired Purchaser ......................................21
Implied Valuations of Groupon and LivingSocial Based on Observed M&A Multiples ......22
   Based on Price per Subscriber M&A Multiple ........................................................................22
   Based on Price per Voucher Sold Multiple .............................................................................23
Details on All 72 M&A Deals ...................................................................................................24
Investment Funding Trends (VC, Pvt Equity, Angels, Hedge Funds) ..................................42
   Investment Deals and Dollars of Funding Activity (2009 – 2011 YTD) ...................................42
   Maturity of Investor Portfolio Companies Which Have Not Been Acquired.............................43
   Top Geographic Markets Receiving Daily Deal Investment ...................................................44
   Types of Companies Being Funded – Daily Deal Sites vs. Aggregators vs. White-Label
   Platforms ...............................................................................................................................45
   Types of Investors Financing Companies in the Daily Deal Space ........................................46
   Funding Round Medians by Company Stage.........................................................................47



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2010-2011 Daily Deal / Group Buying Industry M&A Activity and Valuation Multiples



  16 Most Active Investors in the Daily Deal Space ..................................................................48
  160 Additional Investors that Have Funded Group Buying Companies ..................................50
Companies Rumored to be Evaluating the Daily Deals Space ............................................52
  Types of Companies Likely to Enter the Daily Deal Space via Acquisition .............................52
  30 Specific Firms Rumored to Be Eyeing the Daily Deals Space ...........................................53
61 Potential Daily Deal Acquisition Targets ..........................................................................54
  Funded Daily Deal Companies That May Be Acquisition Targets ..........................................54
  Bootstrapped/Self-Funded Daily Deal Companies that May Be Acquisition Targets ..............56




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2010-2011 Daily Deal / Group Buying Industry M&A Activity and Valuation Multiples



Executive Summary
This report constitutes the Daily Deal industry’s most detailed and comprehensive report on M&A
transactions, M&A valuation multiples, transaction deal terms and investment funding trends. The report
has significant amounts of data and statistics as well as details on all the acquirers, acquisition targets,
investors and rumored entrants into the daily deal industry.

Below are four key takeaways which emerged after an analysis of the data and numerous acquirers,
investors and acquisition targets in the daily deal industry.

     1. Daily deal M&A activity is climbing significantly
     2. Valuation multiples are dropping – quickly and significantly
     3. Groupon and LivingSocial’s implied valuations based on private company M&A multiples are
        significantly below rumored IPO valuations and secondary market transactions
     4. Despite negative sentiment, there remain a significant number of rumored entrants into the
        space

Daily Deal M&A Activity Level is Climbing

M&A activity in the Daily Deal space has accelerated with Q2 2011 and Q3 2011 (through just its first 2
months) on pace to exceed all the cumulative M&A activity seen in the industry since 2009. Since 2009,
72 acquisitions have occurred in the daily deal space with 44 in just Q2 and Q3 2011.

The driving forces behind the increased M&A activity are:

   1.   Efforts by new players to enter the daily deals space
   2.   Land grab by incumbents in the space to enter new markets or enhance existing markets
   3.   Talent and technology acquisitions to create differentiation for daily deal companies
   4.   A financing slowdown making M&A a last and only option for many daily deal companies

Valuation Multiples Are Dropping – Quickly and Significantly

Looking past just the headline M&A transaction numbers, it becomes apparent that things are not going
swimmingly in the daily deal space. A closer examination of recent acquisition prices reveals that M&A
valuation multiples are declining very quickly.

Since their peak hit just two quarters ago in Q1 2011, the Price per Subscriber and Price per Voucher
Sold multiples paid in private company M&A transactions have declined 36% and 40% respectively in Q3
2011.

The decline in valuations is driven by:

        An oversupply of daily deal companies
        Increasingly negative sentiment about the daily deal space which increased significantly after
         Groupon’s S-1 provided some visibility into daily deal economics
        Investor reticence about the daily deal space

An oversupply of daily deal companies




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2010-2011 Daily Deal / Group Buying Industry M&A Activity and Valuation Multiples



Because the daily deal business is a relatively easy one to enter (translation: cheap) due to relatively low
technological barriers, there is currently an oversupply of daily deal companies. Many of these
companies are at the relatively early stages meaning that subscriber counts, vouchers sold and
technological differentiators are insignificant. As a result, many of these firms look alike and are not
significantly differentiated from one another. From an acquirer perspective, this provides options and
leverage.

Increasingly negative sentiment about daily deal space

In 2010, the commentary about Groupon was effusive with the company being tagged as the fastest
growing company ever. That ebullience turned to derision quickly when Groupon filed its S-1 and a
variety of skilled (and unskilled) analysts opined on the company’s prospects. The sentiment amongst
these analysts was almost universally negative.

Based on conversations, this negativity has made acquisition targets more “flexible” and in some
instances, desperate to do a deal. The negative sentiment has also tempered acquirer enthusiasm for
the space so while they might still believe in the business model, their exuberance for the daily deal
space may be a bit tempered.

And of course, Groupon’s S-1 provided some transparency into the financials of the world’s largest daily
deals company. Unfortunately, Groupon’s S-1 created more questions than answers about how daily
deal companies can make money and the viability of the business model longer-term.

Investors becoming reticent about the daily deal space

With the litany of negative news about the group buying space, an oversupply of daily deal companies
and falling valuation multiples and larger economic uncertainty, the eclectic mix of investors (VCs, private
equity, hedge funds, angels, corporates) who’d earlier jumped in on the daily deal space are wondering
what’s next. To-date, 180 different investors have made at least one investment in the daily deal space
with several making multiple bets on players in the space.

Investment activity in the space reached stratospheric levels in Q2 2011 and has fallen back to earth in
Q3 2011 (but is still largely in line with historic levels). The chatter amongst investors, however, suggests
the trend could continue downward. Why?

While the technical barriers to entry in daily deal business are low, scaling the business requires
significant amounts of capital. Hiring armies of sales staff and account managers is necessary to develop
relationships with merchants, and this is expensive. And so before throwing more money at the daily deal
space, investors want to see that the model works.

The evidence that the model works appears to rest largely on Groupon and LivingSocial. A successful
IPO by either or S-1 filings which show healthy financials and which don’t see universal ridicule by
analysts and the media would go a long way in reinstating some faith in the daily deal space.

Of course, general macro-economic concerns, stock market volatility and their potential implications for
consumer spending are not helping.

With investor interest in funding “another daily deals site” declining, companies are facing uncertainty
about whether their next round of financing will be available. As a result, M&A is increasingly being




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2010-2011 Daily Deal / Group Buying Industry M&A Activity and Valuation Multiples



viewed as a credible (or only) option. However, with fundraising oxygen becoming less plentiful, the
leverage lies with acquirers.



Implied Valuations of Groupon and LivingSocial Are Well Below Speculated Amounts

Using the observed private company acquisition multiples and applying them to Groupon and LivingSocial
based on their subscriber and vouchers sold numbers allows implied valuations for the two daily deal
behemoths to be calculated. And these implied valuations are significantly less than IPO valuations that
have been speculated for the companies. In fact, the implied valuations are actually far less than some of
the valuations seen in secondary market transactions that have occurred in the recent past.

With Groupon’s roadshow and IPO coming soon (as of now at least), it will be interesting to see how they
price their IPO and their expected valuation relative to private company comparables on both a price per
subscriber and price per voucher basis.




Despite negative sentiment, there remain a significant number of rumored entrants into
the space

Even though much of the data and sentiment about the daily deals industry is not great, there remains a
healthy stable of firms rumored to be eyeing the space and for whom, acquisition may be a preferred
method of entry or enhancement. Given declining valuations and increasd acquirer leverage, they may
actually see increased opportunity to jump into the fray.

The firms rumored to be interested in the daily deal space (we’ve identified 30 in the report) fall into a few
distinct buckets. There are some ecommerce retailers and online advertising firms who’ve expressed
interest, but the vast majority of rumored interest comes from private flash sales companies, mobile/web
coupon companies, and firms managing/enabling rewards programs.

Flash Sales offer limited quantities of primarily luxury goods to members, and a daily deal capability may
offer them a way to extend their relationships with customers. Notably, Gilt Groupe, a prominent flash
sales firm, has already entered the daily deal space through an acquisition.

Mobile/web coupon companies which include online coupon providers or aggregators and mobile
couponing companies can use daily deals as an entry point into the hyper-local discounting segment.

Rewards programs which offer consumers rewards for shopping at merchants see daily deals as a
potential natural extension to their offerings to merchants with whom they already possess relationships.



Data

All data contained in this report comes from CB Insights (www.cbinsights.com) which tracks private
company financing and M&A transactions coupled with conversations with acquirers, daily deal
companies and investors.



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          To download the entire 56 page 2010-2011 Daily Deal /
          Group Buying Industry M&A Activity and Valuation
          Multiples Report, go to:


                    http://www.cbinsights.com/daily-deal-valuations




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DOCUMENT INFO
Description: The CB Insights Daily Deal / Group Buying Industry Report constitutes the Daily Deal industry's most detailed and comprehensive report on M&A transactions, M&A valuation multiples, deal terms and investment funding trends. Beyond the deal data and valuation multiples, it provides details on all 72 companies acquired, the 31 acquiring companies, the 160 investors, the companies rumored to be entering the daily deal space and 61 daily deal companies that acquirers may want to take a look at.