Yahoo has been on an acquisition tear since the company named Marissa Mayer CEO on July 17, 2012.
Since then, the Internet giant has acquired 35 companies. Exitround has done an analysis of Yahoo’s acquisitions since Mayer started, based on publicly-available data. In aggregate, Yahoo’s M&A activity spiked to $1.2 billion (fueled by the $990 million Tumblr acquisition) in 2013, up from $6 million in 2012 and $324 million in 2011 (largely due to the $259 million acquisition of Interclick), according to SEC filings.
Not surprisingly for anyone who has followed Yahoo, most of the company’s recent acquisitions have been talent deals. Yahoo’s stated goal is to stock its technical ranks with entrepreneurial teams brought in through acquisitions. Yahoo has been trying to build out Yahoo’s talent and bringing in startup teams has been one major piece of that strategy.
While many of the acquisitions are talent deals, a number of the acquirees have gone on to play important roles at Yahoo after the acquisition. For example, Jeff Bonforte, whose company Xobni was acquired by Yahoo last July, was in August named SVP of communication products, which includes Mail, Messenger, Groups, Contacts and Calendar. And previously Adam Cahan, whose startup IntoNow was acquired in 2011 by Yahoo, in November 2012 became head of mobile products, a key high-profile position within Yahoo.
Indicating how many of Yahoo’s acquisitions have focused on talent, we’ve found that 7 of the 35 companies acquired still have the product operating in some form in or outside of Yahoo after the acquisition.
Yahoo’s corporate development team has said that they are interested in hiring startup teams, focusing particularly on mobile. The numbers bear that out: close to half of the companies that Yahoo has acquired have been mobile-focused companies. A broad range of other types of consumer Internet or social apps were also high on the company’s wish list, such as ecommerce, travel, gaming and polling.
As most of the deals were talent deals, Yahoo’s acquisitions tended to be companies that have raised a relatively small amount of capital. The average funding raised by Yahoo’s acquired companies was $11.5 million (see graph above). If you exclude Tumblr, the average funding raised is $6.1 million and many raised less than $2 million–i.e. they were seed-funded companies. In addition, the average age of the companies that Yahoo has acquired is 3.1 years old.
Yahoo has tended to focus its acquisition efforts close to home. By Exitround’s count, 24 of the 35 Yahoo acquisitions were based in the San Francisco Bay Area. New York City was a distant second and the rest of the deals were elsewhere in California or in Seattle, Beijing, Canada or London.
Exitround is one year old and we wanted to take a moment to share some insights into the vibrancy of our marketplace. Over the past year, we’ve watched it quickly evolve into a hub of more than 1200 buy-side companies connecting with more than 850 sell-side companies in over 36 countries. Each one keeps a detailed profile up to date to leverage our proprietary software-based M&A algorithms to connect with their ideal match. Here are some of the highlights, and more details are displayed visually in the infographic below.
- Strong buy-side demand from non-tech companies, 43% of buyers are outside of the tech sector.
- 168 of buy-side companies are large publicly traded corporations.
- The average active sell-side company gets introduced to three new buyers each month.
- In total, there is more than $305,000,000 worth of aggregate revenue being generated annually by sell-side companies in Exitround.
- 20% of sell-side companies are doing more than $1M in annual revenue.
- 59% of sell-side companies are opportunistically exploring opportunities, often time catalyzing an M&A process or fundraise. Many healthy and growing sell-side companies that are listing are not immediately planning to sell.
Exitround’s unique software-powered M&A approach enables buyers and sellers of companies to connect with each other across the globe regardless of sector expertise, geographical focus, or personal network.
To increase access to information on tech M&A, we’ve produced content on many aspects of the M&A process, as well as stories from founders who have sold their companies. Check out our blog for more.
When Ursheet Parikh sold his company StorSimple in 2012 to Microsoft, it was one of the largest deals in the cloud infrastructure sector to date. But that wasn’t the only thing unusual about it.
It was also a fairly large deal for which he played the banker and negotiated the deal. This is not unheard of, but it is an interesting example of how such a process can work in a startup acquisition. Before explaining why and how he handled the acquisition without a banker, it’s helpful to follow how the company developed.
Founded in 2009, StorSimple combined the functions of multiple storage systems — primary storage, backup, archival and disaster recovery — into a single storage appliance that integrated with cloud storage services from companies such as Amazon, Rackspace, Microsoft Azure and Google. Parikh, formerly at Cisco, had previous startup experience and started the company with Guru Pangal, formerly of Brocade. The two were a good match to work on StorSimple because Parikh had a strong track record in WAN acceleration and Pangal had expertise in storage.
Early on, the team focused heavily on testing the product with about 40 customers. Parikh believes that some enterprise-focused startups push products out too early. Instead he advises enterprise startups to make sure the product is right before opening it up to the public. “Don’t settle on the product too early. These products take time to bake. It can be a mistake to declare general availability too early – especially before the product market fit is validated.”
One of the challenges of releasing the product too early is that it becomes hard to change product direction or focus. This can be a big problem if the startup gets a large customer early for what could be a niche business. “As soon as somebody buys the product and gives you a $50,000 or $100,000 check, they have so much leverage,” Parikh says.
At one point, some enterprise customers wanted to use StorSimple as part of a cloud backup service, like Mozy or Carbonite. That could have moved the company in a very different direction. But Parikh believed that enterprise cloud backup wasn’t a good business.
Parikh explains their rationale: “We were initially tempted, but I believed that traditional cloud backup for enterprises is too inefficient. The data volume is just too large and the ROI isn’t there. We decided the best way was to do primary and backup storage together — combined. This ended up being one of the best decisions for the business.”
StorSimple opened the product to the public in 2011 and it started to take off, blowing through its forecasts. “For enterprise infrastructure startups it can take two to four quarters of testing a product to bake it and another two to four quarters to hit scalable sales metrics. Within six quarters of general availability, StorSimple’s quarterly revenue had crossed a $10 million run rate with a few sales reps. This demonstrated that we had the product-market fit to build a business.”
With more than 100 enterprise customers by mid-2012, StorSimple emerged as a leader in cloud-integrated storage and was used by mainstream enterprise customers in sectors like retail, oil and gas, manufacturing, services, consumer goods, healthcare, government and banking.
StorSimple decided to raise a new venture round led by existing investors to expand sales, marketing and operations. Large cloud and storage companies in the ecosystem that were interested in taking the StorSimple product to market were invited to join this investment round.
“The StorSimple appliances had to be deployed by enterprise customers with cloud services. Most StorSimple customers found that Amazon and Microsoft were their most viable vendors. The majority of StorSimple’s deals were happening in partnership with Microsoft as a cloud provider,” Parikh says. “We had a pipeline with both companies but we would close deals faster with Microsoft because of their sales force and channel presence. It was a great way to build a company in the same way that Citrix leverages Microsoft.”
However, one of the companies initially approached by StorSimple for investment made an offer to buy the company before the investment round closed. At that point, Microsoft also made an offer to buy the company.
To sell or not to sell
StorSimple had to make a decision on whether to sell or try to build a big independent business. “We had product market fit and found ourselves at a strategic crossroads,” Parikh says. “We needed to decide if we wanted to double down and go all the way. We didn’t want to go capital-intensive and launch into a head-on battle with incumbent storage vendors.”
StorSimple’s strategy had been to partner with big cloud providers and it was already in “co-opetition” with Amazon, which had recently launched a storage product that competed with StorSimple. At that point StorSimple had to decide whether to take on Microsoft as well.
“We decided to explore merger options as we felt that our product would have a greater impact with companion products and the sales force of a large cloud vendor,” Parikh says. “Now the question was, whether we should engage a banker or run the process ourselves.”
To bank or not to bank
Rather than hire a banker, Parikh decided to go through the acquisition process himself with his board’s help for three reasons:
He felt he and his team had the expertise. “Between the founders and the board we had experience with over 100 M&As, and everyone was willing to roll up their sleeves and work with me.”
In this early stage, having a banker adds another layer that he didn’t need. “When it’s an early-stage company, personality and strategic fit with the acquiring company is critical, and the founders have to be closely involved.”
Negotiations with existing customers and partners were very delicate. “If StorSimple chose to not sell, we still had to ensure that many of these companies were not upset since they were critical for our success as an independent company.”
Parikh fielded offers and acted as the banker during the deal. “The strategy was negotiate hard but be nice. Even if you don’t sell, you don’t want to piss them off since they are important go-to-market partners.”
In the end, Microsoft has been happy with the deal, and Steve Ballmer has called StorSimple “one of my favorite acquisitions,” touting it as a cloud service for use with on-premise Windows or Linux servers. “[T]hat thing has really exploded for us and helps our customers to understand why to double down on us as a hybrid cloud vendor,” Ballmer said.
Most buying companies check in regularly with the acquired teams to make sure things are running smoothly. In Microsoft’s case, the company said StorSimple deployments grew by 700 percent in the six months after the acquisition. It’s also become a “core part” of Windows Azure storage offering, according to Brad Anderson, Microsoft corporate vice president.
“Acquirers will do a larger post-mortem evaluation one year after the acquisition,” Parikh says. “However on the StorSimple deal we agreed to do a review every six to eight weeks so you know that you’re on track.”
Microsoft CEO Satya Nadella helped ensure that any issues were addressed quickly and that the organization stayed focused on the StorSimple business plans. Microsoft also made sure that its existing team worked closely with StorSimple to make the acquisition work. “At the time Microsoft bought StorSimple, Microsoft had a large team building comparable products,” Parikh says. “Post the acquisition, Microsoft aligned this team with the StorSimple product, and that alignment was one of the key factors for deal success.”
That kind of alignment doesn’t always happen with acquisitions. But it was one of the key factors Parikh made sure of when he went through the deal process — that he could work with the Microsoft team and that they would work for the same goals.
Note: This story first appeared on TechCrunch.
Exitround is hosting an event we’re calling the Buyerside Chat. Our featured speaker is Villi Iltchev, EVP of corporate development at LifeLock and former head of corporate development at Salesforce.com (full bio below).
Villi will give a brief, informal talk about his experiences with corporate development and best practices for buyers and sellers in the technology M&A market. He will also take questions. The event will include plenty of time for networking and refreshments.
Watch the video here: https://www.youtube.com/watch?v=F0HsitmT7TM
This is an invite-only event that will bring together startup executives, corporate development professionals, investors and others in the technology ecosystem.
Villi Iltchev is executive vice president of corporate development at LifeLock (NYSE:LOCK). He was previously head of corporate development at Salesforce.com, where he oversaw the company’s active investment program and completed more than 15 acquisitions. Prior to that he led corporate development for enterprise hardware at Hewlett-Packard and he was in technology investment banking at Merrill Lynch.
Editor’s note: On February 27th, 2014 LiveRamp held its annual ad-tech summit RampUp, and one discussion focused on M&A and IPO’s in the maturing market.
Mountain View, CA – Advertising technology has come in to its own. Once viewed as art not science, a new breed of startups and maturing large companies has led to a dramatic shift. Coupling big data with retargeting and segmentation, advertising technology is now a legitimate, reliable tool for the CMO, demanding more and larger expenditures to stay competitive.
And the market is taking notice.
There have been six large ad-tech IPO’s in the past year, according to VentureBeat, and the Jordan, Edmiston Group Inc. tabs M&A in the marketing/advertising tech sector at more than 475 in 2013 alone.
This increased investor confidence is due both to smart business decisions and broader understanding of the technology.
Robotics, Smart homes, and expanding Android platform high on 2013 agenda
That Google is flexing its considerable weight is no secret. Since taking the reins as CEO in 2011, co-founder Larry Page has overseen more than 125 deals, doubling M&A activity over the previous three-years. And the machine shows no sign of slowing.
The real news is the breadth of these acquisitions. From robotics to cloud services, green tech to the Internet of Things, Google has drastically diversified its portfolio. And while Google is using its larger-than-ever cash holdings to expand into ever wider areas, it’s not just experimenting. The company is looking to stay relevant in, and lead, the next wave of technology. Exitround has done an analysis of Google’s acquisitions, based on publicly available data and SEC filings.
Broadly speaking, Google’s 2013 buys fell in three specific areas: Emerging hardware (including robotics, green tech, and the smart or networked home appliances); e-commerce and cloud computing; and applications for the Android ecosystem.
The recent Nest acquisition is a useful illustration. Smart appliances and the Internet of Things will provide an unprecedented opportunity for Internet and software companies to expand into the home; green tech is both environmentally responsible and an emerging market. Nest hits both.
Google’s flurry of robotics acquisitions also makes an interesting case study. While on the surface far afield of Google’s core business, it is an emerging technology, one with innumerable applications for the future. They may also allow Google (via the Holomni acquisition) to compete with Amazon’s expansion into commercial drones. Finally, each of the robotics companies specialized in one particular area (wheels, machine vision, etc). The adage “do one thing and do it well” certainly applies.
And this is to say nothing of Google Capital and Google Ventures, two additional channels for investing Google’s billions.
While 2013 saw Google spending close to $1 billion on Israeli mapping service Waze, and $125 million on Channel Intelligence, its other reported buys were in the $20 million to $40 million range. Google has been interested in smaller deals and acquihires. It should be noted, however, that Google’s $4.2 billion Nest buy was made official in January, 2014, and two weeks later it bought DeepMind Technologies for $650 million. 2014 may be a big-spending year.
Products and Acquihires
While Google lets some acquisitions operate autonomously, leading to more and faster innovations, it is also forming an in-house robotics division, led by former Android CEO Andy Rubin. It is unclear if Meka, Redwood and the others will continue to drive their own product development. However, Boston Dynamics had lucrative military contracts, and Google will likely maintain this revenue stream.
“I feel with robotics it’s a green field,” Rubin recently said. “We’re building hardware, we’re building software. We’re building systems, so one team will be able to understand the whole stack.”
In addition to building a robotics team, Google’s other acquihires also indicate their strategy: Bump (and its photo-sharing product, Flock), were device agnostic, so bringing the team in-house and killing the product focuses users and developers on the Android ecosystem, and removes competition from the Apple store. One other notable acquihire, San Francisco’s Behavio, brought in a team developing specifically for Glass.
The mean age of the companies that Google acquired in 2013 is 5 years old.
Note: Does not include figures from Google’s robotics acquisitions
Google’s 2013 acquisitions were largely domestic, with only four companies (Canada’s DNNresearch Inc., Israel’s Waze, France’s FlexyCore, and Japan’s Schaft.inc) based outside the U.S. Google made a flurry of robotics acquisitions in December, 2013, but only one (Schaft.inc) came from Japan’s thriving robotics industry. Google’s strategy is to focus on domestic technology and talent. For Google’s domestic acquisitions, only three were based outside of the San Francisco Bay Area—Google prefers to look in its own backyard first.
Editor’s note: On September 30th, 2013, the Glazed Conference brought the best and the brightest in wearable tech / wearable computing to San Francisco to discuss the state of the industry and what the future holds.
Exitround founder and CEO Jacob Mullins led a panel on M&A / BD opportunities for early-stage startups in the wearable space. The panelists were: David Blumenfeld of Westfield Labs; Jeff Eddings of Turner Broadcasting; David Liu of Jefferies; and Stephanie Palmieri of SoftTech VC. The following are highlights from the discussion.
Jacob Mullins: So, what’s it going to take for wearable computing to become ubiquitous?
Jeff Eddings: There’s a cost/benefit analysis. If the device provides enough value to you as a consumer then you can be hooked by anything–you can overcome looking dorky outside. A lot of people are saying “Hey, I don’t know about Google Glass.” But what I really think they’re saying is I don’t think there’s enough value for me. What can I do with this that I can’t with the smartphone in my pocket? That’s a great fact for a wearable startup to consider, and something that, if done right, will easily get the attention of bigger companies.
Editor’s note: James Kean is the founder and former CEO of WellnessFX. Prior to that he helped start the company behind WebMD. In 2013, Health Elements acquired WellnessFX; Jim spearheaded the deal. The following is an edited transcript of an interview with him, conducted 01/28/14.
What is WellnessFX, and what does it do?
WellnessFX is the first consumer-driven health services market, a digital storefront for health services. Consumers can use it to purchase blood panels, and then choose a physician or nutritionist to interpret the results—to diagnose and consult—by phone. Recommendations could include supplementation, dietary change, exercise, or further consultation with a doctor about genetic risks or early signs of disease.
WellnessFX democratizes the consumer health model, part-and-parcel with the ethos of the Affordable Care Act.
Your product offering changed over time. Can you talk about those changes, and what prompted them?
These kinds of panels and consultations are not nationally regulated, so we had to deal with fifty-one different countries [states], as it were. We started with high-end panels, a kind of Cadillac model, only in California. This allowed us to make some profit and learn. But we were under market cost, purposely setting the price low and operating with low margins to gain new customers.
For one founder who recently sold his startup, it was the culmination of a long journey. At the same time, the founder, who spoke to me on the condition of anonymity, had problems during the acquisition process, feeling bullied by a venture investor.
The investor argued against a sale of the startup, and then after agreeing to the sale, proceeded to call the buyer and yell about terms of the deal. The investor also pushed for certain terms that the founder felt were unfair and benefited the investor.
The founder was pleased with the outcome but felt powerless to stop this investor from essentially steamrolling the process.
“They didn’t want to sell because, for them, the deal was too small,” the founder says. “Eventually our investors inserted themselves into the negotiations. They actually screwed things up for us because they demanded more and actually offended the buyers.”
This type of story rarely gets publicly told in Silicon Valley, since founders and investors don’t want to reveal how the sausage is made in negotiations — and more importantly don’t want to criticize each other in public and break Silicon Valley’s unspoken rule of positivity. But because of how venture capital is structured (more on this below), and because of the many startups that will need to sell without being able to raise more funding in the current environment, these types of situations are bound to come up.
Negotiating with a buyer is a challenge for founders in an acquisition. But negotiating with one’s own side — the investors — can be just as difficult, if not more so. These disagreements typically arise when startups get an offer to sell and the founders and venture investors disagree about what to do. These offers, even if relatively small in Silicon Valley terms — say $10 million or $20 million — can be “life-changing” for founders. But for venture investors, particularly with big funds ($300 million, $400 million or even $1 billion), smaller exits are not appealing. To explain why, we need to look at how traditional venture funds are structured.
As a founder, Kristian Segerstrale has had two successful outcomes. An expert in gaming, he cofounded Macrospace, which merged with Sorrent then was renamed Glu Mobile. He also was cofounder and CEO of Playfish, which was acquired in 2009 by EA for $400 million. He is now a co-founder at Initial Capital, which led the seed round in Supercell among others.
I caught up with Segerstrale to get his thoughts on how to manage acquisitions and make them successful. There are many facets of an acquisition, but Segerstrale focuses on the individual people involved and the often-overlooked things that can keep a team from leaving after an acquisition.
First, when you combine your company with someone else’s, you are getting married in a very real sense. It pays to spend a lot of time courting first. “Spend as much time with the acquirer as possible, specifically the CEO,” Segerstrale says. “You should talk about the business, but more importantly about values and culture to understand whether the companies are likely to be successful working together.”
It’s worth it to invest this time before an acquisition. If you don’t, you could end up being acquired and spending a couple “miserable” years with a company watching your baby gradually wither to nothing as a result of a poor fit, he says. “I’ve seen it happen, and I know that’s a horrible place to be.”