My oh my…is it May already? Time sure flies. Well here’s your weekly dose of tech M&A:
Yelp said to be looking for a buyer.
Is Microsoft serious about acquiring Salesforce? There was talk but it appears no deal will happen.
Cisco acquires communication platform Tropo to compete against Twilio.
Gravity4 has made a $350 million bid for publicly-traded programmatic advertising platform Rocket Fuel.
Oracle hires the engineering team from shuttered cloud startup Nebula.
Alibaba reportedly in talks to buy $1.2 billion stake in India phone maker Micromax.
Uber said to be throwing its hat in the ring to buy Nokia’s Here mapping service for up to $3 billion.
RockYou acquires Playhaven from Science to move deeper into mobile ad networks.
Atlassian acquires team chat service Hall to bring more non-technical users to HipChat.
Filing shows mobile shopping app Wish is now valued at over $3 billion after possibly raising more than $500 million.
Zero-fee stock trading app Robinhood nabs $50 million from NEA to go global.
Banjo raises $100 million to detect world events in real-time.
Max Levchin’s lending startup Affirm raises $275 million in equity and debt.
Zenefits raises $500 million at a $4.5 billion valuation.
Automated savings startup Digit raises $11.3 million from General Catalyst.
Fitbit files paperwork to raise $100 million through IPO.
SunGard prepares IPO, aims to raise around $750 million.
SurveyMonkey’s CEO Dave Goldberg tragically passed away last weekend.
Square hires Mary Kay Bowman, the former Amazon executive that launched a mobile card reader competitor.
Former HP CEO Carly Fiorina is running for president.
Apple’s senior vice president of retail and online stores Angela Ahrendts was the highest-paid female executive in the US last year.
Operator names Phil Fung as co-founder.
Flickr’s head has left Yahoo for personal reasons.
Freshbook’s CFO Mark MacLeod has stepped down to launch SurePath Capital Partners.
Accel and DJI will partner on special fund focused on drones.
Zynga plans to cut 18% of its workforce following a successful quarter.
Mobile Internet “unicorn” companies now valued at $575 billion worldwide.
Communications platform Layer announces fund to back apps that use its offering.
Wattage closes its doors after running out of cash, says that “we failed”.
500 Startups announces its thirteenth batch of companies.
Many times, founders do not adequately prepare for an M&A exit and how it can potentially affect them financially. To address some of the areas that founders should consider, we spoke with Greg Curhan of Brighton Jones. Here is an edited version of our Q&A interview.
What strategies can founders (or early employees) use when starting a company to provide the best possible tax impacts in the future in the event of an acquisition or other stock sale?
Companies should issue founders stock before the company becomes valuable in order to minimize current tax consequences and consider using an 83(b) election. Also, be sure there’s an appropriate vesting schedule with accelerated vesting provisions for the right circumstances.
Equity can come in all different varieties, with different vesting schedules and some special (or preferred) tax treatment. Get unbiased advice from a CFP, CPA or attorney to help you understand the characteristics of your equity and/or options. In many cases it can make sense to proactively manage your equity compensation in terms of exercising and holding or accelerate when you recognize that compensation for tax purposes. You may want to pay a small amount in taxes today in order to benefit from preferred long-term capital gains tax treatment in the future. A little planning today could save you millions tomorrow.
Can you explain proactive management of equity – 83(b) election or other actions?
Proactive management of the equity you receive from a start up usually is the result of buying the shares offered to you early, before the value of the stock skyrockets, in anticipation of benefiting from preferred long term capital gains treatment of owning the shares outright.
The tactics to be proactive often are dictated by the type of equity being offered (i.e. founders stock, non-qualified or incentive stock options) and once you know the type of equity you can look at different options like an 83b election or exercise your stock option and hold the shares. There can be different federal (and possible state) tax rules depending on the type of equity offering.
We often talk about the benefits to proactive management in terms of income tax savings, but other valuable benefits can come in the form of gifts of highly appreciated securities to charity or valuable estate planning.
We cannot stress enough that individuals should get advice early, well before a transaction is considered because that is when the most effective planning is done. This planning can lay the foundation for a lucrative monetization event where you keep a large portion of the value you created versus paying a substantial amount of that value in federal and state taxes.
What things should founders do to prepare themselves for an acquisition of their company – in terms of preparing for tax consequences, their own stock, etc?
There can be a number of proactive planning opportunities that founders, directors and early employees can take to maximize the value they’ve created in their company. Every transaction is unique and the terms of transaction can have a substantial impact on what you receive and when. Getting advice early is extremely important.
In most instances there will typically be a period that certain individuals are either restricted from selling or have a lengthy vesting schedule. Additionally, it will be important to understand if you’re receiving “registered” securities that are freely tradeable or are they “unregistered” – which is common in many private transactions – and subject to Rule 144 of the 1933 Securities Act which subjects you to additional holding period requirements.
While planning early can yield the most effective results, there are opportunities to maximize value and/or minimize tax drag either before or after a transaction is completed. These opportunities are dependent on the individuals’ unique circumstances, type of equity owned and terms of the transaction. They can range from accelerating vesting and/or acquisition of shares to delaying compensation recognition in to a more advantageous tax year. Deciding the best course of action involves a mix of the transaction parameters, tax law and the individual’s personal situation.
Can you explain accelerated vesting and acquisition of shares as strategies?
The idea behind accelerated vesting is similar to what often happens with the change of control of a public company. If your company is being acquired by someone else, you would like to have all those future shares you were granted vest immediately. With immediate vesting you can either decide you want to stay invested in the new company with the hopes of further appreciation from the combined company or sell and reduce your risk to a company where you may no longer have any control or influence on the decisions being made about the direction of the company.
What are common mistakes or dangers that founders should be aware of in terms of decisions with early stage startups in terms of equity, taxes, compensation, estates or trusts, etc?
Some common mistakes are typically related to being reactive to an increase in value of your company vs being proactive and managing your equity investment before a substantial increase in value. The value of proactive planning should never be underestimated or ignored even though founders and the first employees of a start up are typically busy trying to make the company a success and planning for when it becomes a success gets ignored until a lot of the benefits have been eroded by the growth of the company.
Another common mistake is thinking that all equity incentive compensation is the same. There are different rules for your equity incentive comp and depending on your company and your tax picture some forms maybe better than others. Additionally, if you are raising seed stage angel investments or VC investments later on, be careful about the valuation negotiated and more importantly the type of equity being sold and if it’s a different class of stock and what are the voting and dividend rights.
For more information about how to handle startup equity, see Brighton Jones’ informational document: Equity Compensation Guide
While conventional wisdom says great companies are bought not sold, that hides a larger truth. Selling a company is difficult and often requires long hours of internal discussions – and even arm-twisting – among company management and investors to actually get a deal done.
While the hottest tech companies such as WhatsApp, Oculus and the like are bought for billions of dollars, the vast majority of startups will be bought for just fractions of that.
For a handful of elite companies, they don’t have to search for buyers because they are highly sought after by buyers with deep pockets. But the vast majority of startups are sold rather than bought, according to Mark Tluszcz, founder of Mangrove Capital. “With 99% of all venture backed companies, you have to go out and sell the business,” Tluszcz says. “The point of the startup ecosystem is not, let’s build a company for 20 years. (At some point) you have to sell it.”
Read the full post on Forbes.com.
Venture backed IPOs and M&A exits cooled in the first quarter of 2015 after a scorching hot year of exits in 2014.
There were 86 VC-backed M&A deals in Q1 2015, with 16 of them reporting an aggregate deal value of $2.1 billion. The number of deals and dollars reported in q1 2015 dropped to the lowest level since Q1 2013, according to Thomson Reuters and the National Venture Capital Association.
The 86 M&A deals was down 21.8% from 110 deals in Q4 2014 and the $2.1 billion in deal value was down 92.6% from $27.8 billion in Q4 2014. Those comparisons however were skewed by the fourth quarter of 2014, which included the massive $19 billion Facebook acquisition of Whatsapp. On a year-over-year basis, M&A in Q1 2015 was down 25.2% from 115 deals and down 73.1% in disclosed dollars from $7.6 billion in Q1 2014.
The fourth quarter continued a slight cooling trend that started in Q4 of 2014, after what has been a very hot M&A market earlier in 2014. In the fourth quarter, the number of deals dropped 18.5%, even though overall disclosed dollars shot way up with the help of Facebook’s Whatsapp deal. Overall these fluctuations are normal over the course of several quarters. It will bear watching next quarter to see if deal flow starts to pick up again.
Not surprisingly for anyone in the technology sector, Information Technology was the hottest sector with 69 of the 86 deals and $1.1 billion in deal value. The large deal of the quarter was Under Armour’s $475 million acquisition of Myfitnesspal Inc. The second largest was Catamaran’s $260 million deal for Salveo Specialty Pharmacy.
There were 17 VC-backed IPOs, which raised $1.4 billion in Q1 2015, down 54% by deals from and down 58% by dollars from Q1 2014. The 17 IPOs was the first quarter with less than 20 VC backed IPOs since Q1 2013. The number of deals was down 54% from Q1 of 2014 and down 58% by dollars from Q1 2014. Life sciences were the big winner in Q1 2015 with 13 of 17 IPOs. Box Inc. (BOX), a cloud storage provider, was the largest IPO of Q1 2015 raising $201.2 million, while Solaredge Technologies (SEDG) was the largest non-U.S. IPO.
It’s Friday, March 20. Hope you survived this year’s South by Southwest Interactive conference (if you went). Time for all the tech M&A news you may have missed this week.
Giphy makes its first acquisition, picks up GIF messaging app Nutmeg for undisclosed amount — is mobile on its way?
Rakuten buys ebook and audiobook platform OverDrive for $410 million.
Opera buys SurfEasy to add secure VPN to its browser software.
Reportedly, Apple’s shareholders really want the company to buy Tesla.
AppNexus buys Yieldex for $100 million.
Jay Z acquires music streaming company “Aspiro.”
Orange seeking foreign partner for Dailymotion, its web-based video site.
Clearpath Robotics raises $11.1 million to build ethical industrial robots.
Accel betting big on startup-to-startup APIs and has created a new investment focus called APX.
Shuddle raises $9.6 million for its Uber-style service for kids and seniors.
FiftyThree raises $30 million to push its Paper and Pencil creativity tools in enterprise and education.
Quid raises $39 million more to visualize complex ideas.
Fundbox raises $40 million to pay invoices on demand.
David Recordon, Facebook’s engineering director, is heading to the White House to serve as director of information technology, joining a growing cadre of Silicon Valley technologists.
At SXSW, Google Chairman Eric Schmidt received criticism over his behavior during a panel with US CTO Megan Smith. The Daily Dot says it wasn’t an isolated incident.
FedEx CEO Fred Smith says that he’s not afraid of Uber and that it’s “unlikely to ever become a major competitor in package delivery.”
Astro Teller, the head of Google[x], says that you should hire people who don’t look like you.
SoftTech VC hires Huddle co-founder Andy McLoughlin as its newest venture partner.
Former interim CEO of Mozilla Jay Sullivan has joined Groupon as its SVP of consumer product.
Tinder hires former eBay executive Chris Payne as its new CEO.
Amazon is shutting down its Amazon Webstore, the competitor to Shopify and Bigcommerce.
Yahoo lays off up to 300 employees after it pulls the plug on its China operations.
Facebook is sued by former staffer alleging discrimination, harassment, and other charges.
Google I/O 2015 registration opened this week.
Upworthy cofounder Peter Koechley apologized for the clickbait “monster” his site unleashed on the Internet.
Instacart facing lawsuit claiming that “personal shoppers” should be classified as employees.
What I learned at TechStars in 10 questions.
Y Combinator released statistics about itself: 842 companies funded to date, 22% with women founders in current batch.
Meet the startups accepted into Microsoft Ventures’ Seattle Accelerator.
Here are the top 20 US accelerators according to a study done by the Seed Accelerator Rankings Project.
Steven Sinofsky writes about frictionless product design.
Bloomberg looks at the “fuzzy, insane math” that’s creating so many billion-dollar tech companies.
TechCrunch has a slideshow gallery that looks at 11 public tech companies worth less than Uber.
Google[x] head Astro Teller says moonshots are all about embracing failure.
Morning! Time for another trip around the world of tech M&A news.
Integral Ad Science acquired Veenome to be “its video arm.” Terms were not disclosed.
PayPal picked up security and malware-prediction specialist CyActive, for a reported $60 million.
SugarCRM picked up Hothouse Labs, the company behind app-maker Stitch…and then promptly shut it down. Terms were not disclosed.
Attunity acquired Appfluent Technologies for a reported $18 million in cash and stock.
Twitter has acquired Periscope, makers of a video streaming app for smart phones. Terms reportedly near $100 million.
Kareo picked up DoctorBase, makers of a marketing comms platform for medical providers, for an undisclosed amount.
SingleHop acquired Server Intellect.
Docker acquired three-person startup Kitematic, for an undisclosed amount.
Not strictly startup, but a truly illuminating report on AgTech funding, brought to you by AgFunder News.
Rest in peace, GigaOm. (And a farewell from Om Malik.)
For the entrepreneurs in the house
Apple’s first big event took center stage all over the newswire. TechCrunch created this nice little summary—90 seconds in all.
Apple launched ResearchKit to aid remote recruiting for medical studies—and so far it’s nailing it.
Just for fun
Oh, and that buzzing overhead? SXSW must be starting soon…
Photo credit: LoggaWiggler/pixabay
Like many other sectors in and around technology, the gaming industry has in recent years seen some massive hits as well as the vast majority of companies that are building and looking for an eventual successful exit.
On the one hand, distribution is getting more expensive and consumers are demanding higher quality games that are more costly to produce. Yet on the other hand, there are more sources of capital, from Kickstarter to AngelList. But are gaming companies actually able to raise institutional venture capital and generate exits?
Exitround examined trends in the gaming industry to see where the market is moving and what trends are driving the market.
Driven by large trends affecting the industry such as social, mobile, cloud and virtual reality, institutional venture capital funding has flowed into the gaming industry. However, VC funding for gaming companies has dipped in recent years. Data shows that, particularly by dollars invested, venture capital investment has dropped. Average VC round sizes have dropped roughly in half from more than $10 million in 2007 to close to $5 million in 2014.
Total venture dollars invested however, dipped less – between 2007 and 2014 – it dropped 16.2% from $2.22 billion to $1.86 billion. This suggests venture investors are still investing in gaming but are opting for smaller, earlier stage rounds. Perhaps investing in later stage momentum deals such as Zynga and others has scared off investors from investing in growth or late stage gaming deals, given the challenges facing gaming companies seeking an IPO today. Instead, investors are looking to get in early with gaming companies, which provides better returns for M&A deals in case IPOs don’t materialize.
Meanwhile, M&A has a slightly different story – which can be seen in different time periods. From 2007 to 2010 the number of gaming M&A deals spiked. This was driven by factors such as the growth of Facebook games, cheaper distribution, lower development costs and the emergence of mobile games. However, as described below, the industry was stung by saturation in certain sectors and the performance of some companies – and the number of deals then dropped from 2011 to 2012. Deal flow then picked up again somewhat in 2013 and 2014.
Meanwhile median disclosed M&A deal prices generally stayed in the $50 million to $100 million range over this time period. (Many deal prices that are lower are not reported publicly. This drives up deal prices listed here. Exitround estimates that actual average and median M&A deal prices – if one includes all deals that were not announced publicly – are about 50% of these public numbers. For more on this see Exitround’s 2014 Exit Report.)
Platforms: Social, Mobile, Virtual
Both VC funding and M&A deals have come in particular waves for the gaming industry. These waves correspond to major platform trends affecting the industry.
For example, in 2007, one can see spikes in average VC round size as investors looked to capitalize on the emergence of social gaming, particularly on the Facebook platform, which launched in May 2007. At the same time, the average gaming VC round size jumped in Q2 and Q4 of 2007 and the number of gaming deals spiked in Q1 2008. Meanwhile, to show a cycle in the industry, you can see the acquisitions of companies in the social gaming space peak a couple of years later in 2009 to 2010. In particular, EA’s acquisition of Playfish and Disney’s acquisition of Playdom for $763 million were two high points. As a result, on the M&A chart, gaming M&A deals peaked in Q2 2010 with 27.
Meanwhile in Q3 2011, as part of a push into digital, EA acquired PopCap Games for $750 million in deal that could be worth up to $1.3 billion. That drove a spike in average M&A deal size in Q3 2011 to close to $400 million. PopCap was both a social and mobile target for EA. But PopCap can be seen as part of a broader trend of large companies buying mobile gaming companies.
The rush towards mobile gaming resulted in a number of other acquisitions. In March 2012, Zynga acquired OMGPOP, maker of Draw Something, for about $200 million. The deal ended up being a miss for Zynga, with the company writing off $95 million related to the deal in October 2012 and later shutting it down in June 2013.
A third wave, in virtual reality, is another example of large incumbents seeking to jump on the next major platform. In March 2014 Facebook agreed to acquire Oculus for $2 billion. The move may not be strictly categorized as a gaming deal. Still, it is an example of a large company seeking to move into a new platform before that sector takes off. We can see that on the chart in Q1 2014 with a spike in average deal price to more than $600 million.
In addition to these waves of new platforms affecting the gaming industry, the public markets also have a major impact. Zynga’s IPO in December 2011 marked a milestone for social gaming companies. But its immediate fall in the public markets had an effect on other social gaming companies. The cold reception Wall Street gave to Zynga meant that other gaming companies could not so easily expect a massive IPO—and that Zynga’s multiples were too generous – particularly its pre-IPO valuations. Wall Street was wary of companies with one major hit, without easily repeatable franchises. And Zynga’s path to mobile games didn’t appear clear.
After Zynga’s IPO, in 2012 and 2013, average VC round size dropped substantially, perhaps as investors looked for earlier stage deals. Meanwhile, M&A deal sizes also dropped, with the exception of Sony’s acquisition of cloud gaming company Gaikai for $380 million–part of a broader move toward cloud gaming. This drop in deal size also could be seen as buyers looking for more reasonable valuations after Zynga’s IPO.
In March 2014, King priced its IPO at $22.50 per share and ended its first day of trading at $19, despite an opening market capitalization of $7 billion — which was cheaper, on a price to sales basis, than Giant Interactive and Zynga. It was lately trading at about $16. Perhaps spooked by Zynga, investors are not yet convinced that King can churn out new hits.
Overall, venture capitalists and corporate acquirers have grown more cautious about gaming companies. While there have still been some major gaming exits for investors, investors are wary of “hit-driven” companies because of the difficulty of replicating hit games. As a result, gaming companies that have shown innovation in technology or in business model have drawn interest. Corporate buyers often have similar concerns, though they are more concerned with filling specific holes in their company. Still, as the data shows, whenever a new platform emerges, there are breakout hits and exits which keep entrepreneurs, investors and corporate buyers active.
To download a copy of the report, click here.
Hello, and happy Friday. Time for another roundup of the week in tech M&A.
Box acquired Airpost, a two-year-old Canadian startup whose platform helps companies monitor cloud app usage by their employees. Terms were not disclosed.
Not strictly tech, but it could be the biggest acquisition so far this year: Bristol-Meyers Squibb has acquired two-year-old Flexus Biosciences, in a deal that could be worth $1.25 billion when all is said and done.
ThredUp, a used-clothing marketplace, has agreed to acquire specialty brands retailer Kindermint. Terms were not disclosed.
Twilio picked up 2FA service provider Authy, for an undisclosed amount.
In all-but-a-done-deal news, it appears Apple has picked up music plug-in developer Camel Audio.
Google grabbed Toro, makers of a platform that helps developers promote their apps on Facebook. Terms were not disclosed.
For the entrepreneurs in the house
Much written about gender in the valley. In a rare look inside, Fortune has published the pre-trial briefs in the discrimination suit against Kleiner Perkins Caufield & Byers.
In perhaps the biggest news of the week, the FCC has voted to regulate broadband as a public utility—a win for net neutrality.
Google, Apple, and the battle for the dashboard.
We know big tech is moving ops to Ireland. But data centers?
Just for fun
In celebration of the 50th anniversary of Moore’s Law.
And—because why not—a robot that feeds you tomatoes while you run.
Photo credit: Geralt/Pixabay
It’s time for another weekly look at the world of tech M&A.
Samsung has acquired LoopPay, spurning Google Wallet and setting up a payments battle with Google.
Priceline is buying hotel booking startup Rocketmiles for about $20 million, according to WSJ.
Japan’s Mixi has acquired high-end ecommerce site Muse & Co.
Snapdeal has acquired Exclusively.com, which had previously raised $18 million. Terms weren’t disclosed.
BuzzFeed picked up GoPop, a GIF startup that came out of Matter, the San Francisco media incubator.
Fitmob acquired Gymsurfing, a company that provides day passes and gym access to a variety of locations.
Educational data provider Alma snapped up Washington, DC-based Always Prepped, another startup.
India-based Infosys acquires ERP company Panaya for $200 million.
Sydney-based Oneflare has acquired customer reviews site WOMO.
Twilio is preparing for an IPO, after hitting a $100 million run rate.
SolarEdge, an Israeli company, has filed for an IPO of $125 million.
Austin Ventures, a 30-year-old firm, is getting out of the early stage game.
Content marketing company Livefyre has raised $47 million from Adobe, Salesforce, et. al.
Brad Feld on the Agony and Ecstasy of selling his first company.
Andrew Chen breaks down the many implications of the Apple Watch.
Bill Gurley again sounds the alarm – this time on “private IPOs”. Where have we seen this before?
Why startups should be careful (over)using Push Notifications.
Everything you need to know about startups, from Sam Altman, briefly.
The Crypto Wars: we all lose, per Albert Wenger.
How to value your engineers/programmers.
Photo credit: LoggaWiggler/pixabay