The following article is from Software Equity Group’s 2011 Q2 Software Equity Industry Report. A complimentary copy of the quarterly report can be downloaded here: http://www.softwareequity.com/research_reports.aspx
The M&A strength of the mobile sector is particularly noteworthy this quarter, with twice as many transactions as any other software product category. Ever since Apple and Google successfully circumvented the wireless carriers by offering app stores directly to consumers, mobile innovation and customer adoption in the space has been breathtaking. High tech research firm Canalys recently estimated app store revenue will reach $14.1 billion in 2012, up 93% from $7.3 billion in 2011, and will soar to $36.7 billion by 2015. The explosion of applications has created many multi-billion dollar market opportunities and has given rise to a frenzy of M&A activity that’s drawing in industry titans.
The most active mobile product category was entertainment, consisting of games, music and video services, representing 31% of all M&A transactions in the Mobile Product Category in 2Q11. Notable transactions within the category include Electronic Arts acquisition of Firemint; Zynga’s acquisition of Sapus Media; Google’s acquisition of PushLife; and Yahoo’s acquisition of IntoNow.
Other mobile product categories accounting for more than 10% of mobile M&A transactions in Q2 include Marketing, Advertising, and Infrastructure. The activity in Mobile Marketing and Advertising was largely driven by online companies looking to expand their reach to mobile devices, exemplified by ValueClick’s acquisition of Greystripe ($70 million, estimated 2.5x TTM revenue) which paved ValueClick’s entry into the rapidly growing $1.1 billion mobile advertising market. Infrastructure transactions have been largely driven by the explosion of data over wireless networks, mandating more efficient pipeline control and policy rules at the carrier’s back office. Two of the larger transactions in this product category included Amdocs acquisition of Bridgewater Systems ($126 million, 1.4x TTM revenue), and Ericcson’s acquisition of Telcordia Technologies ($1.2 billion, 1.6x TTM revenue).
Mobile Application Platforms and Mobile Application Services, which accounted for 10.4% and 6.3% of all mobile transactions respectively, are focused on enabling applications to be accessed across the fragmented mobile device and app store ecosystem. Application Platforms seek to accomplish this with development platforms that transcend the underlying fragmentation complexity, while Application Service providers ordinarily rely upon resource intensive, manual porting. Clearly, Application Platforms are a far more efficient approach to navigating the complexity of the mobile ecosystem, and public buyers and VCs have taken note. A notable 2Q11 transaction in this category was Software AG’s acquisition of Metismo, with Software AG seeking to expand its leadership in the business process arena by creating a flexible and efficient “mobile office.”
Although Mobile Commerce represented less than 10% of mobile M&A transactions in the second quarter, this mobile subcategory is experiencing 86% YoY growth according to a recent IDC report, leading to some notable M&A transactions in 2Q11. EBay continued to acquire companies that would leverage its strategy of facilitating local retail purchases via mobile, acquiring Where and Fig Card Corporation. Along similar lines, Visa acquired Fundamo ($110 million) as it positions itself for the coming wave of mobile enabled payments.