M&A Alert—June 21, 2017

Snap acquires social location-sharing app Zenly for $250–350 million.

Author: Eric Xu, John Ascher-Roberts, Steve Payne

Target:

Buyer:

Transaction Size: $250mm–$350mm

Transaction Overview

On June 21, 2017, Techcrunch broke news that Snap Inc. (NYSE: SNAP) acquired the social location sharing startup Zenly for $250–350 million in a deal that closed in late May.

Target Description

Zenly is a social mapping startup that offers a mobile app that allows users to share their locations privately with friends.  The app tracks the user’s location in the background and allows the user’s friends to view their position on a map, message them, send emojis, and start an itinerary in Maps, Citymapper, or Uber.  The experience targets friends and family who are coordinating meet-ups, which provides an opportunity for location-based advertising that can be delivered while users make plans.  Zenly tracks location using minimal battery power by passively checking the user’s location only when the user’s friends check their map.  According to SensorTower, the app has 4 million downloads, with most of its user base located in Europe and Asia.  Competitors include Glympse, Life360, GridLocate, Facebook’s Live Location, Apple’s Find My Friends, Foursquare’s Swarm, and Google Map’s location sharing.

Antoine Martin, CEO, and Alexis Bonillo, COO, founded the Paris-based company in 2015.  Zenly has raised a total of $35.1 million in funding through a $12.6 million Series A round and a $22.5 million Series B round with investors including Niji (lead), Idinvest Partners (lead), Xavier Niel (lead), One Ragtime (Stephanie Hospital), Benchmark (lead, Peter Fenton), and Jerry Murdock.  They currently employ 39 people (Zenly).

Buyer Description

Founded in 2011, Venice, CA-based Snap Inc. is the creator of the disappearing photo messaging app Snapchat, the wearable camera Spectacles, and the personalized stickers Bitmoji.  Snapchat has expanded from private photo sharing to include ad-supported short-form content, geofilters that tag photos with location information, and Snap Ads, a self-serve ad manager.  Hours before the acquisition’s announcement, Snap launched Snap Map, a social mapping feature in Snapchat similar to Zenly.

Snap has a market capitalization of $22.9 billion and LTM revenues of $404 million.  Snapchat has 158 million daily active users and has a negative LTM operating cash flow of $673.7 million.  Snap launched its IPO in March 2017.

Transaction Parameters

Snap is acquiring Zenly for $250–350 million in mostly cash and some stock, according to Techcrunch.

Transaction Value:                                                 $250-350mm

TV / Invested Capital:                                                 7.1x–10.0x

Comparable transactions include Verizon’s acquisition of SocialRadar in November 2016 (undisclosed), Pinterest’s acquisition of Highlight in July 2016 (undisclosed), MeetMe’s acquisition of Skout in June 2016 for $54.6 million (2.5x invested capital), MapBox’s acquisition of MeatText in January 2013 (undisclosed), and Facebook’s acquisition of Glancee in May 2012 (undisclosed).

Strategic Rationale

Snapchat is working to differentiate its ad platform, having acquired the location analytics startup Placed (covered here) earlier this month to improve the effectiveness of Snap Ads and the accuracy of the Snap to Store measuring system, which attributes store visits to ads embedded in Snaps.  Technology from Zenly helped Snapchat launch Snap Map, which will allow advertisers to target users as they make plans to hang out using location and context relevant ads.  Additionally, as Snapchat faces strong photo-sharing competition from Instagram and Facebook Messenger, acquiring Zenly allows Snap to diversify its social media platform and increase time spent interacting with the app.

Architect Partners’ Observations

Mobile ads and search and social ads are the fastest growing ad categories, increasing by 47.5% and 23.5% respectively in 2016 according to MAGNA, and major social media platforms are competing to provide the most value in their advertising services.  Startups in the past have attempted to combine search, mobile, and location tracking, but have lacked sufficiently battery-efficient software, had difficulty in generating network effects, and faced a less mature mobile advertising space.  However, as mobile and social ad demand increases and a greater number of consumers are turning to social media apps to make plans, startups such as Zenly provide a valuable opportunity for established, wide-reaching platforms such as Snapchat to provide additional value to users and monetize user interactions.

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