M&A Alert - November 16, 2009
Mobile Messengers Global Agrees to Acquire Former m-Qube Business from Verisign
Transaction Overview
On November 16th, 2009, Mobile Messenger Global, Inc. agreed to acquire the former m-Qube business from its parent company, VeriSign (NASDAQ: VRSGN), for approximately $19.3mm.
Target Description
m-Qube, more recently know as Verisign’s Mobile Delivery Gateway (“MDG”) Service business, is a software platform that manages direct wireless network access to a large number of wireless carriers in the U.S. and Canada. This access is provided, for a fee, to companies who would like to deliver digital content (applications, photo, ringtones, wallpaper, …) or SMS text messages (frequently used by companies for mobile marketing, customer service and mobile payments) to an end users’ mobile phone.
Buyer Description
Mobile Messenger, privately held and funded by Silver Lake Sumeru, provides a variety of SMS messaging based products and services including mobile content management and delivery, mobile marketing and mobile payment platforms. It was founded in 1999 by Steve Taylor in Sydney, Australia and is currently based in Los Angeles.
Transaction Parameters
Mobile Messenger Global is paying $1.8mm in cash and will pay an additional estimated $17.5mm in cash based on the net working capital of m-Qube upon the close date, for a total transaction value of $19.3mm. Financial parameters of m-Qube’s business are not
disclosed although it was roughly a $60mm revenue business when it was acquired by Verisign in 2006. We believe current net revenues are approximately $30mm annually, representing a purchase price multiple of .64 x revenues.
Strategic Rationale
Mobile Messenger’s business requires access to carrier networks to deliver their services and in fact, Mobile Messenger has been m-Qube’s largest client of late. The acquisition of the m-Qube business allows Mobile Messenger direct access to wireless carrier networks, thereby improving their cost of access by cutting out the middleman and giving them enough scale to act as an economically viable provider of access to other vendors who need wireless network access (commonly referred to as acting as a messaging aggregator). This acquisition gives Mobile Messenger significant scale, making them the largest messaging gateway service provider in North America.
Architect Partners’ Observations
The business of providing connections to wireless carriers has grown as messaging volume has grown strongly but, at the same time, pricing has become quite competitive as the sector has consolidated and price competition has driven per message pricing downward. This is a business where significant economies come with scale as an incremental message costs virtually nothing to deliver. m-Qube was purchased by Verisign in March 2006 for $250mm (4.0x revenue) during a period of substantial consolidation where premium valuations were common. Other reasonably comparable transactions included Amdocs acquiring QPass for $275mm (6.5x revenue) and Sybase purchasing Mobile365 for $425mm (4.7x revenue). Much of the perceived value was driven by the rapidly growing mobile content business such as selling ringtones, wallpaper and ringback tones which consumers use to personalize their mobile phone. While this is still a large business, growth has waned for these types of products. Over the past couple of years, messaging volume growth is being driven by SMS-based applications such as mobile marketing, payments and customer service. We expect to see further consolidation in the gateway and aggregation business over the next year or two.