M&A Alert - August 17, 2009
MySpace Agrees to Acquire iLike
Transaction Overview
On August 18, 2009, MySpace, a subsidiary of News Corp (NASDAQ: NWS) announced its intent to acquire iLike for a reported $20mm, of which $8mm is paid as either a management retention incentive or an earn-out based on specific but unknown milestones (TechCrunch).
Target Description
Based in Seattle, Washington, iLike.com, Inc. was founded in 2002 and is a top music application on social networking sites such as Facebook, Bebo and Hi5. It offers iLike Sidebar for fans and iLike for iPhones, which scans one’s personal music library, recommends music, connects friends and the iLike community, and offers alerts on concerts and favorite artists. It also offers iLike Universal Artist Dashboard for artists to manage their online presence, as well as a music-promotion platform for promoters to create advertisements to target users by location and music taste. iLike is the second largest social music service after MySpace, which has MySpace Music. Facebook has the majority of iLike users, with 10mm monthly active users, and 31mm installations, out of iLike’s more than 50mm registered users. iLike has recently launched its own music download store via partnership with Rhapsody. Originally established to retool garageband.com, which is an indie music site, iLike has raised a total of $16.5mm from the founders (Ali and Hadi Partovi and Nat Brown), Scott Banister, Bob Pittman, Vinod Khosla and TicketMaster (NASDAQ: TKTM).
Buyer Description
Based in Los Angeles, California, MySpace, Inc. was founded in 2003 and has been a subsidiary of News Corp (NASDQ: NWS) since 2005. MySpace is a social portal that allows its members to integrate personal profiles, share photos and blogs and connect with the world’s largest music community. It owns MySpace Music, a joint music venture, with equity stakes from major record labels including Sony BMG, Universal Music Group and Warner Music Group. MySpace Music allows users to stream music on demand,
Transaction Parameters
This transaction represents another important datapoint to the challenging task of valuing an early stage social media company. M&A values have swung wildly over the past several years with virtually every metric other than historical or near-term expected financial performance being offered to justify value. Metrics such as transaction value compared to registered users or monthly unique page views have been used to justify the value of enterprises which are essentially pre-revenue, but have shown strong user momentum and engagement. A few datapoints are presented below for perspective. These numbers are total transaction value paid divided by number of registered users at the time of the acquisition, in other words how much is the acquirer paying for each user:
 |
Walt Disney / Club Penguin | $1,000.00 |
|
Microsoft / Facebook (partial stake) | $625.00 |
|
Google / YouTube | $66.00 |
|
News Corp / MySpace | $26.40 |
|
MTV/ XFire | $25.50 |
|
CBS / Last.fm | $18.70 |
|
MySpace / iLike | $.40 |
Strategic Rationale
MySpace has lost its growth momentum to Facebook although remains a leader around music. This is an attempt by MySpace to build upon its strength by acquiring one of the fastest growing and most popular social music applications. iLike’s peer recommendation on technology also has applicability to a number of other MySpace’s features such as My PlayLists, My Favorites and My Comments.
Architect Partners’ Observations
This transaction is a bold statement of the “new normal”. iLike is a very popular music application with an impressive 50mm registered users, a relatively large proportion, roughly 20% being active on a monthly basis. It’s a hard reality but $20mm is a disappointing valuation and clearly shows the challenges of building a valuable entity with music at its core as well as the reduced current market value of social media companies, even those with strong segment leadership.