M&A Alert - August 2, 2010
NTT DoCoMo acquires PacketVideo
Transaction Overview
On August 2 2010 NTT DoCoMo announced that it has acquired PacketVideo Corporation from NextWave Wireless (NASDAQ Pink Sheets – NEXT).
Target Description
PacketVideo markets three media delivery products: Core, Media Fusion and Twonky. Core is a video and music player that is integrated into mobile phones, allowing them to stream and play downloaded media regardless of underlying format. Media Fusion allows mobile carrier and handset vendors to create easy-to-navigate content access and management applications, allowing users to discover new, and access existing, music, video, photo’s and other media. Twonky allows consumers to stream media across various connected home entertainment and media storage devices as well as to their mobile phone and vice-versa. Major customers include Verizon, NTT DoCoMo and Google who were 37%, 23% and 10% of calendar year 2009 revenues, respectively. PacketVideo was founded in 1998 and was acquired by NextWave Wireless in 2005 for $46.6mm.
Buyer Description
NTT DoCoMo is Japan’s largest wireless services provider with 56 million customers with subsidiaries in Asia, Europe and North America. NTT DoCoMo was one of the first wireless carriers to introduce 3G coverage and is expecting to roll out LTE 4G services across Japan in December of 2010. The company is based in Tokyo, Japan and has 22,000 employees. Their market capitalization as of August 2 2010 was $67 billion.
Transaction Parameters
NTT DoCoMo announced that it would pay $111.6mm in cash for the remaining 65% interest in PacketVideo that it didn’t already own, implying a total equity value of $171.7mm. Based on SEC filings by NextWave Wireless, PacketVideo generated $61.2mm in revenues for the trailing twelve month (TTM) period ending March 30, 2010, translating into an equity value / TTM revenue of 2.8x. Given the complexity inherent within NextWave Wireless’ disclosed financial statements resulting from it’s major restructuring, it isn’t clear as to the profitability of the stand-alone PacketVideo business at this time.
NTT DoCoMo had previously acquired a 35% stake of Packet Video from NextWave Wireless in July 2009 for $45.5mm (implied equity value of $130mm and an equity value / TTM revenue multiple of 2.0x).
Similar recent transactions which focus on content delivery to mobile devices include HP’s acquisition of Melodeo ($30mm – $35mm) and Google’s acquisition of Simplify Media.
Strategic Rationale
NTT DoCoMo has shipped over 400mm mobile phones across 100 handset models which integrated Packet Video CORE technology. NTT DoCoMo plans to utilize PacketVideo’s technology to increase mobile media services on handsets and create new service which allow customers to link their mobile devices with home media devices.
Architect Partners’ Observations
When NTT DoCoMo acquired the 35% stake in PacketVideo, they also negotiated the right acquire additional ownership and received a call option exercisable under certain conditions to purchase the remaining shares of PacketVideo at an appraised value. This type of structure is fairly common in situations where a strategic investor acquires a meaningful minority interest and has negotiating leverage. As a rule these types of agreements tend to heavily favor one party, generally the seller, materially constrain the ability of the seller to attract other prospective acquirers and tend to be detrimental to maximizing value.
Resources
MocoNews article about the acquisition