M&A Alert - April 28, 2010
Russian Investor, DST Acquires ICQ from AOL
Transaction Overview
On April 28th, 2010, Digital Sky Technologies, Russian investor, acquired ICQ from AOL (NYSE: AOL, Market Cap: $2.55b) for $187.5mm in cash.
Target Description
ICQ is the maker of online instant messaging application which offers multi-user chats, free daily-limited SMS sending and resumable file transfers. ICQ users can create profiles, play multiplayer games and watch ICQ TV, an online video magazine broadcast service, in ICQ’s social network. ICQ is available on PC as well as on mobile devices such as iPhone, Blackberry, Nokia and Sony Ericsson. ICQ reportedly has 33mm monthly visitors worldwide and has a significant presence in Germany, Russia, Ukraine, Czech Republic and Israel. Last year, ICQ signed a contract with innerActive to insert mobile advertisements into its free mobile content including videos, games and applications. ICQ was acquired by AOL’s Platform-A (AOL’s advertising network), in June 1998 for $407mm (which comprised of $287mm in cash plus $120mm earn-out). Founded in 1996, ICQ was part of Tel-Aviv-based Mirabilis. ICQ originally received funding from ARTE Venture Group and Shalom Management.
Buyer Description
Digital Sky Technologies (DST) is a Russia-based investment firm. DST’s portfolio is focused on mobile-and-internet-based companies that have reached large Russian-speaking audiences. DST led the $135mm funding in Groupon (with participating investor Battery Ventures [Roger Lee]) in April 2010, $180mm funding in Zynga (with participating investor Andreessen Horowitz) in December 2009, and a $200mm funding in Facebook in May 2009 based on a $10b valuation. DST is also invested in Astrum Online Entertainment (which DST formed after merging five Russian online game companies), Mail.ru (a leading Russian internet portal) and VKontakte (a Russian social networking site). Yuri Milner, DST’s CEO and Founding Partner, was the key executive sponsor of the transaction.
Transaction Parameters
ICQ operated as a subsidiary of AOL and does not provide financial information as a stand-alone entity. When AOL was rumored to sell ICQ in November 2009, the reported asking price was approximately $300mm. ICQ had no revenue when AOL purchased it in 1998. Google, Skype and Naspers (a South Africa media company which holds 30% stake in China’s Tencent) as well as a number of other Eastern European companies had reportedly shown interest in ICQ.
Strategic Rationale
ICQ’s large presence in the Eastern Europe is a good fit for Russia-based DST, who has been recently building a portfolio within the internet | mobile | digital media sectors.
Architect Partners’ Observations
ICQ’s divestiture will enable AOL to focus on its key homebase operations in the U.S., which is important as AOL is undergoing a turn-around strategy, after its spin-off from Time Warner in May 2009.
Furthermore, AOL will be able to focus on growing its content-driven advertising business. AOL has existing premium user-oriented content brands including AOL.com, Moviefone, FanHouse, ParentDish, DailyFinance, BlackVoices, AOL Latino and PoliticsDaily, which can be leveraged into targeted services offerings. In January 2010, AOL acquired Studionow, a company that enables online video content production.