M&A Alert - July 9, 2010
Synchronoss Technologies Acquires Sync Specialist FusionOne
Transaction Overview
On July 7 2010, Synchronoss Technologies (NASDAQ: SNCR) announced that it has agreed to acquire FusionOne for up to $75 mm in cash and stock.
Target Description
FusionOne provides content transfer and synchronization services for mobile phones. Mobile phones increasingly contain a broad variety of valuable content such as photos, contacts, email messages, music, ringtones, applications and mobile website bookmarks. FusionOne allows such content to be transferred to a new phone, stored as a backup file or synchronized with other devices so that the content is available and up-to-date on multiple devices. FusionOne has historically sold its services directly to mobile phone operators such as Verizon Wireless, AT&T and Cellular South who have then either resold the FusionOne capability to consumers or offered it for free as part of a service plan. The most notable competitor is Apple with their MobileMe product offering which is offered to consumer for a $99 per year subscription fee. Other independent competitors include open-source vendor Funambol, SIMchronise, Syncronica PLC, Susteen and Rseven Mobile. Google, Microsoft, Yahoo and many major wireless carriers offer similar, albeit generally less fully capable, synchronization services. FusionOne has more than 40 issued and pending patents related to mobile content transfer and synchronization services. Founded in 1998, San Jose-based FusionOne raised $145.8mm in total funding from investors, with a significant recapitalization along the way. The three most recent investors include Blue Run Ventures (John Malloy), El Dorado Ventures (Charles Beelr, Shanda Bahles) and Vesbridge Partners (Jeffrey Hinck).
Buyer Description
Synchronoss Technologies provides wireline and wireless communications service providers, cable operators, on-line and store-based retailers and handset and other device makers a cloud-based service which automates new subscriber activations, initiates new services and provides ongoing customer support. Customers include AT&T, Cablevision Systems, Clearwire, Comcast, Embarq, Level 3 Communications, Sprint, Time Warner Cable, Verizon Business, Verizon Wireless, Vodafone. Stephen G. Waldis, President and CEO, was the key executive sponsor of the transaction.
Transaction Parameters
The transaction is structured as $32mm in cash and $8mm in Synchronoss’ stock paid upon closing. An additional $35mm of consideration can be earned depending upon financial performance parameters through the first six quarters post transaction close. These payments are half cash, half Synchronoss stock. FusionOne is expected to contribute $8mm – $10mm in revenue to Synchronoss in the second half of 2010. Assuming the transaction closes on July 31, that translates into a rough annual revenue run rate of $19.2mm – $24.0mm. FusionOne has approximately 80% gross margins.
Transaction Multiple (Revenue-Based):
Without Earnout: 1.9x
With Earnout: 3.5x
Note: (1) calculated at mid-point of revenue run rate range as estimated above ($21.6mm).
Strategic Rationale
Synchronoss’ strength is helping carriers and retailers activate newly purchased cellphones. While historically simple voice communication was the primary purpose of a cellphone, increasingly it’s the non-voice applications, music, web-browsing and video capabilities that are most compelling. This content is extremely valuable to the user and must be transferred to any new device purchased. FusionOne brings this capability to Synchronoss, nicely extending the activation process to incorporate content transfer.
Architect Partners’ Observations
Content transfer is clearly increasingly important, as noted above. However, real-time synchronization of content, applications and setting is an even more challenging problem. What happens to a photograph taken on your new camera phone? Does the photo end up on your PC, your Facebook page, your Flikr photo album? What about when you update a personal contact using your PC? Does it show up on your phone the next time you want to dial the number? What if you purchase a new song from your phone, can you listen to that same song on your PC, your TV, your iPad? Synchronization has been a challenge for quite some time and a number of M&A transactions have occurred over the past decade to help solve the challenge. However, the increasingly diverse set of connected devices, applications and content not just on your PC but also your phone, TV, tablet, book reader and automobile, the challenge remains. We believe this is a fundamental capability that any device maker, service provider, application developer and content developer has a stake in getting right.
Resources
Synchronization Solutions Assessment