M&A Alert - August 25, 2009
Syniverse Agrees to Acquire Verisign’s Messaging Business
Transaction Overview
On August 25, 2009, Syniverse (NYSE: SVR) announced that it has agreed to purchase VeriSign’s (NASDAQ: VRSGN) messaging business for $175mm in cash.
Target Description
VeriSign provides internet infrastructure and identity services. In late 2007, VeriSign announced plans to divest a number of non-core businesses including its messaging businesses. VeriSign’s messaging businesses manages approximately 60% of text and mobile message traffic in the U.S. inter-carrier market. In Q1 of 2009, its networks enabled an average of roughly 932mm messages per day which represented 96% year to year growth. Acquired businesses include:
- Inter-Carrier Gateway, which enables operators to deliver inter-carrier person-to-person SMS and MMS messages (This unit accounts for approximately 66% of the overall messaging business unit revenues)
- PictureMail, which provides MMS platform that includes a hosted MMS service center (MMSC) for MMS routing and a social networking interface with photo storage and sharing capabilities
- Premium Messaging Gateway, which allows carriers to manage delivery of “off-portal” or third-party content to subscribers
- Mobile Enterprise Solutions, which enables businesses to send time-and-event-based messages or alerts via voice, text message or email (VeriSign sells this product to carriers who then sell it to enterprise customers)
Approximately 300 employees are attached to the business, 100 of which are located in India.
Buyer Description
Syniverse provides services for wireless communications companies. Syniverse offers interoperability services, which enable the invoicing and settlement of wireless roaming telephone calls, a data roaming clearinghouse, messaging services and network services that support the call set-up and routing of wireless and fixed line telephone calls and number portability services. Syniverse recently introduced a messaging product set, its NEXTSM Advanced Messaging Hub, which provides a comprehensive SMS, MMS and IM messaging solution.
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| Purchase Price (all cash): | $175mm |
| TTM Revenue | $140mm |
| TTM EBITDA 1 | $35mm |
| Purchase Price Multiples: | |
| TTM Revenue | 1.25x |
| TTM EBITDA |
5.00x |
|
Note: 1) Disclosed on the transaction announcement conference call.
Strategic Rationale
This transaction is a very good fit for Syniverse. Syniverse’s core business is acting as a trusted intermediary between carriers and the VeriSign messaging business is just that. This materially bolsters Syniverse’s recently announced product, NEXTSM Advanced Messaging Hub. This acquisition vaults Syniverse into what we believe to be the second largest mobile messaging aggregator globally. VeriSign’s business brings a very large U.S. presence, tier one carrier relationships (including Sprint), a good emerging product set and a technology platform that has a proven ability to handle very large message volume. Syniverse believes the product set is a good match for international markets as well, an area of strength for Syniverse. Syniverse expects to achieve 10% revenue growth in this business going forward and improve the EBITDA margins into the 40% area.
Architect Partners’ Observations
VeriSign has been actively shopping these businesses for 18 months. Excessive price expectations were an early hindrance to the process as well as VeriSign’s attempt to “package” a number of businesses together as a unit. The end result here is exactly what one would have expected – logical buyer, grouping of assets and valuation, just a year delayed. The mobile messaging gateway business has seen substantial consolidation over the past several years. Early consolidation efforts such as VeriSign’s purchase of mCube (3.0x revenues, $250mm) and Sybase’s purchase of Mobile365 for (4.5x revenues, $417mm) were relative high valuation multiple transactions. More recent M&A transactions in this sector were more on the order of 1.0x revenue. Notably absent in the package of assets is VeriSign’s mobile premium content delivery gateway business, the previously mentioned mCube. VeriSign continues to search for a buyer of this business.