Cloud 9 for Software M&A?

The technology sector has long dominated M&A media coverage, with some of the most recognisable brands sparking the public’s interest with mega-deals grabbing headlines. Increasingly, these deals are focusing on one of the next big battlegrounds for technology companies: the cloud.

The cloud is currently attracting significant attention for acquirers of all stripes, from acquirers of all kind, from tech giants looking to pivot to cloud technology to private equity houses. The reasons for this are relatively straightforward. Cloud computinglivers a step-change for the global economy, supporting businesses from SMEs right through to the largest organisations. The diverse services offered by this technology have applications that are useful across a broad range of industries, demonstrating the cloud’s unique appeal.

But as cloud companies become more attractive for acquirers, it is worth paying attention to the different types of deals, to get a sense of how and where this market is headed. A recent report from Bloomberg asserted that 2016’s M&A performance is in part, driven by the desire of acquirers to bolt on new cloud companies to their existing portfolio. The sector has also been powered by the confidence of private equity investors in these types of companies, as well as the fall in valuations of many technology companies earlier in the year.

We look at three significant cloud deals that highlight the strength of this area of software M&A.

Oracle Acquires Netsuite

The acquisition of Netsuite for $9.3bn by Oracle is typical of the activity in software M&A. Oracle has existing Cloud capabilities in place, but many speculate that its move into acquisitions is prompted by fears it is falling behind rivals such as Amazon, Google and Salesforce.

Salesforce Acquires Demandware

The deal was pegged at $2.8bn, with Salesforce getting its hands on an e-commerce SaaS provider, Demandware, which has a significant presence in retail. It counts some of the biggest names in the sector as clients, built up since its inception in 2004.

Microsoft and LinkedIn

Not strictly a cloud purchase, but certainly one motivated by the scramble for the cloud, Microsoft’s eye-watering deal to acquire LinkedIn saw the acquirer get their hands on a company that is at the top of the tree in its market, with masses of data provided by its 433 million users. Should Microsoft successfully integrate its cloud services with LinkedIn’s professional network, the deal may go down as one of the most impressive in cloud computing’s short history.

With key market knowledge and experience working across a wide range of sectors and representation throughout the Americas, Europe, Africa and Asia, Benchmark International can connect you with the right opportunity. To find out more, visit http://www.benchmarkcorporate.com.

Fluctuating Values: The Nintendo Saga

A month is a long time in business and nothing has demonstrated this as much as games giant, Nintendo. Just a few weeks ago we discussed the £11.1bn that gaming phenomenon Pokémon Go had added to the value of Nintendo, with shares soaring by more than 86 per cent. Now, we are looking at quite a different story.

“Gotta Catch ‘Em All”

Overnight, the whole world was talking about the augmented reality game which, straight away boasted more active daily users than Tinder, Instagram, Facebook or Twitter. And, with four more major game releases scheduled for release before March 2017, Nintendo shares suddenly became the hottest commodity on the stock market. So much so that investors were quick to leap into action, extending the gain for Nintendo shares to more than 50 per cent in just three trading days after the game was launched.

The release also saw Nintendo move from a reluctant adopter of mobile gaming to an industry trailblazer and runaway success story overnight.

What could go wrong?

A lot, actually. Despite the early success, analysts were quick to warn investors about the potential shelf-life of a game like Pokémon Go. Analyst Michael Pachter at the brokerage firm of Wedbush Securities, said in an interview for Bloomberg news: “The game requires couch potatoes to get off the couch, and the novelty will wear off when they get tired or when their phone batteries die. I give this four months at the top of the charts and then it will fade.”

While it is too soon to talk about the long term popularity of the game, we did see it drop surprisingly quickly in the mobile gaming charts, suggesting that Pachter’s prediction might not be too far off.

However, it was not the question of longevity that caused a shift in Nintendo’s fortunes, but the small matter that the company does not technically own the game. Confused? Here are the facts; the core Pokémon games in the franchise are developed by Game Freak, with the card games and some of the spinoff video games owned by Creatures Inc. and the overall property is managed by The Pokémon Company. The Pokémon Go game is developed by another company entirely, Google spin-off Niantic, so Nintendo’s only connection is owning one-third of The Pokémon Company. The Financial Times estimated that the game netted Nintendo just 10 per cent of revenue generated by microtransactions.

When Nintendo disclosed the reality of the financials that the game would bring, it saw Tokyo shares drop by 18 per cent, their largest hit since 1990, and US-listed shares drop 11 per cent. However, this huge shift is not the fault of Nintendo who, to its credit, warned investors that Pokémon Go would have a minimal impact on earnings, it is actually the fault of overzealous investors. The initial share fluctuation should never have happened and was simply brought on by a huge misconception that Nintendo was responsible for the game.

What is next for Nintendo?

Despite the negative press surrounding the dip in share price, Nintendo’s stock is up approximately 60 per cent on its pre-Pokémon Go levels, which is impressive given the extent of the company’s involvement with the game. In the short-term, Pokémon Go looks set to provide Nintendo with the revenue stream that it needs after the disappointing debut of its Wii U console. The long-term benefit for Nintendo is the message it is sending to new audiences that it is progressive and ready to explore more complex and technologically demanding gaming experiences. This is a particularly powerful message when it comes to getting public buy-in for the March 2017 release of its NX console; a move that Nintendo no doubt hope will have a substantiated and long-term positive impact on its share price.

The lesson for all investors from the Nintendo case is to ensure that they have all of the facts before rushing in into a deal on the basis of media hype. This is something that the Benchmark International team reiterate daily to our clients when they are exploring acquisition opportunities and it is certainly an occasion where the cliché ‘knowledge is power’ can be readily applied.

With key market knowledge and experience working across a wide range of sectors and representation throughout the Americas, Europe, Africa and Asia, Benchmark International can connect you with the right opportunity. To find out more, visit http://www.benchmarkcorporate.com.

Benchmark International Named ‘International Corporate Finance Advisor of the Year’

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Benchmark International are pleased to announce that we have been named as the ‘International Corporate Finance Advisor of the Year’ by the 2016 Worldwide Financial Advisor Awards Magazine.

The magazine is a globally recognised publication due to the comprehensive awards program which they run, gathering votes from countries all over the world to recognise the most prestigious professionals within their specialised areas of practice. They are set-up to identify a select number of leading professional firms, from across the globe and showcase their work ethic and skillset within their area of expertise.

The Worldwide Financial Advisor Awards has an audience of both public and private companies, with many of them across the world listed as the top law firms, private equity companies, investment officers, financiers and entrepreneurs, some are also listed on stock exchanges.

“On behalf of everyone at Benchmark International, we are extremely proud to be named as the ‘International Corporate Finance Advisor of the Year’. Winning such a prestigious award is testament to the hard-work that everyone at Benchmark International puts in on a daily basis. As a company we will continue to work hard and strive to achieve more and more,” said Mike Lawrie, Chief Marketing Officer at Benchmark International.

ABOUT BENCHMARK INTERNATIONAL

Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $5B across 30 industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 13 offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.

What the Blue Tang Fish Can Teach Us About M&A

With Finding Dory set to be the blockbuster family movie of the summer, we are reminded of one of the most successful M&A stories from the last twenty years. Not only did Disney’s acquisition of Pixar Studios see the corporation’s luck start to turn, it also continues to provide a shining example of a successful post-acquisition strategy.

Acquisition

In 2005, Disney was struggling with creative output and failing to gain much commercial traction following its dominance in the nineties. It was thought that a new direction was necessary to recoup some revenue as well as re-establish themselves as relevant to the entertainment industry. It was decided that the small but fast-growing animation studio Pixar would be the ideal target for acquisition.

What makes this acquisition so special?

It is not the sale itself that sets this particular story apart, but the post-merger activity, something that a surprisingly high number of businesses fail to dedicate much strategic and operational planning towards. Most organisations are guilty of looking at the typical goals of size, scale and efficiency when they make an acquisition, whereas they should be looking beyond that at whether the new business brings with it key tools that can increase their overall capacity for growth. This is referred to in the Harvard Business Journal as ‘post-merger rejuvenation’.

A lack of attention towards post-merger planning is evident when you acknowledge that 60 per cent of M&As fail to create value (figure from HBJ). However, there are some businesses who really get this right, as illustrated by Disney and Pixar.

The Strategy

At the time of the Pixar acquisition, Disney CEO Bob Iger stated: “There is an assumption in the corporate world that you need to integrate swiftly. My philosophy is exactly the opposite. You need to be respectful and patient.”

Iger certainly ensured that he practiced what he preached and used Pixar to disrupt Disney by putting the Pixar creative leaders in charge of the Disney animation team who, by this point, were struggling to make any of their projects a commercial success. On this move, Iger said: “If you are acquiring expertise, then dispatch your newly purchased experts into other parts of the company and let them stretch their muscles.”

In another bold move, Iger refused to fully integrate the two creative teams and instead kept them separate from one another. Pixar were allowed to keep their brand identity and culture, which went a long way in ensuring it retained its top talent.

The Stats

The Pixar acquisition was a complete success for Disney, seeing an annualised total shareholder return of 22 per cent since 2006 as well as a string of popular computer generated animation movies. This of course culminated in the release of the highest grossing animation film of all time, Frozen, and, of course, Finding Dory which recently made box office history by becoming the highest grossing animated film in the US.

The key for organisations looking towards M&A as a means to grow is in identifying the right target in the first instance and developing a post-merger strategy that does not just plan to swallow up the smaller business to add more to the bottom line. Take inspiration from Disney who used M&A as a catalyst to explore new ways to create a faster-growing organisation.

With experience in a number of key sectors and representation throughout the Americas, Europe, Africa and Asia, Benchmark International can connect you with the right opportunity. To find out more, visit http://www.benchmarkcorporate.com.

Can European Tech M&A Weather the Brexit Storm?

The UK and the EU might be in the throes of an acrimonious break-up that has sparked uncertainty in the business world and caused market instability, but there is apparently one sector that seems immune to the problems.

According to a report from Silicon Valley investment firm Magister Advisors, the M&A run in the European tech sector looks set to continue for the next one or two years. So, where does Brexit come into this? It is thought that the uncertainty brought about by Brexit may cause larger private technology companies to consider M&A due to the fact that they are facing a slow-growth environment while sitting on a huge aggregate cash pile. This means that they can afford to buy fast-growing earnings and top quality technology wherever they happen to be based in the world, leading to Europe becoming a hotbed for tech M&A activity.

It seems as though the threat of Brexit in the first half of 2016 failed to dampen European tech M&A with deals averaging $72m, closing the gap on the US which averaged $104m for the same period. It was noted in the report that this is one of the closest gaps ever recorded, with the US usually producing close to double the value of European ones.

Why?

There are a number of reasons why European tech remains strong in the face of a challenging market and a lot of it comes down to timing. The tech market in the US is firmly established and the cost of developing technology there has become a barrier to doing business. This means that large tech firms are looking to develop their capabilities in areas where costs are lower, such as Europe.

With costs in mind, some of the rapidly growing areas of tech, including artificial intelligence and fin-tech, are just as well-developed in Europe as in the US, coupled with the fact that deals for targets in Europe are done at international, not European, prices.

Of course, Europe is not completely green when it comes to tech, which is another reason why M&A is on the rise. While Europe got into tech comparably later than the US, its successful tech businesses are now reaching a size and value where they are attracting investors.

Flourishing sector

Illustrating the lack of impact that Brexit has had on European tech M&A recent noteworthy deals have taken place in this arena, namely Softbank committing $30bn to acquire ARM plc, with more deals over the $1bn mark mooted for European segment leaders.

The number of high value exits that are set to take place in the next one to two years will go a long way in fuelling the growth of the European tech sector. This means that Brexit and the uncertainty surrounding it could very well have a positive effect on this exciting sector for years to come.

With experience in a number of key sectors and representation throughout the Americas, Europe, Africa and Asia, Benchmark International can connect you with the right opportunity. To find out more, visit http://www.benchmarkcorporate.com.

Why Apps Are Catching the Attention of Investors

If you have children or know any young adults, you may have noticed them being even more engaged in their smartphones than usual. The reason is Pokémon Go – the gaming phenomenon that’s sweeping the world. Its popularity has added £11.1bn to Nintendo’s value within just one week and its share prices are at a six year high. We take a look at why Apps are making companies so profitable and attractive for investment.

Pokémon Go

Nintendo’s augmented reality game was released earlier this month and instantly became a worldwide hit. It now has more active daily users than Tinder, Instagram, Facebook or Twitter and it is so popular that Nintendo is now more valuable than another Japanese giant corporation, Mitsubishi. The result is that shares in Nintendo have soared over 86 per cent and the game will generate an estimated $4bn in sales.

Nintendo will not benefit from all the revenue – Google, Apple and Niantic (the company that developed and distributes the game and which Nintendo owns one-third of) will also share the profits. It is thought that many investors are also banking on future Nintendo mobile App releases – four more are scheduled for release before March 2017 – which will further enhance the company’s reputation as holding some of the “most valuable character intellectual property in the world”.

Fitness Apps

The drive to get us fit and healthy moves on relentlessly. Recent acquisitions of fitness-related Apps such as MyFitnessPal, acquired by Under Armour for $475m, Weight Watchers acquiring fitness App developers Hot5, and the fitness App Runtastic being bought by Adidas for $240m, show how keen major companies are to get into the digital world of health and fitness. Of course they will also benefit from brand lift and new revenue streams, as well as an increase in market share by absorbing the technological innovations of these digital companies.

Travel Apps

The development of the smartphone has revolutionised travel. Access to flights and hotels is easier and more cost effective than ever before. As more developers get involved in the organisational side of travel, investors are eager to get on board. For example, as a result of investment of almost £192m from investors such as Artemis, Baillie Gifford, Khazanah Nasional Berhad, Vitruvian Partners and Yahoo! Japan. Skyscanner, an App which can be used to search for and book flights, now joins the ‘unicorns’, an exclusive club of only 17 other technology companies in the UK which are worth more than $1bn. Another notable travel App deal is Expedia’s recent acquisition of the Australian hotel booking site, Wotif.com for $658m.

There’s no doubt that technology, especially smartphone, Apps have had a dramatic influence on how we live our lives, but they are also impacting on the world of mergers and acquisitions as companies strive to add value and stay relevant in this new and highly innovative area.

With experience in a number of key sectors and representation throughout the Americas, Europe, Africa and Asia, Benchmark International can connect you with the right opportunity. To find out more, visit http://www.benchmarkcorporate.com.

 

Sport M&A Scores High

Love it or hate it, sport is everywhere, not only featuring on the back pages of our newspapers, but also dominating the front pages too. The business of sport generates massive revenue – it is estimated the global sports industry is worth almost $600bn, so it is no wonder it has sparked interest from investors over recent years.

So, what makes a sporting deal different from a traditional acquisition?

Sport is huge

It is a busy summer for sport. The Euros in France, the Olympics in Brazil, the prestige of the Wimbledon tennis tournament, Formula One, golf and cricket to name a few. However, the combined revenues of these events pale in insignificance compared to the money generated by the richest sporting franchises – the US’ National Football League, Major League Baseball and National Basketball Association. Collectively, these three US sporting leagues produce an income of over £25bn each year. There are three basic income streams from sport: television rights, ticket sales and the revenue which is generated from stadia, and licensed goods. Last year, the global revenue from ticket sales, media rights and sponsorship deals was estimated to be worth around $80bn.

Recent deals

Several, recent, high-profile deals highlight the vast sums of money involved in the purchase of a sporting organisation. Italian Serie A team, Inter Milan, was recently purchased by a Chinese consortium for an estimated €400m; The Walt Disney Corporation has announced plans to buy a one-third stake in the video streaming division of Major League Baseball (MLB) – a deal which is expected to be approximately $3.5bn; Professional cycling team Cannondale has merged with Australian Pro Continental Drapac for an undisclosed multi-million dollar figure.

These deals highlight the main areas of potential to investors – sports teams, sports leagues, stadia and arenas, and media companies related to sporting activities, and reveal not only the great interest in sport from acquisition companies, but also the amount of money they are willing to invest in order to tap into the unique and fervent, global fan base of most professional teams.

Buying a sporting team, or investing in sport sponsorship rights is different from other, more traditional acquisitions such as a pharmaceutical or technology. Sport is an emotional activity for both participants and its viewers, and often involves a community, both locally and internationally. Issues such as naming rights for stadia or shirt sponsorship deals have ramifications beyond rationality and speak to the very soul of sports fans.

There is undoubtedly huge untapped potential in sport M&A, with Chinese investors for example becoming prominent in football recently. While their financial ambitions may be to reap the rewards of success with their newly-purchased clubs, it is also becoming clear that their long-term goals are also to increase the popularity of the sport in China and elevate the national league to be in a position to rival the rest of the world’s finest.  It is an altruistic attitude which, despite its hard-headed financial reality, may set the pattern for sports M&A for many years to come.

With experience in a number of key sectors and representation throughout the Americas, Europe, Africa and Asia, Benchmark International can connect you with the right opportunity. To find out more, visit http://www.benchmarkcorporate.com.