Mini-merger trends (March 2011)

One of the discussion points at a recent Corum webinar was the current trend of mini-mergers. In a market where megadeals and IPOs are unlikely, smaller scale deals provide a useful way to help your company continue to grow, even in tough economic circumstances. In our webinar, we focused on three deals which we at Corum felt exemplified this trend.

 

I was able to present the first deal that was in Europe, where RightNow Technologies acquired Q-go.com in mid January for $34 million. This deal not only fits the mini-merger trend, but also plays into both the strong SaaS market and follows the continuing boom in the Cloud. RightNow delivers on demand CRM systems, and Q-go.com adds a natural language processing search solution to RightNow's offering. The deal was done for all cash, with a 4.3x multiple for forward projected revenues, which reflects the premium that RightNow was willing to pay, even on a smaller deal.

 

Bruce Lazenby presented a Canadian company called Zetawire which was recently acquired by Google. The details of this deal were not released, but Zetawire is so small and new that we're not even sure what they do as they do not have a website. We know that they are in the near-field communications business, which allows you to use a mobile device as a credit card, certainly something Google would want to embrace. The company was founded by brothers who are both PhDs, who publish papers with titles like Algorithms and Complexity Results for Input and Unit Resolution, which leads us to believe that, if nothing else, Google is following their own standards of acquiring talent and intelligence whenever possible. Google kept this deal very quiet until it was completed, so clearly this was a priority acquisition for them, even though it was smaller.

 

Jeff Brown, our man in Texas, brought our attention to a mini-merger in the energy market, where enerNOC, a leader in the demand response management space, based in Boston, bought a small company in Idaho, M2M Communications. The deal was made for $33 million, based on M2M's $10 million in revenue at a 3.3x multiple. enerNOC manages 2% of the entire country's total peak energy load, so M2M is a good fit as they are focused purely on agricultural utility management, specifically using wireless and satellite technology to help farmers meet peak demand reduction goals. This is an active segment, too, so we can expect to see further, smaller firms being gobbled up in strategic and PE buys.

The exciting thing to note is that mini-mergers are not just in one market segment, but are a viable strategy across all of IT and Software Services. Look to see this trend continue for a while, especially as companies want to continue to stay viable and vital without spending a lot of money. This should be especially encouraging to CEOs and leaders of smaller companies who may have been feeling like they were off the radar for the last few years because they weren't big enough to garner attention.

Posted by , on 9 March 2011
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