Posts Tagged toronto

Snapchat Snaps Up Toronto’s Bitstrips For $100 Million

Toronto-based emoji maker Bitstrips is being acquired by Snapchat, the popular photo and video sharing mobile app, for a reported $100 million.

Bitstrips allows users to create personalized emojis and avatars that can be inserted into short comic strip sand shared via social media. It was founded in Toronto in 2007 and raised over $18 million in capital from investors that included Kleiner Perkins Caufield & Byers and Horizons Ventures, the investment fund belonging to Hong Kong billionaire Li Ka-shing.  The Bitstrips app has been downloaded over 11 million times.

This is fantastic news for one of Toronto’s best known tech companies in the social media space.  It will be interesting to see if Snapchat keeps the current team and office in place and uses this acquisition to create a presence in Toronto.

To read more about the transaction, click here.

Posted in: M&A News

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Influitive Makes Two Acquisitions

Influitive, a Toronto-based company that has built a software platform for customer advocate marketing, made two acquisitions in March.  At the beginning of the month, the company announced that it was acquiring Ironark Software, a company that developed apps for home organizing and business task management.  Less than three weeks later, Influitive announced that it is acquiring Triggerfox, which has built a mobile platform for relationship management.  The financial details of both transactions were not disclosed.  Both of the acquired companies are also based in Toronto.

Influitive is one of Toronto’s hottest new tech companies.  It was founded by Mark Organ, who previously founded the marketing automation software company Eloqua, which was sold to Oracle for over $870 million in late 2012. The company has raised close to $50 million in growth capital from an array of Canadian and US venture capital funds.

After raising an $8.2 million Series B round at the end of February, Mr. Organ indicated that some of this capital would be deployed as acquisitions, and in March he made good on that promise.  It was encouraging to see that Influitive targeted other Toronto-based companies rather than seeking out software and talent further afield.

To read more about these transactions, click here and here.

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Postmedia Acquires Ampifii

Ampifii, a Toronto-based company whose software platform enables users to manage their own sponsored social amplification campaigns, has been acquired by Postmedia Network Canada Corporation, the Canadian media company that includes the newspaper properties once owned by the former Canwest Global Communications Corporation and the Sun Media Corporation.

Details of the transaction were not disclosed.  Ampifii was about a year and a half old at the time it was acquired and had not raised any significant growth capital.  It was formed as part of a native ad campaign project for Postmedia, so this transaction seems to make perfect sense and may represent more of an “acqui-hire” in order to formally bring the team and the technology in-house.

To read more about the transaction, click here.

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Toronto’s ScribbleLive Acquires San Francisco-Based Visually

In a welcome change from the typical “American tech company buys Canadian tech company” scenario, ScribbleLive, which is based in Toronto and provides a content marketing platform to leading brands and media companies, has acquired the San Francisco-based content creation platform provider Visually.  Terms of the deal were not disclosed, but Visually had previously raised $15.7 million in funding.

This is ScribbleLive’s fifth acquisition.  It has raised almost $59 million in funding since it was founded in 2008 and its marketing platform is used by over 1,000 companies around the world.

To learn more about this acquisition, click here.

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Mike’s Commentary – January 2016 Newsletter

The Report on Business (sourcing Bloomberg) reported that 2015 was another stellar year for M&A involving Canadian companies, with $281 billion of transactions completed, which represented a 34% year-over-year increase from 2014.   Of particular note is the fact that fully $205 billion, or 73%, of the dollar value involved Canadian companies acquiring foreign entities. In the segment of the market that we service ($5M to $75M) the total number of transactions has been declining since 2009, with the hardest hit category being transactions under $5 million.  Fortunately for us, 2015 turned out to be a good year, so no complaints here.

It’s easy to misinterpret reported M&A numbers given that reported numbers for the Canadian M&A market are highly influenced by a small number of mega-deals such as the CPPIB announced acquisition of Homeplus Co. for $8.6 billion or the Brookfield Infrastructure Partners LP acquisition of Asciano Limited for $12.4 billion.

Interestingly, what we have not seen is a measurable uptick in M&A activity from the Baby Boomer founders of traditional businesses who should be looking seriously at making a move now.  (You can read more on this on our website by clicking here.)

As always, the past twelve months saw some interesting developments:

Tier II Brokerage and Accounting Firms Come Downmarket

During the year we saw an increase in the number of larger Tier II brokerage and accounting firms participating in bake-offs for companies with less than $10 million sale values.  As the result of continued stagnation in the public markets it was interesting to see Tier II and Tier III bankers – associates in tow – pitching for private company sale mandates and touting their firms’ deep experience in SaaS M&A transactions and the deep resources that they bring to the table.

Having spent almost 10 years working in Bay Street brokerage firms I know only too well the pressure that partners are under to “cover the nut” when public markets get bumpy.  I also know the vast differences between working and successfully completing a private company transaction versus a public company transaction and patience has never been a virtue of investment bankers.  And last I looked, their clients were not jumping up and down to buy or invest in small cap private companies.

Preparation Continues To Be an Afterthought

Not surprisingly, I would say that almost without exception most of the business owners who approach us about selling their companies are not close to being prepared to start a sale process.  Of course that’s to be expected since these individuals are spending every day running their businesses and preparation for a sale is mostly an afterthought.  Unfortunately, there are no positives to be gained from a lack of preparation so the sooner business owners understand the requirements necessary in time and resources to consummate a successful transaction, the better.  (Again, you can refer to our website to learn more about our thoughts on this matter.)

Everyone is SaaSy!

With the continued shift to SaaS models and the valuation premiums awarded successful companies implementing this delivery model, it’s not surprising that we continued to see two developments:

  1. Small and mid-market companies misunderstanding publicly available information related to valuation metrics in the SaaS space.  Unfortunately, there is a dearth of valuation information on private company capital raises or sale transactions, so sellers look to public company information as comparables.  And while the information can be determined from a close and comprehensive review of data, most buyers and their advisers find it just too easy to use large, public, and liquid SaaS company metrics as the basis for their company’s valuation.  I can tell you that there is a significant difference between revenue multiples applied to a public company generating $500 million in revenue and a private company generating $3.5 million!
  2. Some companies who receive monthly payments from customers as opposed to one time annual payments are attempting to classify these revenues as recurring and SaaS, as though they were  one and the same.  No matter how many times we point out that “monthly billings of revenue” is a revenue recognition methodology and SaaS is a software delivery model, the explanation falls on deaf ears.  Obviously I’m missing the point: Monthly revenue billing equates to SaaS, which equates to a higher valuation, probably in the range of that attributed to Saleasforce.com.  Yeah, now I get it. There’s the door.

Culling the Herd

I believe that 2016 is going to be the year of the “culling of the herd” and valuations for many tech unicorns are going to hit the ground with a very loud and resounding thud, but I’m guessing that’s not news to anyone reading this newsletter.  Unfortunately, the eventual demise will not be pretty, although it will be very much less a public spectacle than the bursting of the 1997–2000 dot-com bubble.

Interestingly, I’ve come across a couple of articles recently stating that a significant devaluation of unicorns is nothing to worry about since, unlike in 2000 when market-crazed retail investors (my words) saw their dreams and savings vaporized, this time it’s really only wealthy venture capitalists who are going to take the hit.  Yes, there is a difference but ultimately losses by venture firms directly impact returns to the Limited Partners who invest on behalf of pension funds, mutual funds, corporations, and ultimately individual investors.  No matter how you look at it, eventually the poor returns flow downhill.

Secondly, venture firms that experience losses on their unicorn investments will become extremely gun-shy.  In fact, we are already seeing a moderate pullback in early stage investing as VCs start to think about keeping their powder dry for what could be a fund raising dry spell while GPs, LPs, and tech CEOs play a game of “pin the blame on the donkey”.  With very choppy public markets and mixed results from recent tech IPOs, taking the companies public, particularly given that there are over 130 unicorns with massive valuations, is simply not going to happen.  Unfortunately for the VCs there probably aren’t enough retail investors willing to be the “greater fool” to monetize their unsupportable valuations.

Furthermore, at current valuation levels, how many public company CEOs will be willing to step in and acquire the new disruptive tech leaders?  Can anyone say “just one more time, let’s replay the AOL/Time Warner deal of the century?” NOT!

For technology companies looking to raise VC capital, the eventual fall of the unicorns will negatively impact the flow of investment capital not unlike mid-2000, the fall of 2001, and late 2007 through 2008.  The cash taps get turned off while everyone retrenches.  If you’re a company looking to raise growth capital, I would suggest doing it sooner rather than later.

While the tone of my comment may appear negative, I actually find many of the developments or trends quite amusing.  Looking back on previous years we see the recurring themes of disruption, disbelief, scrambling, new business models, mining guys becoming tech guys, tech guys becoming mining guys…

Overall, I’m bullish on the state of M&A in Canada, especially for small and mid-sized companies.  Demand for new acquisitions by strategics and private equity groups remains strong, not just based on what we read in the papers but from speaking directly with such acquirers in the course of our work on behalf of our clients.

If you have any questions about the state of M&A, please don’t hesitate to pick up the phone and give us a call.

Posted in: Q1 Blog

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NanoPay Acquires the Royal Canadian Mint’s Digital Currency Platform

NanoPay, the Toronto-based loyalty and payment solutions provider, has agreed to acquire MintChip, the digital currency platform developed by the Royal Canadian Mint.

MintChip was developed by the RCM as a way to securely send money via text message, email, or other digital communication platforms. It functions like a digital wallet, allowing users to upload money to MintChip the same way they would a pre-paid credit card and then drawing down on the account as they make digital payments, all without the need to have the system access banking and credit card accounts for every transaction, thus making it more secure than some other payment platforms.  It is expected to launch commercially in the next few weeks.

It may seem like it will be tough for a product like this to compete in the open market given the presence of dominant players like PayPal, Apple Pay, and Google Wallet, however a made-in-Canada solution for digital payments may prove to be attractive to the Canadian banks that in the past have helped foster other Canadian payment systems like Interac.

To read more about the transaction, click here.

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General Counsel Practice of Cognition LLP Acquired by NYC-Based Axiom

The general counsel division of the Toronto-based law firm Cognition LLP has been acquired by the New York-based “tech-enabled legal services group” Axiom.

As a result of the transaction, Cognition will split into two distinct entities.  The division that serves corporate clients that have their own in-house legal departments will become Axiom Cognition and will serve as Axiom’s presence in Canada.  It will be based in Toronto and will be Axiom’s sixth international office.  The remaining groups within Cognition that serve small and medium-sized businesses will remain independent of Axiom; will be renamed Caravel Law; will operate in Toronto, Ottawa, Calgary, and the Maritimes; and will continue to be led by Cognition co-founders Joe Milstone and Rubsun Ho.

Cognition was founded to provide legal services to start-ups and companies that are too small to hire their own in-house counsel or lack the resources to retain traditional law firms.  Those of you who are active in Toronto’s technology sector may know of the firm because of its presence at many technology events and conferences over the years.

To read more about the transaction, click here for an article from Legaltech News and click here for the announcement from Caravel Law.

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Toronto’s Tickld Acquired by Gateway Media

We were pleased to hear about the acquisition of the Toronto-based viral content creator Tickld by St. Louis-based Gateway Media, owner of digital properties such as AroundMe and CinemaBlend.

Tickld is a leader in creating original viral content with a following of over two million people on social media.  Its 14-person team will remain in Toronto following the acquisition.

To read more about this transaction, click here.

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Attributes of Winning SaaS Companies

Over the years we have met and worked with many software companies.  As the software-as-a-service business model has come to dominate the landscape, more and more of them have been SaaS companies.

For those companies that are in the earlier stages of developing and/or rolling out their product or are in the process of transitioning from a licensed or on-premises platform to a SaaS platform, we see a wide range of business models, breadth of management skills, engineering and sales expertise, and industry and domain knowledge.  And while these attributes are wide ranging, they all have one thing in common: valuation expectations are high.  But when we come across companies who have gotten it right, their company or product exhibit many attributes that are common with best-of breed market leaders.  The following list of winning attributes is certainly not all-inclusive, but it’s a good start:

  • The management team is experienced in the industry vertical with a reasonable split of both engineering and sales/marketing talent. Serial entrepreneurs increase the probability of success and we like to see at least 80% of the domain expertise and required background/experience in the hands of the current team.
  • The Company’s product:
    • Has been well designed, is user friendly, comprehensive, and addresses a significant pain;
    • Is a “must have” as opposed to a “nice to have”;
    • Is “sticky” and, once it becomes embedded in a user’s daily routine, makes it difficult to switch away from, either due to cost or convenience…churn is a killer;
    • Has quantifiable customer acquisition costs that are well below the lifetime value of the customer;
    • Is proven to be scalable and robust;
    • May allow outside software developers who see value in the product and the Company’s user base to access APIs that allow them to develop value-add applications to complement and enhance the value of the core product; and
    • Has at least a North American focus with capability of being easily being adapted for international markets.
  • The Company’s market is defined, large, and growing.
  • While competitors in the market can provide market validation, the product is not the fourth or fifth player in an established market. Coming late to the party with a “me too” offering is a recipe for disaster.
  • Management has not predicated its business plan on being acquired by a large, deep-pocketed competitor looking to acquire customers or geographical presence. Companies that were established on being a “local” version of Groupon, expecting to be acquired by Groupon at a premium based on the build or buy rationale, generally learned a tough lesson.

The ability to expand into new verticals can substantially increase the value of the business.  A good example of this would be a content management platform that is initially targeted at social media but can also morph into a valuable tool in the financial services, lead management, or customer engagement space.

More often than not, companies that attract the highest premiums are those where a customer is willing to pay for the product.  Freemium models should have a clear path and strategy of moving users towards a paid, premium model. Obviously, companies like Facebook and WhatsApp prove the value of users versus paying subscribers, but in Canada scale is a huge issue.  We see too many Canadian companies that are simply not growing fast enough and attracting a large enough user base to attract the amount of capital required to be a global player.  Take a look at Brad Feld’s blog The Rule of 40% For a Healthy SaaS Company for some additional thoughts.

Business models based on advertising revenues run the risk of being disintermediated by changes in ad server algorithms or new advertising modalities.  Remember the days of pop-up ads and eyeballs?  We recently met with an app company that saw its daily visits drop by over 70% when Facebook made certain changes to its algorithms and it took almost six months to recover.  Don’t be one of these companies.

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Chango Sold to Rubicon Project for $122 Million

Chango, the Toronto-based programmatic ad-buying platform with 150 employees, has been sold to Rubicon Project for $122 million, mostly in stock.

This is great news not only for Chango’s founders but also for its investors, who had put $18.6 million into the company since 2010. Canadian funds Mantella Venture Partners, Extreme Venture Partners, Rho Canada, and iNovia Capital had invested in Chango alongside New York-based Metamorphic Ventures.

Rubicon Project has now made seven acquisitions in the ad-tech space.  This deal will give it more capabilities in the “intent marketing” sector, in which ad buying platforms focus on users search queries, behaviour, and contextual data to target them with appropriate online and mobile advertisements.

To read more about the transaction, click here.

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