business, technologies

All of your business – the squeeze of mobile market consolidation

News of Velti’s acquisition of Mobile Interactive Group caught many off guard, the market consolidation suggesting chill economic winds not only for its competitors, but also for the two organisations themselves.

The official statement read:

 

– Velti plc (NASDAQ: VELT), the leading mobile marketing and advertising technology provider for brands, advertising agencies, mobile operators and media, today announced the acquisition of Mobile Interactive Group (“MIG”), UK’s largest mobile marketing company. The acquisition expands Velti’s lead as the world’s largest mobile marketing company based on revenue, customers, consumer reach and technology holdings.

 

With more than $100 million in gross billings, more than $20 million in net revenues in 2010, and more than 160 employees MIG has established itself as a leading mobile marketing player. The company’s global partnership with Skype, its Facebook Preferred Developer Consultant status and the launch of its mobile / broadcast interactive platform have won MIG accolades as a pioneer in bridging social media, mobile marketing and commerce transactions. Earlier this year, Deloitte named MIG the fastest growing privately owned technology firm in Europe.

MIG had been developing a strong mobile war-chest thanks to an acquisition spree of its own, buying mobile response facilitator Piri, production house Golden Bytes, mobile payment outfit Zaypay, as well as the digital marketer Digital Jigsaw.   It also had a joint bid with ECI Partners for AIM listed competitor WIN Plc declined earlier this year.

The move bears comparison with the acquisition by Amdocs of a long-term MIG competitor, MX Telecom back in March 2010.  What was formerly known as MX Telecom now makes up part of the Amdocs company, Open Market.  That acquisition too was unexpected, even to the MX executives concerned.  But the figures are worth a look.

 

ME reports that Velti will pay in a minimum consideration of $25 million for MIG, including $20 million of cash at closing. Depending on MIG’s performance, Velti will pay up to an additional $34 million over time by 2013, using a 7.5 times adjusted EBITDA multiple, taking the potential value up to $54m.

Amdocs acquired MX Telecom for approximately $104 million USD in cash, net of debt and cash.

What made MX Telecom worth almost double, give or take a paltry $4 million?  Its own global presences in New York and Sydney?  Better technical infrastructure?  Hard to fathom at the time, but a slightly less pessimistic economy?  The fact MX was entirely self-funded and profitable from day one?  A fact it wasn’t shy of publicising.  In contrast, MIG’s chief executive is the largest shareholder in the business (25%) whereas the remainder is held by other founders, staff and (whisper it) minority angel investors.

Of course it could be none of these at all.  It could be largely academic whether they received funding or not, or how significant the funding was.  There are many unknowns which are pointless to speculate about, but irresistible not to.

Velti said 160-employee MIG had $20 million in revenue and $100 million billings in 2010.   Velti’s CEO, Alex Moukas, added: “This acquisition solidifies our leadership in mobile marketing, a $16 billion category that many predict will nearly double to $30 billion in the next few years.”

Those are the key numbers.

 

Where next – more market consolidation?

Where does it leave businesses which previously considered themselves Tier 1 aggregators on a level, or at least within grabbing distance of MIG and MX Telecom?

Up until recently mBlox proclaimed itself the “the world’s largest mobile transaction network”.  It no longer says that on the website, or at least not as prominently.  Although it does keep innovating with payment products which helps to keep the brand looking as shiny as ever.  However, it may now be casting nervous glances around a squeezed market, along with businesses such as 2ergo, WIN Plc and Dialogue Communications.

ME heard speculation that both MIG and Velti have been struggling in the downturn and have made redundancies, which makes consolidation unsurprising.  But a lack of new business stories in the space isn’t necessarily an accurate bellwether for the lack of new activity.  Many in the pack have been shy, or simply unfussed about publicising the cash they’re raking in from premium adult services.

That said, the market consolidation will squeeze the market, particularly if the acquisition strategies continue, making it a colder environment for some providers.  What chance an Everything Everywhere style merger between two, or even more of the remaining former Tier 1 Aggregators?

 

Plenty left of the pie

 

These numbers don’t mean there is nothing left in the market for other mobile players.

Niche markets are still being cleverly exploited by the providers who know them best.  Messaging solutions for the public sector in the form of education, healthcare and government are thriving, as evidenced by Leeds-based Txttools and its partnership with Blackboard Connect, which has delivered over 1bn voice, email and text messages.

Slower-burners in the marketplace are picking up a head of steam too, with old Midland sparring partners Dynmark International and TxtLocal now achieving greater profile, profitability and footprint.

There’s still time for messaging-based companies – lest we forget the proportion without smartphones or any desire to get one.  But all the same, it’s shrinking.  Many are already diversifying and with apps, HTML5 and instant messaging modifications.

Precisely how Alex Moukas’s $30 billion market evolves will be largely dictated by splintered technologies and emerging sister sectors like epublishing and tablet technology.  As mobile messaging revenues dwindle with consumer popularity, it’s likely that the clamour will grow more urgent for mergers and acquisitions which give expanded footprint and broader opportunities.

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