Plunging Valuations and Surplus of Groupon Clones Sets Off Frenzy of M&A Activity

9/20/11Follow @bvbigelow

Buyouts and mergers of Web companies that offer online “daily deals” have accelerated sharply over the past five months, driven by a rapid decline in valuations and a surplus of Groupon clones, according to a report issued today by CB Insights, a New York data services firm.

CB Insights counted 22 global mergers and acquisitions in the sector during the second quarter that ended in June—more than double the M&A activity that took place during the first three months of 2011, when nine companies offering online discounts for local goods and services were involved in M&A transactions. An additional 22 M&A deals disclosed in July and August have brought the five-month total to 44—before the third quarter has even ended. (Disclosure: CB Insights will share with Xconomy a portion of the revenue from any copies of the report that it sells to our readers. Nobody involved in the writing or editing of this post was involved in negotiating this arrangement or was aware of it before publication.)

The five-month surge in M&A activity far outpaces the 28 transactions done over the previous 15 months (from the beginning of 2010 through the first quarter of 2011), according to CB Insights. The data reinforces a report yesterday from Dow Jones VentureWire, which said the industry is undergoing a shake-out. Citing data from Yipit.com, which aggregates daily deals, VentureWire reported that 170 of 530 daily deal sites across the country—nearly a third—have shut down or been sold so far this year.

“Looking past just the headline M&A transaction numbers, it becomes apparent that things are not going swimmingly in the daily deal space,” CB’s analysts write in their 17-page report. Valuations also have declined sharply since the first quarter, based on the way daily deal sites are valued according to “price per subscriber,” which fell 36 percent and “price per voucher sold,” which fell 40 percent during the current quarter.

The CB report attributes the declining valuations to … Next Page »

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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  • http://www.Exits-Blog.com Basil Peters

    Outstanding article, Bruce.

    This is a class case of a “wave of consolidation”. Very few entrepreneurs and investors appreciate that this is actually a common occurrence. Granted, this is an excellent, extreme example.

    In this space, it’s already too late for the companies that are not already in exit negotiations.

    I hate to see this happen. So many successful companies wait too long to start their exit and end up with far less than they could have received if they timed it better: http://www.exits-blog.com/timing-your-exit-dont-ride-it-over-the-top/