Hyperlocal M&A in 2015 — Here’s What Some Potential Acquirers Are Looking For

With the new year just around the corner, corporate development teams are undoubtedly gearing up for 2015 acquisitions. The local technology industry saw plenty of M&A activity in 2014 and remains poised for another busy year as established firms look to stay on top and a new batch of public companies come into capital.

The two biggest deals of 2014 came by way of the public markets. Booking site Priceline snapped up Opentable for $2.6 billion in a deal that shined a light on the increasing convergence between the travel industry and local technology. But the largest, albeit less talked about, buy was Oracle’s $5.3 billion purchase of Micros Systems, the point-of-sale stalwart that now finds itself in the midst of a tumultuous shift toward cloud software.

The startup scene saw its share of healthy — if not billion-dollar — exits as well. The sale of Shopkick to Korean communications giant SK Telecom for $200 million could mark the first big deal in a potentially more active shopper marketing segment. Meanwhile, public firms such as Yelp, Yahoo, Intuit as well as private companies such as Square, GoDaddy, Yext all bought companies in the local space.

Here’s a quick look at a few areas, and some major players, where we may see an uptick in M&A activity in the year to come.

Website builders – GoDaddy, Wix, Squarespace
Within the next few months, GoDaddy will likely join the Israeli website builder Wix on the public markets, creating an incentive for both companies to expand beyond their core web development and domain businesses. Both firms appear set on a similar strategy: use their position in the SMB marketing food chain to launch into other parts of the small business technology sector ranging from digital marketing to point-of-sale and loyalty software.

Wix has made a handful of acquisitions over the past year, but GoDaddy appears particularly inclined toward M&A with a torrent of acquisitions over the past 24 months. The company bought a presence management system in Locu, bookkeeping software in Ronin, and a mobile site developer in M.Dot. Then in July it bought Canary, the maker of scheduling software for service businesses, and email marketing firm MadMimi a month later.

Today, domain management and website development is a high-volume and relatively low consideration business. That means companies like GoDaddy, Wix and Squarespace will likely build out offerings that appeal to the long tail of the market (customers who would be inclined to tack on a relatively simple, entry-level product). So potential acquisition targets might build automated and cost-effective cloud-based offerings that could appeal to a small business owner who would not otherwise be in the market.

Ad tech – Millennial, RocketFuel, Google, Yahoo, xAd
Brand marketers poured money into a handful of location-centric mobile advertising startups during 2014 as retailers, automotive and even CPG firms began to shift “offline” budgets into mobile media. The result is a golden goose of sorts, which the larger ad technology firms are trying to capture.

The location analytics technology which forms the foundation of these firms is difficult to build, but somewhat redundant within the competitive set. As brands solidify relationships with these companies and increase spending, we will likely see a handful of firms capture the majority of the market. That will leave a number of major players in need of an exit. Potential buyers range from tech giants like Yahoo and Google to mobile advertising firms such as Millennial Media to a handful of newly IPO’d programmatic players such as Criteo and RocketFuel.

Point-of-sale/payment processing – Square, Revel, Intuit
In the fight over small business technology spending, the point-of-sale and scheduling set are probably best positioned to win out. Data drives software, and these firms control the flow of vital operational data that defines a small business.

But the immense competition within the upstart point-of-sale and payment processing category will force both prices downward — at least for the foreseeable future. That means companies such as Square, and even the more brand-focused Revel Systems, will need to build secondary and tertiary revenue streams through premium marketing or accounting products. So these firms are likely to be in the hunt for companies with solid revenue streams in complementary categories.

Steven Jacobs is Street Fight’s deputy editor.