Transaction Overview: CityGrid Acquires Felix | Street Fight

Transaction Overview: CityGrid Acquires Felix

Transaction Overview: CityGrid Acquires Felix

On August 20, 2012, CityGrid Media (IAC/InterActiveCorp subsidiary; NASDAQ: IACI, market cap: $4.6b) agreed to acquire the pay-per-call advertising business of Yext, named Felix, for an unconfirmed $30mm.

Target Description
Yext launched Felix in 2009 as a pay-per-call local advertising service. What makes Felix unique is its patent-pending engine that uses speech recognition technology to listen to all the calls received by a local business.  It then transcribes and analyzes the calls, separating those received from consumers from those received from wrong numbers, telemarketers and job seekers. Rather than paying for non-customer phone calls, businesses only pay for potential customer calls. Felix provides presence and listings to its enterprise and small business customers across 200 different websites, mobile apps and media properties such as SuperPages, Local.com, PhysicalTherapists.com and Dogster. Yext separated Felix into a subsidiary earlier in 2012, as it shifted focus onto its newest service, called PowerListings. Marchex (NASDAQ: MCHX) and RingRevenue are competitors to Felix, in addition to numerous competitors offering basic click-to-call capabilities without voice analysis.

Based in New York City, Felix has approximately 85 employees who will be joining CityGrid Media with this acquisition. Yext has raised $65.8mm in six rounds of funding, with investors including Marker, CrunchFund, Sutter Hill Ventures, Institutional Venture Partners (IVP), WGI Group (Michael Walrath) and angel investors including Howard Lerman, Brian Distelburger and Brent Metz.

Buyer Description
CityGrid, an online media company, connects Internet and mobile publishers with local advertisers. CityGrid owns and operates local consumer properties including Urbanspoon, Citysearch and Insider Pages.  The company was founded in 1995 and is based in West Hollywood, CA. Felix will join CityGrid’s portfolio but will continue to operate as an independent business under Yext co-founder Brent Mentz, who is joining IAC as CEO of Felix.

Transaction Parameters
Although deal terms were not formally disclosed, TechCrunch reported the deal to be worth about $30mm. Felix is reportedly on track to earn nearly $30mm in revenue this year.

Transaction Value
$30mm

TV/Revenue Multiple
1.0x

Comparable transactions focused on expanding hyperlocal capabilities include Constant Contact’s acquisition of SinglePlatform; BazaarVoice’s acquisition of PowerReviews; the Yell Group’s acqusition of Moonfruit; Intuit’s acquisitions of Demandforce and AisleBuyer; Groupon’s acquisitions of Ditto.me, Breadcrumb, Kima Labs, Adku and Zappedy; Home Depot’s acquisition of Red Beacon; ReachLocal’s acqusititions of DealOn and SMBLive and Reply!’s acquisition of MerchantCircle.  Also, given Felix’s speech recognition technology, Apple’s acquisition of Siri and Nuance’s acqusitions of Transcend Services, Vlingo, SpinVox and Jott Networks would also be comparable.

Strategic Rationale
The acquisition of Felix advances CityGrid’s mission of empowering local businesses with valuable tools to effectively acquire and manage customers.  Using advanced voice recognition and call analytics technology, bundled with an easy-to-use interface, Felix enables merchants to market themselves with an innovative and sophisticated pay-per-action phone-advertising product.  According to CityGrid’s CEO Jason Finger, the acquisition fits into their focus to build customer acquisition tools for merchants, and increases closed-loop transaction services supporting local advertising for SMBs.

Architect Partners’ Observations
In Yext’s official blog post, co-founder Howard Lerman retold his meeting with Ben Horowitz from Andreessen Horowitz about a year ago. Although the venture capitalist declined the investment, he suggested Lerman to sell the profitable Felix business (90% of their revenue at that time) to invest in Yext’s newest “blockbuster” product PowerListings.  Lerman finally took that advice and has made his intent clear: focus all of Yext’s financial and intellectual capital on PowerListing, a service which syncs business location information across multiple platforms and allows local businesses and enterprises to easily manage their online presence.  Launched a little over a year ago, Yext has synced 2.5 million updates for over 70,000 customer locations, including tens of thousands of small businesses and ten Fortune 100 companies.  Yext recently raised $27mm at a $270mm valuation.

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