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

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, 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 an oversupply of daily deal companies, negative sentiment among analysts and investors following Chicago-based Groupon’s IPO filing, and an increasing reticence about among startup investors to back new companies.

The early success of Groupon and Washington, D.C.-based LivingSocial triggered a stampede among investors eager to get in on the daily deal bonanza by backing similar startups. CB Insights said 180 different investors have financed new companies in the sector, with several making multiple bets. Venture capital firms account for 46 percent of this total, and angel investors make up another 30 percent. Corporate investors, private equity firms, hedge funds and other types of investors account for the remaining 24 percent.

Because the online daily deal business is relatively easy to enter (due to low cost and technological barriers to entry that also are relatively low), the number of “me too” companies has proliferated. However, CB’s analysts report that many of the Web companies competing in the space are not significantly different from each other—making it even more of a buyers’ market for M&A activity.

Meanwhile, the CB report found that investor optimism for backing additional companies in the industry appears to have dissipated in July and August, with startup financing falling back significantly, albeit to historical levels. Worries about the overall economy and stock market volatility have only compounded investor reticence.

Nevertheless, the CB report found a “healthy stable” of firms rumored to be eyeing daily deal companies and for whom acquisition may be the preferred.way to enter the industry, “Given declining valuations and increased acquirer leverage,” the report says, “they may actually see opportunity to jump into the fray.”

CB Insights summarized its findings in this graphic:

Bruce V. Bigelow was the editor of Xconomy San Diego from 2008 to 2018. Read more about his life and work here. Follow @bvbigelow

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2 responses to “Plunging Valuations and Surplus of Groupon Clones Sets Off Frenzy of M&A Activity”

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  2. 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: