Spreets sold to Yahoo!7 for $40 million: What does this mean for...

Spreets sold to Yahoo!7 for $40 million: What does this mean for online retail and the future of Australian media?

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This morning, it was reported that Yahoo!7 has acquired Australian group-buying business Spreets for $40 million. The deal is the first of what is expected to become a consolidation of the Australian group-buying market.

However, what’s truly remarkable about this announcement is the short time-frame between Spreets’ launch and its sale — 10 months, in fact.

Could this be the most profitable website flip in Australian history? And what does this deal say about the future of digital media?

What’s the big deal about group deals?

Last year, group-buying fever hit the Australian internet community, following the astonishing rise of Chicago-based group-buying behemoth Groupon, which knocked back a reported $6 billion acquisition offer from Google in December.

At around this time, Amazon invested $US175 million in LivingSocial, the world’s number two player.

First among the Australian group-buying companies to stake their claim in the local market was Spreets,  which launched in March 2010 and claims to have acquired 500,000 members and facilitated the sale of 274,000 vouchers in the time since. This clearly places it among the Australian leaders, alongside Jumponit, LivingSocial, Nine Entertainment Co.-owned Cudo and Scoopon.

Spreets has 52 members of staff and said it was planning to add more following the deal, which includes the site’s New Zealand operations and will see the site integrated into the Yahoo!7 Network as well as its joint venture partners Yahoo! and the Seven Media Group, including marketing and promotions.

However, its current size and today’s announcement belies its humble beginnings.

How did Spreets get off the ground? [The Spreets Story]

In what is likely to become Australian dotcom folklore, Spreets has turned a handful of dollars (and a truckload of gusto) into one of the fastest and most profitable flips in local internet history.

Among the first stops in his entrepreneurial journey, Spreets Founder Dean McEvoy paid a visit to Sydney-based digital incubator Pollenizer.

A startup in its own right, Pollenizer is less than three years old, providing advice, contacts and basic administrative support to nascent yet promising Australian internet businesses.

Founded by Phil Morle and Mick Liubinskas, the company has 18 portfolio companies (including Anthill 30under30 honoree Nikki Durkin’s 99dresses.com), 125 employees worldwide, $10 million raised and $50 million in valuation.

It was a Finalist in Anthill’s 2010 Cool Company Awards and, in its own words, described its purpose as follows: “We will be there from idea inception to launch and forward, with our team helping every step of the way.”

And it achieved all this with less than $1,000 in initial funding.

It’s no wonder that McEvoy came knocking.

According to Anthill sources, Pollenizer acquired an equity stake of “around 10%, that may have been diluted since”, in return for its services, including an introduction to Innovation Bay and a pitching opportunity at one of Innovation Bay’s angel dinners.

This pitching opportunity, in front of approximately 50 investors in a Sydney restaurant, apparently led to a formal offer of startup funding of between $25,000 to $30,000, for an undisclosed amount of equity, thanks to a “young retail veteran”. (It seems that you can be both “young” and a “veteran” nowadays.) And this introduction prompted further interest and the investment of approximately $2 million in additional capital from multiple investors.

McEvoy’s original pitch that got him the gig at the Innovation Bay dinner can be viewed here.

How does this sale compare to other local deals?

Much is likely to be written, said and tweeted about the deal in the next 48 hours.

In particularly, pundits will be tempted to compare the deal to other recent tech company transactions from Australia’s recent past.

So, how does the sale stack up? Picking through the Anthill archives, three deals stand out.

Atlassian: $60 million

In August of 2010, Australian-born wiki-business Atlassian, which Scott Farquhar and Mike Cannon-Brookes founded in 2002 as 22-year-old university students with personal savings, became the recipient of a US$60 million venture capital injection from Silicon Valley venture capitalists Accel Partners.

At the time, this was regarded as Australia’s most significant private equity transaction for some years — since 2008, in fact.

Aconex: $107.5 million

At the height of GFC-mania, Aconex – an Australian information management company servicing the global construction and resources markets – secured a $107.5m investment from US private equity firm Francisco Partners.

Chairman Martin Hosking would not reveal the percentage of equity surrendered in the deal when we interviewed him at the time, saying only that Francisco Partners took less than a controlling interest.

However, neither of this deals, Atlassian nor Aconex, involved an outright sale.

RetailMeNot: $90 million

In December last year, Australian coupon aggregation website RetailMeNot was acquired by WhaleShark Media, a fund developed to roll-up coupon-driven websites, for a reported US$90 million.

That business was launched only four years ago, employing startup capital of just $30 (for domains and hosting) and did not require any external capital, funding its growth through profits.

At the time, I interviewed RetailMeNot co-founder Guy King (watch the video) and, as a result of that discussion, now suspect that $90 million actually falls short of the true acquisition figure — a suspicion that King will neither confirm or deny.

Given King’s apparent disinterest in the trappings of wealth, this deal will likely be remembered for more reasons than the staggering sale price. (When I asked King, post interview, whether he’d be interested in investing in other private technology ventures, he modestly replied, “I just like to code.”)

Further, it seems that King had no intention to sell, from the outset, despite numerous approaches during his four year journey.

So, is Spreets Australia’s greatest web-flip of all time?

Whether you approve of the term ‘flip’ or its connotations, there is always something remarkable (and not-so-strangely enviable) about a business (and its founder) that can go from launch to sale in less than a year and for a significant sale price.

It’s remarkable because it’s rare. Yet, it also conjures double-edged expressions like ‘overnight success’. And puts an unnecessary burden on the seller to justify the sale and their motivations for starting out in the first place. (Were they only ever in it for a quick cash-grab?)

Most of this positioning is irrelevant. Because most repeat entrepreneurs (successful ones anyway) understand that such outcomes can’t be planned (despite their mandatory place in that initial dust-covered Business Plan under the section labeled ‘Exit Strategy’).

And smart entrepreneurs also understand that any purchase offer should never be ignored.

And what does it all mean for digital media?

While this announcement is likely to trigger another wave of group-buying website launches, the development actually says more about the future of media than it does about the state of Australia’s digital industry.

In particular, the move demonstrates a growing interest among larger Australian media companies in the potential of direct retail sales as an alternative to more traditional revenue streams, such as advertising.

As retail companies begin to make the transition from ‘paid’ media to ‘owned’ media, they will not only become less reliant on traditional media to disseminate their message, they will acquire the potential to usurp the news gathering functions of these established players.

In other words, if traditional media can’t sell advertising and are forced to compete with news-gatherers funded from the direct sale of products and services (rather than via the cross-subsidy model that has fueled media empires for generations), how will they survive?

Today’s announcement offers a clue.

And the good news for business builders is that it’s likely to be the first of many.

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  • http://twitter.com/lancewiggs Lance Wiggs

    Nicely done Spreets, Pollenizer and investors.

  • http://twitter.com/liubinskas Mick Liubinskas

    Cheers James. Good write up and nice way to add more to the story than just the key points.

    This is certainly a big congrats to Dean who has been working very hard in the startup world without much reward for about 7 years.

    Also to clarify, Pollenizer offers more than just advice and support. We are a co-founder in every sense of the word. We are up to our shoulders in the muck of a startup with Andy doing the design, Oliver managing a team of Pollenizer India developers, Fleur staying up till 1pm putting in deals, Jon driving the whole technology, Bree driving social media and Phil on the board, pitch training and building the business shoulder to shoulder with Dean.

    This model is very different from typical Y-Combinators/Accelerators and it’s grown out of the Australian market’s needs.

    However, the real story is definitely that Dean has earned this the hard way, done a great job and it’s fantastic for the Australian community in so many ways.

    This is going to be a big year for the Australian web business space and we’re just getting warmed up.

  • http://twitter.com/ryancross ryancross

    good write up – though surprised there wasn’t comparison of the Tjoos acquisition last year included. Also interested to hear more insight into where the media and retail sectors may be heading.

  • Paul

    Has the $40 million figure been verified? All I’ve read is “undisclosed sum” and mention of $40 mill savings for punters…..

    • Anonymous

      Hi Paul. That figure was shared at the Press Conference held by Yahoo!7 yesterday morning. So, you can quote that figure and feel comfort in the knowledge that it came straight from the source’s mouth. Thanks for keeping us focused and diligent, Anthill.

  • Charles Lindop

    Congrats on a great writeup James, & to the founders, Pollenzier & early investors for making this happen! We also need larger/mature groups such as Yahoo7 so congrats to them too!

    This IS a landmark deal, & proves we have a vibrant startup scene inspite of a dearth of venture capital.

  • http://twitter.com/bionic Ben Bickford

    Great job James on an exciting article for Australian startups and the local digital development and entrepreneur community …

    Congratulations on your business success to Dean McEvoy of Spreets and Mick and the team at Pollenizer — Great collaboration !!!

    Cheers … Ben
    (@Bionic)

  • Admin

    This is a fantastic story and no matter what you feel about your business, you simply can’t ignore a price that puts you in the position that would make rejecting the offer, a poor business decision!

    Without knowing all the facts from Spreets perspective, I say congratulations on what appears to me to be a sound business decision!

  • Lucette d’Angelique

    As much as we all love to read of a successful entrepreneur like Dean from Spreets, but as a client of Spreets running a campaign with them, I lost money while Dean prospered. I am also sure that every other business that runs with these types of groupons lose money and end up stressed to the max with the hundreds of phone calls that come in over the 24 hour period the offer is live. The cost of managing these calls, the pressure of making sure that editorial is correct (I was given 2 hours to submit the offer details!) and not given final approval of the editorial copy which was full of mistakes, missing vital information, which caused customers to abuse me!
    Plus no apologies were sent out to voucher buyers to advise of the Spreets errors, blah blah blah. I will never run a groupon campaign again!
    I applaud Dean for making a $40 mil sale on his business, who wouldn’t??!! but at the cost of much chagrin and resent from the hundreds of clients who run these types of campaigns at a loss, and for which the hope of return customers are just blowin’ in the wind, as they just buy more coupons offering a similar service elsewhere.
    5 thumbs up for entreprenurial skill, but 5 huge thumbs down for business ethic.