Founded in 2004, Hipcricket was once the leading text messaging provider in the United States. Hipcricket serviced major enterprise clients such as Macy’s, MillerCoors, Nestle, KFC, and Clear Channel, managing more than 200 SMS short codes, with annual revenues of $26.7 million. Then in 2015, Hipcricket filed for bankruptcy, after declaring that the company had amassed $93.7 million dollars in losses since 2012.
Since the announcement of their bankruptcy in early 2015, the Hipcricket story has seen more twists and turns than most fictional novels. The most recent turn for the Hipcricket story is that just recently on March 14, 2016, Upland Software (Nasdaq: UPLD) announced they had acquired Hipcricket. So how did Hipcricket go from one of the leading text message providers with annual revenues of more than $26 million, to eventually being acquired by Upland Software? To learn how this happened, keep reading…
As discussed at the top of this post, Hipcricket filed for chapter 11 bankruptcy in early January of 2015. In their filing, Hipcricket listed $12 million in liabilities, with day-to-day operations being funded by a $5 million factoring arrangement, allowing Hipcricket to sell its account receivables at a discount, to raise emergency funds. The good news for Hipcricket was that another SMS provider named SITO Mobile Ltd. (Nasdaq: SITO), had already agreed to purchase the remaining assets of Hipcricket. The asset sale was to be done for $4.5 million, in addition, SITO Mobile would provide Hipcricket with $3.5 million in debtor-in-possession (“DIP”) financing, essentially to help keep the lights on at Hipcricket. It’s interesting to note that when the asset sale announcement was made public, Hipcricket had already taken $1.7 million of the DIP financing offered by SITO Mobile.
While everyone in the mobile marketing industry assumed the Hipcricket acquisition was a done deal, little did anyone realize that there was another company also interested in acquiring Hipcricket. This company was ESW Capital LLC, a private equity firm lead by Joseph (Joe) Liemandt, the founder of Trilogy. ESW Capital invests and acquires software companies.
So while SITO Mobile had agreed to purchase the assets of Hipcricket for $4.5 million on January 20, 2015, it was learned that on March 10, 2015, the Bankruptcy Court for the District of Delaware had accepted another bid for Hipcricket. The bid made by ESW Capital ($7.3M) was $2.7 million greater than what SITO Mobile offered, and provided a much great return for Hipcricket’s unsecured creditors.
As you can imagine, SITO Mobile wasn’t very happy about losing the Hipcricket acquisition deal, as evident from comments made in a press release by SITO Mobile’s CEO Jerry Hug, after the deal fell apart.
“We were disappointed in the ruling by the Bankruptcy Court. We believe the fact that Hipcricket breached our stalking horse Asset Purchase Agreement by accepting the “Plan of Reorganization” bid by ESW. We believe that SITO should have been designated the successful bidder in the auction process.”
Wasn’t all bad news though for SITO Mobile, as under the terms of the Asset Purchase Agreement, SITO Mobile was entitled to receive a breakup fee in the amount of $225,000 and expense reimbursement of up to $100,000.
This is where it gets really complicated…
Hipcricket had two very different businesses, one being their text message marketing business, and the other being their mobile advertising business. The mobile advertising business helped brands and agencies reach over 250 million unique monthly visitors across smartphones, feature phones, and tablets, and also helped mobile-optimize the post-click experience.
On June 3, 2015, Aurea acquired Hipcricket from ESW Capital. A little history… Aurea was formed back in October of 2012, as the software investment arm of Trilogy Enterprises, which was founded by the sole voting member of ESW Capital, Joseph Liemandt.
Then only one month after Aurea acquired HipCricket, Aurea sold Hipcricket’s mobile advertising business to SITO Mobile in an asset sale. Yes, the same SITO Mobile who was originally trying to acquire Hipcricket, and lost to a higher bid from ESW Capital. Aurea, an affiliate of ESW Capital, received a total of $3.7 million, in exchange for the contracts with Hipcricket’s mobile advertising clients, client lists and records, as well as certain intellectual assets and properties used in Hipcricket’s mobile advertising business. The $3.7 million was made up of $1.3 million in cash, and 620,560 shares of SITO Mobile common stock, valued at $2,544,297.
Then in another turn of events, Upland Software announced they were acquiring Hipcricket’s text message marketing business. The announcement was made almost exactly one year after the Bankruptcy Court accepted ESW Capital’s bid for Hipcricket’s assets.
The asset sale was completed by Upland Software on March 14, 2016. In exchange for Hipcricket’s text message marketing business, Aurea, an affiliate of ESW Capital, received the following:
- 1 million shares of common Upland Software stock, valued at $6.2M. As of March 18, 2016, ESW Capital, it’s sole voting member Joseph Liemandt, and ESW Capital’s subsidiaries and affiliates, now own approximately 5,324,541 shares of Upland Software. This equates to approximately 32% ownership in Upland Software.
- Ownership of Upland Software’s project management software platform EPM Live, which was valued at $6M. It’s interesting to note that EPM Live was acquired by Upland Software in November of 2012, for total consideration of $7.7 million.
Upland Software expects to integrate Hipcricket into their existing software solutions over the next six to twelve months. Statement from Jed Alpert, SVP and GM of Mobile Commons (owned by Upland Software) below:
“With Mobile Commons’ passion for driving amazing outcomes for our enterprise customers, we look forward to ensuring the ongoing success of Hipcricket customers. There will be no change in service or support levels for existing Hipcricket customers as we look to deliver even more value.”
Statement from Jack McDonald, chairman and CEO of Upland Software (owner now of Mobile Commons & Hipcricket) below:
“We are very pleased to welcome Hipcricket and its valued customers to the Upland family. Mobile Commons and Hipcricket have powered some of the most successful mobile activations in history, from groundbreaking political campaigns to international marketing initiatives – and their combined strength will enable even greater customer success.”
As discussed earlier in the post, now Upland Software owns both Hipcricket and Mobile Commons, both major players in the mobile marketing industry. If you’re an avid reader of the Tatango blog, you’ll have noticed that during the last few years, many text message marketing providers have either acquired or been acquired. Why is this happening? It’s actually very common with new industries, where at the beginning the industry is very fragmented, represented by many different providers. Then as the industry grows and matures, the providers start to consolidate. Don’t believe us? Check out some of the recent text message marketing acquisitions that have been made public below.
- March 2015 – Hipcricket Acquired by ESW Capital
- March 2015 – Tetherball Acquired by Waterfall
- December 2014 – Mobile Commons Acquired by Upland Software
- November 2014 – Archer Acquired by Waterfall
- May 2014 – Signal Acquired by BrightTag
- February 2013 – EzTexting Acquired by CallFire
- January 2013 – Mozes Acquired by ePrize
Interesting to note, just recently the World Financial Symposiums hosted a webinar on this very topic of consolidation in the text message marketing space. The webinar examines reasons for the consolidation, key factors for CEOs and owners to be aware of, and how to realize the value of companies with messaging, mobile marketing, SMS, and related technologies. The webinar features Austin Woody from Upland Software, Jed Alpert from Mobile Commons, Jay Emmet from OpenMarket, and Daniel Bernstein from the Corum Group.
Have a question about the text message marketing industry? Feel free to reach out to us at any time, we’d love to hear from you!