Snap Grows By Acquisitions

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Snap spent cash of $206 million on acquisitions during the quarter ended June 30, 2017. Most of the cash – $196 million – went towards the acquisition of Zenly SAS which was instrumental in the launch of Snapchat’s social mapping feature. 

In addition, Snap will also pay $17 million in “future employment services”. So in the end, Snap will eventually pay $213 million for Zenly SAS.  Snap also made the purchase of $10 million for part of an undisclosed “social advertising software company” that was added to the Snapchat platform.

Another reported Snap acquisition did not closed until after the end of quarter. In recent SEC filings, Snap disclosed it paid $132 million in cash for advertising technology company, Placed, in July 2017. With the Placed acquisition, Snap still has $2.8 billion in cash and marketable securities.

Snap’s penchant for all-cash deals still leaves lots of dry powder for growing, at least, through acquisitions.

 

M&A Strategy Inside Snap S-1

Snap’s S-1 details recent acquisitions. Over the past two years, Snap purchased Looksery, Bitstrips, Vurb, and others for $300 million in a combination of cash and stock. Cash represents two-third of the consideration, while the remainder is stock. In addition, Snap paid a premium, in the form of goodwill, of $251 million for these acquisitions.

Like Facebook, Snap says, in the filing, its platform should be enhanced by the acquisitions. Snap plans to continue its current acquisition strategy to “add specialized employees and complementary companies, products, and technologies” which may be executed with cash from the upcoming public offering.

Another important point, Snap is not “contemplating any material acquisitions at this time”. This is in contrast to Facebook’s initial public offering when Instagram was purchased. It should be noted, that while Snap is not considering any major, cash acquisitions, the statement does not rule out an all stock acquisition.

Finally, Snap used non-voting Class A stock for the acquisitions made in the past two years. Based upon the S-1, Snap plans to continue using Class A stock for future acquisitions. One would expect the use of voting shares since it confers tax benefits to the seller. By using the Class A stock, Snap may hamper future acquisition as it acknowledged here (bold added):

Our acquisition strategy may not succeed if we are unable to remain attractive to target companies or expeditiously close transactions. Issuing shares of Class A common stock to fund an acquisition would cause economic dilution to existing stockholders but not voting dilution.

If we develop a reputation for being a difficult acquirer or having an unfavorable work environment, or target companies view our non-voting Class A common stock unfavorably, we may be unable to consummate key acquisition transactions essential to our corporate strategy and our business may be seriously harmed.