While investment banks help facilitate a marketplace for Mergers and Acquisitions (“M&A”), an interesting meta-trend has developed in the rise in M&A around marketplace platform companies – a marketplace for marketplaces. What began as a novel means for individuals to trade miscellaneous goods online, has transformed into a diverse ecosystem of platforms, trading an increasingly complex set of assets. This shift has attracted significant capital to start-ups and existing platforms in search of the next frontier in online trade, and the possibilities seem endless.
Marketplace businesses play a unique role in the eCommerce landscape, ranging from payment processors to digital storefront providers. These types of businesses are attractive investments for a number of reasons:
- Marketplaces are uniquely positioned to control a large portion of the entire payment stack. They have touchpoints with both buyer and seller, operate the payment platform, often act as the payment facilitator, and control which payment gateways are used at favorable terms.
- Marketplace businesses can enjoy the benefits of both recurring revenue and transaction-based revenue. While customers are typically not contracted like traditional SaaS businesses, established marketplaces create sticky relationships with both buyers and sellers. Additionally, while SaaS businesses constantly need to acquire new customers to achieve growth, marketplaces can leverage upside in their existing customer base as users ramp up and increase transaction sizes.
- The business model benefits from ecosystem-driven demand. As long as there is supply and demand for a good, whether it’s hard goods, consumables, services, jobs, or something else, there will be a place for marketplaces.
- Marketplaces enjoy the widely desired network effect – as more and more people use the platform, they become more valuable. This creates unique opportunities to scale marketplace businesses, putting them in highly defensible market positions.
- Online platforms are highly profitable. While traditional trade tends to require large investments in infrastructure, online marketplaces operate an “asset-light” model and are able to rapidly scale margins as they grow.
- As a younger generation of business leaders takes the helm within “old-world” industries, online marketplaces are increasingly disintermediating traditional trade for B2B transactions, increasing the size and scope of what is being transacted through online platforms.
Though it’s hard to compete with long-established horizontal marketplaces like eBay, Amazon, or Craigslist, several companies have carved out niches and created a vertical marketplace on top of it. Examples of this include: OpenTable (restaurant reservations), Airbnb (temporary housing), TaskRabbit (freelance services), and EnergyNet (oil and gas).
MHT Partners recently sold EnergyNet, which exhibits all of the characteristics mentioned above. Marketplaces may come in many shapes and sizes, but MHT believes that the marketplace trend will continue to increase in popularity amongst investors as companies continue to find innovative ways to connect demand with supply.
Technology is once again on the forefront of advancing the oil and gas (“O&G”) industry. Throughout the supply chain, O&G companies are experiencing pressure to increase operational efficiencies as a result of a “New Normal” in depressed commodity prices. This environment has created a substantial opportunity for companies focused on delivering technological solutions tailored to solve age-old problems in the O&G industry.
Much of the new innovation is centered on leveraging big data through cloud-based internet of things (“IoT”) technology. The utilization of big data can be used to derive information that can lead to smarter business decisions and improved operations. A single well can produce terabytes of data in a single day; however, most of this data is currently unutilized. With these uprising trends, digitalization in the O&G sector can potentially unlock billions worth of value to the industry over the next decade. Furthermore, these technologies combined with data-driven insights have the ability to boost operations and decision-making abilities, substantially cutting down capital expenditures.
Automation and cloud technology is also being combined to discover cost savings and improve the efficiency of operations. O&G companies have the power to connect on digital platforms and engage in information sharing. Devices, from drones to sensors, will allow for automation to take over the industry. Firms will use these devices to increase their reservoir limits and focus more on analyzing information. Big data combined with machine learning will allow for these digital applications to deliver insights which humans can easily overlook. In addition, advanced analytics will promote predictive maintenance, decreasing operating costs.
Technological innovation has already started to make its way to the industry today. In recent news, several players have started showing interest in the digital transformation, setting an example for their competitors to follow. For example, BP recently invested $20 million into an augmented reality start-up known as Beyond Limits, which was created in conjunction with NASA. With augmented reality, BP will use cognitive computing to fill in areas not possible through human operation. This technology has the capability to improve the way BP locates reservoirs, produces oil, and markets their products.
As for software-focused businesses, companies like DrillingInfo, which has received over $200 million in funding, focus on providing operators with the correct analytical tools to maximize operations. RigUp, which has received $18 million in funding, has created an online marketplace for O&G professionals to come together and scale operations. These are the platforms and initiatives that are necessary for the profitable future of the O&G industry.
As an education investment bank providing advisory services to both entrepreneurs and financial sponsors, MHT and its education advisory team are consistently asked about investment opportunities in STEM-related fields, specifically coding. While opportunities exist for investors to acquire coding bootcamps, the number of providers has decreased as graduate outcomes become a large factor in determining the success of many bootcamps.
As background, the emergence of coding academies starting in 2008 was in response to the dearth of coders in the U.S. and across the globe. Coding bootcamps sprung up offering to teach anyone the latest programming languages over eight to twelve weeks for $10,000 or more. With the rapid market growth in the bootcamp market, several of the for-profit universities acquired some of the larger bootcamps, like Kaplan’s acquisition of Dev Bootcamp and Apollo Education’s acquisition of The Iron Yard.
As early as 2014, the writing (or code for that matter) was on the wall regarding the quality of coding education, as some students from leading programs either were not prepared for or could not secure a programming job. This caused many providers to change their business to focus not only on the quality of curriculum but also the caliber of the prospective student. Several coding academies implemented internships and externships to augment the coding experience in the classroom, allowing students to develop on-the-job skills. Further, bootcamps developed more stringent application processes, weeding out applicants that do not meet new minimum requirements. By providing a better learning experience to students that are more uniquely qualified, coding bootcamps are improving the outcomes for their graduates.
In addition, several bootcamps are focusing on graduate outcomes by offering support programs and job placement services. Like more traditional, well-known universities, several bootcamps have developed alumni networks, with graduates working at some of the top technology companies in the U.S. By utilizing alumni networks, bootcamps can place graduates more effectively with leading employers and receive feedback regarding the latest market trends and coding languages.
By focusing on post-graduate outcomes through student vetting, learning and post-grad support, coding academies are changing common perceptions about the industry. Investors who are interested in coding opportunities should focus on the success of graduates, as it will be a telling indicator of the leadership, reputation and broader quality of the asset and potential for growth.