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October 14, 2013

Mobile Apps Platform Player Antenna Software - From IPO Dreams to Rapid Decline and Bargain Acquisition

Well, another independent mobile applications platform vendor has been absorbed into the corporate ether. Last Friday, publically held Pegasystems, an interesting and quite successful CRM-focused vendor, acquired Antenna Software, a mobile applications platform company that had grown in size - if not revenue and profits - over the last four years or so through various acquisitions. We're not surprised, and we've been expecting it.

We've covered Antenna Software in-depth since 2003 - in fact, it was among the first mobile companies we seriously began covering when we were doing our Director of Mobile Research gig at analyst firm 451 Research. We also did an 11-month stretch inside the company itself as Antenna's embedded mobile analyst back in 2010-2011.

That period in time began on the day Antenna announced its acquisition of Vaultus and coincided with Antenna also acquiring Volantis, at the time a UK-based mobile vendor (as well as another company we'd tracked since 2003) that was focused on delivering HTML5-based technology and a database of never-ending feature phones that described each phone in minute detail (we'll skip the "why" of such a database).

At the time, we ourselves were convinced that Antenna had "jumped the shark" with the Volantis acquisition, with the company shelling out a substantial number of dollars relative to Antenna's own size at the time. We were convinced the company had made one acquisition too many. Prior to Volantis Antenna had acquired in turn several distressed but internally consequential competitors. First came Dexterra in 2009, and then came Vaultus. Both of these vendors brought along collections of incompatible platform baggage Antenna tried to make its own as next generation mobile app development product/platform suites.

Prior to Dexterra, there was as well an inconsequential acquisition of certain "strategic assets" of a small company named Vettro. Before that Antenna had made a smart acquisition, acquiring wireless messaging vendor RPA wireless in December 2003. We will also note in passing that the Vaultus acquisition was underpinned by a desire to expand Antenna's capabilities from strictly building B2B and internal mobile apps to also building B2C (consumer) facing apps - e.g. E*TRADE's mobile app for non-professional consumer investors, the initial iteration of which Vaultus was behind, though subsequently E*TRADE moved away from the Vaultus platform.

Image via Shutterstock

One or Two Acquisitions Too Many?

The results of these acquisitions never led to a true holistic solution the company could cleanly monetize across its entire customer base. In fact, each led unfortunately to completely incompatible next generation platforms, which in turn led to a fragmented customer base, with different customer factions sitting on different platforms. Internal sales efforts became a hodgepodge of seeking out new business while either maintaining old business and looking to ensure customer renewals across older platforms or for the most part failing to convert older customers to next generation but incompatible platforms. Meanwhile, as one might imagine, support issues across multiple platforms became a significant burden.

As the Dexterra and Vaultus platforms became their own unique platform entities (albeit with plenty of internal effort to somehow find paths to merging them) development of mobile apps across these platforms became overly complex, enough so that Antenna's professional services teams had to become fully involved in most projects. Professional services development of course translates into very high costs. The promise of easily building hybrid mobile Web applications - a core foundation of Antenna's platform efforts at this stage - through a combination of HTML5 and native mobile OS APIs did not translate into easily affordable, quickly developed and easily managed mobile apps. Reality did not match the dream or the promise.

With Volantis, Antenna took yet another major turn, seeking to find ways to tap into both purely Web-based apps that higher end feature phone users could tap into (a truly dead end effort in our humble opinion and the reason for the feature phone database noted earlier) as well as Web apps that made use of either pure HTML5 or hybrid capabilities. From this design goal Antenna developed AMPchroma, yet another Antenna mobile development platform (complete with "colorful marketing" to go with the name), again with the hope of delivering on the "easy to build, deploy and manage" HTML5 and hybrid promise.

The problem we could easily see over the last 12 months or so of AMPchroma's availability was that Antenna was never able to point us to any real users of the platform, always begging off with the excuse that customers either had beta or pilot projects in hand they couldn't talk about or other related issues. Also over the last year or so we've also noted substantial employee departures, including the departures of longer term employees.

We read it both as a simple lack of customers at every level and further we suspect - we know in our gut - that AMPchroma was "cobbled together" and simply doesn't deliver on the marketing promise. That is the direct consequence and key issue with cobbling instead of relying on true ground up R&D and engineering.

Back in 2011, following the Volantis purchase, the company was supposedly headed towards "rapidly scaling to 800 employees," commensurate with a company that would in short order deliver IPO-grade annual revenue. At the time of the Pegasystems acquisition last Friday however, Antenna looked to have about 250 employees - which seems right for the exodus we've noted. One can certainly draw conclusions (albeit not completely substantiated conclusions) in considering these employment numbers and likely revenue direction over the last 18 months or so.

In large part, the statement 'jumping the shark’ comes with the implication of an attendant layer of growing hubris. BlackBerry's former co-CEOs (as those who know us know we'll say) greatly suffered from this and it had become clear to us that the same was emerging for Antenna. As we were inside the company at the time, we shared our opinion of a Volantis buy that it was a major mistake to do so, that it would prove a huge distraction and a mistaken investment of dollar resources, and we in fact used that snarky shark term we've noted in our opinion in doing so. C'est la vie.

Antenna needed a single, truly integrated and truly unified platform that it could easily move all of its customers to, that would, in the end, easily allow the entire customer base to take on its own development of mobile apps without the need of Antenna professional services. If they couldn't make this happen with Dexterra and Vaultus in hand then clearly those acquisitions were misguided (in hindsight, clearly they were) and certainly powerfully suggested an additional Volantis layer would be just as misguided. The hubris extended across both business and technical groups.

No doubt, following the acquisition of Volantis and the inability to build revenue, the company began to find itself in the position of having to go up against both larger competitors with deep pockets - such as SAP and IBM, and smaller yet far nimbler companies - such as Telerik, Appcelerator, Sencha and Kony, which were all able to deliver on unified platforms and tools at far lower cost of development. It's the equivalent of being caught between a rock and a hard place.

At this point it is no longer a goal for us to develop a full analysis of everything that went wrong for Antenna - it no longer matters. We'll chalk it up to "jumping the shark." We will note that Antenna's investors were no less responsible for this happening than the management team that went go along for the ride.

We checked in with Yankee Group analyst Chris Marsh, who recently wrote a detailed research report on the mobile application market, to get a second opinion on Antenna. He noted to us the following:

"Antenna suffers from a perception of it being a legacy MEAP despite trying to adjust its underlying technology. I think it is very vulnerable to the emergence of newer, more agile cloud-born platform vendors, and the larger service providers like Salesforce with Force.com and SAP, who have deeper pockets and less to lose by embracing a more open-standards based approach.

In our recent mobile research study we independently surveyed customers of mobile application platforms, and quite tellingly, Antenna has one of the lowest levels of its customers believing it will be a leading platform in the future. It is perceived to lack the ability to deliver quick ROI like some of the more modular templates platform approaches (Spring, Sencha), and it is perceived as failing to offer as tight an integration model as the large systems vendors (SAP, IBM, SF) do to their own systems, which is where many if not most companies are focusing their initial mobilization efforts.

As much as Antenna will try and paint this as a positive I think they had to get acquired to fit into someone else's wider enterprise portfolio."

Amen to those insights. That second opinion certainly points to the "why" for lack of reference customers.

Funding Rounds and Deal Levels

Antenna was founded back in 1998 by Pete Semmelhack. It began life with seed funding from Angel investments and "family" investments. The company closed a Series A round of funding back in 2001 that totaled $17 million, led by North Bridge and Polaris. A Series B round in 2005 that we believe totaled probably $16 million - at least if an article that appeared back in June 2010 was accurate when it stated, "Between 2002 and 2008 the company raised more than $33 million in financing from the same investors named in the filing" - including the previous investors and Commonwealth.

The noted article from June 2010 also points to an SEC Form D filing dated June 25, 2010, of additional funding of $7,045,536 in which both the CEO and CFO of Antenna participated, among others, including Semmelhack. At the time the document stated that the total offer on the table was for $7,045,536, that $6,374,457 was sold and that there remained $671,079 still available.

That leaves us with the question of how much money Antenna ponied up to acquire Volantis.

Let's start with a page from WhoGotFunded, which states that Antenna raised $24,644,493 on February 2, 2011. Well, that is quite a clue. Here is yet another SEC Form D dated May 27, 2011 that lists a funding range of $25 million to $100 million, and reports that $15 million was offered and sold.

Finally, though there may be others we have not tracked down since May 2011, we'll note that we have a very recent SEC Form D filed on Sept. 26, 2013, seeking an additional $3 million, of which the company pulled in $2,562,413.

Given all of the above, let's just hypothetically say that Volantis cost Antenna $25 million on the day it was acquired. Perhaps there were also later payouts involved that might point to the May 2011 filing, but let's leave it at $25 million.

Now we come to a very interesting document. On Oct. 10, 2013, a publically available 8-K filing from Pegasystems notes the following very interesting excerpted information:

"Pursuant to the Merger Agreement, on October 10, 2013 (the "Effective Time"), Merger Sub merged with and into Antenna, with Antenna continuing as the surviving corporation and a wholly owned subsidiary of Pegasystems (the "Merger"). Pursuant to the Merger Agreement, at the Effective Time, the issued and outstanding capital stock of Antenna was cancelled and converted into the right to receive $27,700,000, from which the payment of indebtedness, management bonuses and transaction expenses was made (the "Merger Consideration"). The Merger Consideration will be paid to the former stockholders of Antenna in accordance with the terms of the Merger Agreement and will be subject to customary post-closing adjustment based on net working capital. Of the Merger Consideration, 15% will be held in escrow for an 18-month period after the closing to secure the rights of indemnity provided under the terms of the Merger Agreement, with half of the escrow eligible to be released after 12 months."

As far as we are immediately able to discern, it appears that Pegasystems acquired all of Antenna for $27.7 million dollars. It also appears that Antenna's management collected bonuses though we cannot fathom why it would if we add up all the funding over the years and what to us to be the exit price.

How Well has Pegasystems Done for Itself?

It strikes us that Pegasystems made out very well in all of this. The company already has a product called Pega Mobile, but it is quite clear that this is nothing more than a small effort on Pegasystems' part to maintain a mobile profile of some sort. The acquisition of Antenna will make Pegasystems a true mobile player - especially in the CRM space where it has done so well.

Unlike Antenna's senior management it appears to us that Pegasystems has done quite well with the company. It is widely respected amongst analysts in the space whose opinions we trust. If in fact, the Pegasystems management team can bring true technology discipline to whatever Antenna currently has in hand from a platform perspective and focus its energies on delivering not a general platform that needs to cater to myriads of users, but rather one specific platform that can be tailored to exactly meet Pegasystems' needs, then perhaps the company has found itself the perfect acquisition.

Our friend Ken Parmelee, mobile research director at Gartner (and a former Antenna employee who was a contemporary of ours at Antenna), notes the following:

"I would say that Pegasystems' acquisition of Antenna is really a reflection of the mobile market maturing. Gartner sees many more entries into the mobile development space as well as encroachment by the Mobile Backend as a Service (MBaaS) and MDM vendors. There has been a significant change in enterprise attitudes toward technologies as well - moving more towards open and heavily extensible capabilities.

The result is that many platform and development companies have not been able to adapt and will be acquired or go bankrupt. This move by Pegasystems sets the stage for it becoming a leader in the mobile space for packaged applications around their back ends. It also marks the real change occurring in the backend software space. These traditional enterprise software vendors must adapt to the new mobile world rapidly. Where they don't they will lose market share. It's a good move for Pegasystems."

We suppose we can conclude here, as Ken does, that mobility is finally becoming that key enterprise platform that simply infuses everything that is enterprise IT. That means of course that the companies that deal with the enterprise applications themselves - CRM in Pegasystems case, once again take center stage, only they will do so with the mobility feature set that must now be the hallmarks of any enterprise software system.

Mobility is indeed the future of the enterprise, but the difference today is that the future is finally here. It's a shame that Antenna didn't focus on creating that single unified platform that might have allowed it to survive instead of jumping the shark.

Or perhaps the real problem is that Antenna ended up jumping right into the shark's jaws.

Edited by Alisen Downey

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