As we highlighted in a post yesterday, Mobile Social Networking company Xumii has been acquired by Global Mobile Software powerhouse, Myriad Group.

Cunchbase says Xumii had raised US$5.5M in funding from Aussie VCs Southern Cross Venture Partners(SXVP) and CM Capital(CM), so the deal is also a good win for the local VC industry as well.

I managed to track down SXVP Managing Director, John Scull, for a quick chat and this is what he had to say:

The deal is good for the company (Xumii)…we’re very satisfied with the outcome

As for the reason for the deal, he said:

We felt it was a great opportunity to connect with a larger company and benefit from its sales & marketing and networks, particularly Telco networks as they were becoming Xumii’s key customers

Of course I wouldn’t be doing my job if I didn’t try to pry some information about the terms out of Scull, but he did well to repel my efforts!

There’s no official information from either side about the size of the deal, but I thought this would be an interesting one to try and work out without their help.

So what can we figure out about the deal?

• SXVP policy is to take “ a meaningful minority position” in their investments
• SXVP were equal partners with CM in the funding round, meaning we can assume that jointly, CM and SXVP took a meaningful position (rather than both of them taking one)
• What’s meaningful? Let’s assume somewhere between 30-40% particularly for early funding rounds
• Scull wouldn’t divulge the consideration paid by Myriad as part of the agreement (dollars/equity/something else) but the fact that he feels the deal is a great opportunity to partner with Myriad would suggest that there’s still some skin in the game for SXVP and CM
• On that point, however, when asked if it was an “exit” for SXVP, Scull said that there was a sale to a company so in their mind it was an exit.
• As explained in an earlier post – venture funds need to average 4x Gross Returns from exits to make an “acceptable” 2.5x net return to LPs. If that is the case, and considering this has been viewed as an exit, the valuation would need to be around $55M-$75M for the number to be acceptable to the VC firms.
• That 4 x Gross is an average, however. Xumii was becoming a star in a high-interest industry,  so you’d think that SXVP/CM would have viewed it as one of the 2-3/10 winners in their portfolio rather than one of the 5-7/10 failures & walking dead.
• This would mean that they’d expect on average a 6.5x Gross return (according to Fred Wilson)pushing the acquisition valuation to somewhere between $90M-$120M assuming the VCs took somewhere between 30%-40%.

So a valuation of between US$90M-US$120M?

There are a bunch of things that might increase or decrease that though. One interesting factor is the risk still surrounding Xumii as a business. Let me explain:

• Myriad says that the deal won’t materially affect their ’09 Fiscal EBITDA.
• Last report put Myriad’s EBITDA at US$3.3M, so it would seem that anything that doesn’t materially affect that number (even considering growth for ’09) would be pretty small.
• This suggests that the deal, as Myriad says, really is to round out their portfolio of software with a leading solution in a growing segment, rather than trying to add to the company’s bottom line immediately post-acquisition

The risk still inherent in Xumii as a business may have kept the price down.

Then again, Xumii was doing really well in a growing segment, so there may have been some premium above the 6.5x GR needed to get them to sell.

There are other things, no doubt…other offers, the ability of the company to grow without Myriad’s help, synergies within Myriad’s business and so on.

All things considered though, $90M-$120M seems like a fair guess at the range based on expected results (even though my feelings say it’s probably too high)

What do you think?