Motricity hunting for more capital

Acquisition could bring IPO nearer

DURHAM -- Motricity owns the distinction of having raised more venture capital than any other private company based in the Triangle -- about $200 million since being founded in 2001.

The technology firm has used that money to buy competitors, attract new partners, hire several hundred employees and build a swank new headquarters in downtown Durham.

Now it's aiming for its biggest haul yet: Company officials want to raise as much as $170 million to pay for an acquisition that could boost its chances of a Wall Street debut.

Media content for mobile devices is a globally expanding market, and Motricity designs and runs the software that makes it flow. It allows people to buy and download ring tones, games and other content from partners such as MTV and Cingular. Motricity makes money by taking a cut of sales from wireless carriers and media companies.

But to keep from getting swallowed in a consolidating industry, Motricity must hasten its expansion.

For CEO Ryan Wuerch and a team of financial advisers, that means raising more money from new and existing investors, including billionaire financier Carl Icahn. As of last week, Motricity had commitments for more than half of its $170 million goal.

If successful, Motricity will buy a division of InfoSpace, a publicly traded media software company in Bellevue, Wash. Motricity wants the unit to bolster its position in the mobile content arena and gain the scale needed for an initial public offering of stock.

Auspicious prospect

That prospect is auspicious for this region, which despite a thriving tech sector has few well-known public companies compared with other tech hot spots.

Motricity executives refused to comment Monday. An InfoSpace spokeswoman did not return calls.

But analysts say the fundraising effort and potential InfoSpace purchase are the clearest pronouncements yet that Wuerch and company not only fancy an IPO but are taking serious steps to make one happen.

"Stock investors are looking for revenue, so this would be a consolidation play to prepare to go public," said Pacific Growth analyst Derrick Wood in San Francisco.

He said a Motricity-InfoSpace deal would make short-term economic sense and enable both companies to press ahead on longer-term strategic objectives.

Specifically, Motricity would expand its position in mobile infrastructure with a business whose revenue has been growing at about 50 percent annually. That's key because to hold a successful IPO, a tech company such as Motricity must reach about $100 million in annual revenue.

Wireless industry analyst Scott Sutherland estimated Motricity's current annual revenue at $50 million to $60 million. "So they still need to get bigger," he said.

The InfoSpace division is on track to gross about $45 million this year, probably enough to push Motricity over the hump. But it's not just about size. "They would also have to do some integration, reduce redundant costs and also show profitability," Sutherland said.

As for InfoSpace, the company would jettison its last remaining mobile unit and turn full attention to its core online business, which generates most of its revenue. Sutherland recently upgraded InfoSpace shares, citing the company's ability to "extract value by selling off this part of the business."

First, the money

But before that can happen, Motricity must raise the money. Such efforts involve multiple investors, and deals are notoriously precarious into the final stages. If a major piece of funding falls through, the market could perceive it as a lack of confidence in the business, regardless of the actual reason.

Working on Motricity's behalf is Chicago-based Advanced Equities, a financial services firm that specializes in raising money for mature private companies that need to expand sales before attempting an IPO.

Investment experts say higher regulatory costs for public companies and a more recent credit crisis have spurred investors to raise the bar on who gets to go public, further protracting the IPO process. Companies must do all they can to maximize revenue and profit ahead of time.

Motricity in December laid off about 50 employees, a move designed to streamline operations and boost its bottom line. It now has about 350 workers. In July 2006, it bought GoldPocket Wireless to increase revenue using technology that better links media companies to consumers' mobile devices.

As it has attracted investors, the company also is generating attention in the media world, lining up a series of high-profile deals with content providers such as MTV, BET, NBC and Cingular.

But the pace of growth slowed last year when Motricity lost out on two subsequent acquisition targets -- Qpass and m-Cube -- either of which would have boosted annual revenue. Qpass and m-Cube, which make software that facilitates digital commerce and mobile billing, were bought by Amdocs and VerSign, respectively.

Motricity officials "went after Qpass and m-Cube to get the critical mass," Sutherland said. He said Motricity's investors, which include the Wakefield Group of Charlotte and Chapel Hill, may be pressing for an IPO or some other exit strategy. "Everyone wants an endgame."