Studying the Hardwarezone deal

HWZ was one of the early pioneers of the internet business. They got some funding and were bunch of NUS undergraduates who decided to make their over-clocking hobby site into the CNET or ZDNET of asia. For those of us who have such long memories, HWZ came up in the same timing as firms like AsiaStockWatch, LycosAsia, MyScissors, ejazz, MPHonline etc... crazy stuff in a crazy time. HWZ main leader is Jackie Lee who now runs ClickTrue. Total business guy. Another founder/shareholder is Eugene who is now Snr mgmt in SPH magazines.

So here is what i can see. As usual, best effort basis and do not guarantee accuracy of data.

Business Model : Advertising in niche area of technology media
Platforms : Magazines, HWZ portal + super popular forum
USP : Bundled sales approach, so one stop for media buyers/marketing depts. Cleverly used Forum to boost overall traffic numbers.
Amount Funded : S$2.751M for 1.763M shares
Shareholders : Jackie - 25.9%, Eugene - 8.7% + 2 more even smaller individuals <5%, Angels & VCs - the rest or about 50%+.

Acquisition : Sold to SPH Magazines in 2006 in what was the first M&A of a profitable internet company after the dot com bust and the subsequent cold shoulder the world gave internet companies from 2001 to 2005! The firm was valued at 7.1M in cash up front with i am sure an earnout for subsequent 2-3 year performance. So maybe 10-12M in total? That is about 10 times profit which is what SPH will offer back then. Notice how they have changed tack for sgCarMart deals. really teaches us that timing matters a lot! But cash in pocket is cash in pocket.

2005 P&L is revenue of 5.9M with net profit 1.25M or about 21% net margins. Very good numbers considering it was back then in 2005! They were an obvious first mover and did so well. By then, their forum was already #1 in SG for all topics. I have met a few HWZ people over the years, the original team all good! So why did they not continue to grow the business overseas and scale further? Here is what i think happened - pure conjecture and could be totally wrong.

1)Market size they were reaching market potential in SG and cannot see themselves scaling up much further. HWZ was branching out in Golfing mags and other mags. The comment i have on this is that frequently such mgmt assessments are not too accurate and if we have an innovative and motivated team, there is always new areas to expand into. Also, going regional would also be a good decision since their platform is scalable, they have decent core SG revenues and profit to do so.

2)Founders tired. This one quite likely since i too faced such a situation 7-8 years into business. And perhaps their key mgmt shareholding did not motivate them enough since Angel/VC over 50% stake. A bit like the sgcarmart guys too who had a big passive shareholder. At 12M, Jackie took home 3.1M, not bad for 2006. If he bought a house, it would be worth 6M today. Anyway, whatever their reasons, i always maintain that selling is never wrong since the founders obviously were fine to sell and it is their company. Only they know all the details and situation so my advice is to never second guess yourself once you make a decision.

Fast forward to 2008 which is 2 years later and the HWZ revenue is now 9.3M so revenue growth of 57% over 2.5 years. Many of the HWZ people either have left or are integrated within the SPH Mag family. Eugene himself is now Deputy MD i believe. Jackie is more entrepreneurial so he has cleverly got SPH to own a minority in clicktrue and is out running it as the main founder/shareholder. All in all a good success story for all of us to learn from.