CrowdSavings Buys Deal Sites, Almost Daily

CrowdSavings, a Tampa-based daily deals site, is nowhere near as large as Groupon.

It operates in 14 markets, has raised $1.9 million in capital and has 22 employees. Still, it may be one of the most active acquirers of daily deal companies in the U.S.

So far it has acquired seven companies and anticipates buying six more by the end of the year. That includes tomorrow’s announcement that CrowdSavings will buy DealDaddies.com, a daily deals site started in August 2010 that serves the Conejo Valley near Los Angeles.

The deals are small — even tiny — when you take into consideration the size and volume that others are working at.

“Five to seven hundred of these sites were started in the past year, and while it’s an easy business to start, it’s a hard business to run,” says CrowdSavings CEO Chad Jaquays. “We are seeing a lot of opportunities to acquire some of these players that are in one or two markets.”

Each acquisition has cost Jaquays roughly $100,000 to $400,000, which is a price he bases on a top secret formula.

Many of the sales conducted in the space are based on the number of subscribers a site has, but Jaquays says he also takes other factors into consideration, including how many of those subscribers have purchased a deal before. If the quality is low, he says, you’re lucky if you get $1 per person; if the ratio is high, you might be able to get anywhere from $4 to $5.

Jaquays believes the acquisitions are worth it, in order to avoid the pain and costs of launching in a new market, which requires hiring a salesperson, acquiring customers and signing up merchants. (Groupon and LivingSocial have for the most part not participated in buying companies domestically; instead focusing their energies and money internationally.)

The CrowdSavings acquisitions are working out so well, in fact, that Jaquays built a page on the company’s Web site announcing “We Buy Deal Sites.” Interested parties can enter their information into a form, and the executive team promises to follow up within one business day.

Jaquays is all about moving fast.

“The last deal brought to us was an inbound lead on Saturday morning,” he says. “We signed the deal on Monday and had fully integrated it on Thursday night. We hired their sales people and flipped the switch. We want to close them fast. We’d rather have the revenue be booked on our site.”

The acquisitions so far are probably sites you’ve never heard of. In addition to DealDaddies, CrowdSavings purchased Savvy Avenue in April, to expand in Tampa, Fla.; earlier this month it acquired Lucky Monkey, which operates in and around Kansas City, Kan.

CrowdSavings aims to be cash-flow positive in the fourth quarter, and to be in 20 markets by the end of the year.

Jaquays says that the smaller players are ripe for acquiring because the economics of the business don’t work unless you have scale. For instance, every deal site needs a tech person, writers, customer service agents and accountants, but those same people can easily serve one market, or five to 10.

“There’s an easier way to make money, and if you don’t have the wherewithal to raise capital, or to scale, you might be stuck,” he says.

CrowdSavings, Jaquays says, is “not a huge operation, but we are extremely efficient and can scale without adding a lot of heads. We are not burning through cash. I think we are in a better position to absorb the competition and get through it.”

But just where does he plan to get?

Groupon and LivingSocial have easily locked up the the largest positions, and then there are a few minor players — BuyWithMe, Travelzoo, Bloomspot — that have actually reached some scale.

Does Jaquays think it’s a matter of time before CrowdSavings is as large as Groupon?

“No, our egos aren’t that big,” he says. “We aren’t chasing those guys. We have a nice company and a great platform and a ton of experience. Sooner or later there will be a lot of consolidation, and we’ll be a prime candidate.”

Maybe it will be one of the medium-sized players in the space trying to gain more scale, or maybe it will be a retailer or publisher. Just yesterday, BuyWithMe — which has also been very active in making acquisitions — scooped up Scoop St.

CrowdSavings and BuyWithMe are not alone.

A study by the 451 Group found that, as of the beginning of August, mergers and acquisitions in the daily deal and coupon space were up 700 percent year over year; up to 35 from only five in the same period in 2010.

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