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Hipcricket files for Chapter 11 bankruptcy in a reflection of SMS troubles

Hipcricket has filed for Chapter 11 bankruptcy and is seeking court approval to sell assets to Sito Mobile Ltd. for $4.5 million.
 
Hipcricket said in a press release that business would be uninterrupted as the company seeks authorization to approve the purchase by Sito as the stalking horse bidder chosen by Hipcricket. The news comes as SMS marketing faces an increasingly difficult environment, particularly in the United States, for a variety of reasons.
 
?Generally, SMS has a tough road ahead with the current carrier pricing and policies in place,? said Julie Ask, San Francisco-based vice president and principal analyst at Forrester Research. ?It's expensive. Features are limited.
 
?In emerging markets with few smartphones, yes - it's still core to the delivery of content, services, marketing, etc.,? she said. ?In the U.S. - not so much. Carriers are milking it for all they can.
 
?Consumers can and are switching to app-based models that leverage their data plans. For marketers, push notifications offer a much richer feature set at a lower cost.?
 
SMS marketing
Hipcricket, one of the early players in SMS marketing, said that day-to-day operations will continue uninterrupted if the court approves motions to maintain current employee benefits and payroll and its existing cash management system as well as pay ongoing use and sales taxes.
 
However, stockholders are not expected to receive any distributions from the deal.  
 
The company believes the deal will better position the business going forward.
 
?Over the last several quarters we have seen an uptick in standard SMS campaigns as well as campaigns that use SMS as the starting point for consumer engagement,? said Jennifer Mercer, a Hipcricket spokeswoman. 
 
?We are fully committed to our clients and will continue to deliver great service as we always have,? she said. ?If anything, this acquisition better positions us with more resources to provide an even higher level of service to ensure client success.?
 
?Based upon the anticipated outcome of the transaction, Hipcricket?s assets are expected to be insufficient to satisfy all its obligations to creditors. Accordingly, as provided under applicable law, it is expected that no distributions will be made to holders of the Company?s common stock and the common stock will be extinguished upon consummation of the Chapter 11 plan.?
 
Business as usual
Hipcricket made efforts over the past year to make the company profitable, including implementing cost-cutting initiatives. It also explored strategic alternatives.
 
However, these efforts were not fully realized in time and the company?s liabilities continued to mount.
 
The sale of assets via court-supervised process was deemed the best way to protect employees and maximize recovery for stakeholders.
 
In order to fund operations during the sale period, Sito Mobile has agreed to provide Hipcricket up to $3.4 million in debtor-in-possession financing.
 
Sito has agreed to carry the Hipcricket business forward and will, under the terms of the agreement, offer employment to all Hipcricket employees.
 
There are not expected to be any changes to customer contracts, agreements and services.
 
Time to evolve
By combining the two companies, Sito hopes to create a leader in mobile marketing and location-based mobile advertising.
 
Other interested parties will have an opportunity to submit bids. The best bid will require court approval, with Hipcricket anticipating the sale will close within 45 to 60 days.
 
While SMS was one of the early successes in mobile marketing, the companies in this space are under increasing pressure to evolve or be acquired because of limited features, high prices and growing use by consumers of messaging applications and by marketers of other messaging strategies, such as push notifications, beacons and in-app messages.
 
?Generally, this is a natural evolution,? Ms. Ask said. ?They are not the first nor the largest to file for bankruptcy.
 
?There has been a lot of M&A activity in this space,? she said. ?Mobile messaging as a stand alone point solution is hard - has to be a piece in a large solution whether it is digital marketing, messaging, analytics or others.
 
?Companies in this space are hustling to evolve.?
 
Final Take
Chantal Tode is senior editor on Mobile Marketer, New York