Author: Brenon Daly

April activity keeps 2015 on pace for record tech M&A

Brenon Daly

Contact: Brenon Daly

Tech acquirers stayed busy in April, keeping 2015 on track for post-bubble records for both the number of transactions as well as the spending on them. The just-completed month saw 341 tech, media and telco (TMT) deals valued at $42.1bn announced around the globe, exactly matching the totals from April 2014, according to 451 Research’s M&A KnowledgeBase. However, adding a little bit more perspective on the recent flurry of activity, we would note that the spending of some $42bn in both April 2015 and April 2014 is twice as high as the same month in 2013 and 2012 combined.

While M&A activity was strong across a number of sectors, the top end of the market was particularly active. Last month, 451 Research’s M&A KnowledgeBase tallied nine transactions with an equity value of more than $1bn. Notable big prints included Nokia’s $16.5bn consolidation of telecom equipment rival Alcatel-Lucent; Informatica’s $5.3bn take-private, the largest leveraged buyout in nearly two years; and LinkedIn’s $1.5bn purchase of lynda.com, which is almost 10 times larger than any other deal the employment networking site has done.

With four months of 2015 already in the books, tech acquirers have spent $162bn on transactions. That’s more than they dropped on deals for all of 2009. More significantly, if we annualize activity so far this year, 2015 is on track for just shy of a half-trillion dollars of M&A consideration. That would handily top the previous record of roughly $420bn reached in both 2006 and 2007.

And, we would note that tech acquirers are telling us they plan to be active. In the just-completed M&A Leaders’ Survey from 451 Research and Morrison & Foerster, slightly more than six out of 10 tech dealmakers and investment bankers expect their pace of acquisitions to accelerate over the next half-year, the second-most-bullish response we’ve received in the seven editions of the survey. See our full report on the M&A Leaders’ Survey from 451 Research and Morrison & Foerster.

2015 monthly deal flow

Period Deal volume Deal value
January 2015 357 $11bn
February 2015 332 $48bn
March 2015 332 $61bn
April 2015 337 $42bn

Source: 451 Research’s M&A KnowledgeBase

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Survey: Already busy tech acquirers expect to be even busier

Brenon Daly

Contact: Brenon Daly

Even as tech M&A activity clips along at a post-bubble record rate in 2015, business is expected to get even more brisk as the year progresses. Slightly more than six out of 10 tech dealmakers and investment bankers expect their pace of acquisitions to accelerate over the next half-year, the second-most-bullish response in the seven editions of the M&A Leaders’ Survey from 451 Research and Morrison & Foerster. The 61% of respondents forecasting a pickup in activity over the next six months is almost seven times the number (9%) anticipating a slowdown.

The solidly bullish outlook for 2015 – with nine out of 10 respondents forecasting that their M&A activity will either hold steady or pick up through October – comes as the year has started busier than any year since the Internet bubble burst. In just the first four months of 2015, tech acquirers have announced some $160bn worth of global TMT transactions, according to 451 Research’s M&A KnowledgeBase. The year-to-date spending, which is already higher than the full-year total for recession-wracked 2009, puts 2015 on track for just shy of a half-trillion dollars of M&A consideration.

We would also note that the last time respondents to the M&A Leaders’ Survey from 451 Research and Morrison & Foerster clearly signaled their intent to acquire, the projection did indeed come through in prints. In the survey from April 2014, a record seven out of 10 respondents (72%) indicated that they planned to accelerate their M&A in the year. Last year’s total value of deals hit an astonishing $390bn – a post-recession record that came in at basically twice the average annual spending from 2009-2013, according to the KnowledgeBase.

Look for a full report on the M&A Leaders’ Survey from 451 Research and Morrison & Foerster – including what will be driving deals in the coming years, as well as what buyers expect to have to pay for those transactions – on the 451 Research website later today and in tomorrow’s 451 Market Insight.

M&A spending outlook for the next six months

Survey date Increase Stay the same Decrease
April 2015 61% 30% 9%
October 2014 48% 36% 16%
April 2014 72% 24% 4%
October 2013 50% 43% 7%
April 2013 54% 27% 19%
October 2012 49% 34% 17%
April 2012 59% 33% 8%

Source: M&A Leaders’ Survey from 451 Research / Morrison & Foerster

As RSA kicks-off, IT security M&A hits record rate

Brenon Daly

Contact: Brenon Daly

Opening on Tuesday, the RSA Conference runs its weeklong shindig under the tagline, “Where the world talks security.” When it comes to M&A, however, infosec acquirers are doing more than talking – they’re putting their money where their mouths are and shopping at a record rate.

Already this year, buyers representing a broad swath of the tech M&A community have announced 59 transactions valued at $8.1bn, according to 451 Research’s M&A KnowledgeBase. Annualized, that would put the total number of infosec deals announced this year at right around 200, significantly ahead of last year’s record number of 136.

Keep in mind, too, that infosec M&A activity in 2014 was about 30% higher than any year we’ve seen. (We consider the number of transactions – rather than spending attached to them – as the most accurate gauge of the overall vitality of M&A in what’s a relatively narrow market such as infosec, where a large print or two can dramatically swing aggregate spending. For context, infosec currently accounts for roughly 2% of the overall TMT M&A market, both in terms of annual deal volume and annual deal value.)

The boom in buying shouldn’t really surprise anyone, given the steady increases in infosec budgets coupled with the steady increases in security breaches (Sony and Anthem Inc, among others). Bankers we surveyed last December told us they expected infosec to the be the second-busiest sector for M&A in 2015, trailing only slightly behind mobility.

That bullish forecast is certainly coming through in the prints so far this year, which are running 40% higher than the same period in 2014. Maybe more noteworthy than the number of infosec transactions in 2015 is the breadth of infosec buyers. This year’s record acceleration has been driven by the usual suspects being active (Proofpoint has put up a print, while Checkpoint has inked two deals); PE shops getting busy (Bain Capital acquiring Blue Coat, Marlin Equity Partners purchasing the divested Fidelis business); as well as new buyers stepping into the market, such as Internet vendors (salesforce.com reaching for Toopher, PayPal snagging CyActive).

Information security M&A activity

Period Deal volume Deal value
YTD 2015 59 $8.1bn
2014 136 $8.6bn
2013 99 $8.4bn
2012 88 $1.8bn
2011 101 $3.2bn
2010 107 $19.82bn

Source: 451 Research’s M&A KnowledgeBase

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After dating, InfoVista marries the girl from Ipanema

Brenon Daly

Contact: Brenon Daly

Announcing its third – and largest – acquisition since its take-private in 2011, InfoVista has paid an undisclosed amount for Ipanema Technologies. The deal between the two France-based companies, which had an existing technology partnership, extends InfoVista’s core network performance management to the applications that run on them. Founded in 1999, Ipanema is primarily known for its WAN optimization offering.

The purchase also brings InfoVista, which does virtually all of its sales directly, Ipanema’s sales channel. Ipanema goes to market primarily through more than 50 partners, including many of the large Western European communication service providers such as Telefónica and BT. Altogether, it serves some 750 enterprise customers. (Subscribers to 451 Research’s M&A KnowledgeBase can see our estimate for Ipanema’s revenue here.) We’ll have a full report on this transaction in tomorrow’s 451 Market Insight.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Growth gets a premium at soon-to-be-private Informatica

Brenon Daly

Contact: Brenon Daly

A buyout group is taking Informatica private for $5.3bn, a full $1bn more than the middleware vendor’s primary rival got in its LBO just a half-year earlier. Private equity (PE) shop Permira, along with Canada Pension Plan Investment Board, says it will pay $48.75 in cash for each share of Informatica, or $5.3bn in total. That’s the highest price for the stock in two years but only a slight closing premium for Informatica, which had been under pressure from a hedge fund to sell. The deal is expected to close by Q3 2015.

At an equity value of $5.3bn, Informatica is the largest company to be erased from a US exchange by a PE firm since BMC went private in May 2013 for $6.9bn. More importantly, Informatica is getting a much richer sendoff than either comparable multibillion-dollar enterprise software LBOs or, more specifically, the take-private of rival TIBCO.

Debt-free Informatica’s cash holding of $722m lowers the enterprise value of the proposed transaction to $4.6bn. That works out to 4.4x Informatica’s trailing revenue. For comparison, other significant recent software LBOs have gone off at least a full turn lower (Compuware at 3.1x trailing sales, BMC at 3.2x), while TIBCO garnered 3.8x in its take-private by Vista Equity Partners last September. (Informatica is also getting a richer valuation than the other relevant – if a bit dated – middleware deal: Ascential Software, which was only one-quarter the size of TIBCO and Informatica, got 3.6x in its sale to IBM in 2005.)

What did Informatica do to get a premium, relative to other software hawkers, from its buyout buyers? In a word: growth. While virtually all of the other software providers that have gone private recently have struggled to bump up their top line, Informatica has posted mid-teens-percentage revenue growth over the past half-decade. (The company cracked $1bn in sales in 2014, a significant step up from the $650m it posted in 2010.) Yet even with sales increasing, Informatica still drew the attention – and agitation – of activist hedge fund Elliott Management.

Significant middleware transactions

Date announced Acquirer Target Deal value Enterprise value/trailing sales valuation
April 7, 2015 Permira, Canada Pension Plan Investment Board Informatica $5.3bn 4.4x
September 29, 2014 Vista Equity Partners TIBCO $4.2bn 3.8x
March 14, 2005 IBM Ascential Software $1.1bn 3.6x

Source: 451 Research’s M&A KnowledgeBase

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An imbalance in the market for unicorns

Brenon Daly

Contact: Brenon Daly

The herd of unicorns gets bigger every day. But as the supply of these startups valued at more than $1bn continues to swell, we can’t help but note that on the other side of the equation, the demand isn’t really keeping pace, at least not outside a handful of elite investors. For the most part, the broader market hasn’t opened the exits for these unicorns to realize the value that’s being lavished on them.

So far this year, for instance, we haven’t seen any sales of VC-backed startups for more than about a half-billion dollars, according to 451 Research’s M&A KnowledgeBase. Further, in a 451 Research survey last December, four out of 10 (42%) corporate M&A executives told us they expect the M&A valuations for privately held companies to actually decline in 2015 compared with their valuations last year. That was the most bearish forecast for exit values of startups from their would-be buyers since the recession year of 2009.

Meanwhile, the IPO market isn’t particularly rewarding these days, either. Box – a unicorn that had been a darling of the late-stage investment community through nearly a dozen rounds of funding – hasn’t created any additional value as a NYSE-listed company than it did as a private company. (And based on the fact that an astounding 40% of Box’s shares are sold short, Wall Street is very clearly betting that its flat-lined valuation is still too high.)

Despite the recent muted returns for VCs, unicorns continue to get fed. For instance, Slack, a collaboration tool that’s less than two years old, has reportedly doubled its valuation since previously notching a $1.2bn price in an October funding.

Obviously, we’re looking at an extremely short exit period of just the first quarter of 2015. And we’re conscious that in most cases, investors are placing bets today that they hope will pay off maybe a half-decade from now. But for right now, when we look at both ends of the market for highly valued startups, we can see how you buy a unicorn but we wonder how you go about selling it.

Projected change in private company M&A valuations

Period Increase Stay the same Decrease
December 2014 for 2015 29% 29% 42%
December 2013 for 2014 29% 55% 16%
December 2012 for 2013 28% 39% 33%
December 2011 for 2012 35% 26% 39%
December 2010 for 2011 71% 20% 9%
December 2009 for 2010 58% 36% 6%
December 2008 for 2009 4% 9% 87%
December 2007 for 2008 39% 28% 33%

Source: 451 Research Tech Corporate Development Outlook Survey

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For tech M&A, 2015 picks up where 2014’s record level left off

Brenon Daly

Contact: Brenon Daly

Despite an ice-cold start to 2015, tech dealmakers came roaring back into the market in early spring, putting spending on tech deals in the just-completed Q1 only slightly behind last year’s record rate. In the first three months of 2015, the total value of deals in the tech, media and telecom (TMT) market around the globe hit $119bn. That’s the third-highest quarterly spending total since the recent recession ended, and puts 2015 nearly on track with the free-spending M&A levels from last year, according to 451 Research’s M&A KnowledgeBase.

At more than twice the average quarterly spending over the past half-decade, the Q1 total of $119bn comes in only a few big prints away from the $128bn we recorded in Q1 2014. (See our full report on Q1 2014 M&A.) Last year’s opening quarter stands as the highest quarterly spending level since 2002, and launched 2014 on its way to the most M&A money spent in a year since the Internet bubble popped in 2000. (See our full 2015 M&A Outlook .) And so far in 2015, there isn’t much of a drop-off from 2014. Annualized, the first three months of this year would put the total value of all TMT deals in 2015 solidly above $400bn – a level it has only breached three times in the past 13 years. (See our full report on Q1 2015 M&A.)

Recent quarterly deal flow

Period Deal volume Deal value
Q1 2015 1,000 $119bn
Q4 2014 1,028 $65bn
Q3 2014 1,047 $102bn
Q2 2014 1,005 $149bn
Q1 2014 844 $128bn
Q4 2013 787 $59bn
Q3 2013 859 $81bn
Q2 2013 760 $48bn
Q1 2013 798 $65bn

Source: The 451 M&A KnowledgeBase

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Lexmark doubles down on software

Brenon Daly

Contact: Brenon Daly

A half-decade into a software shopping spree, Lexmark has announced its largest consolidation, dropping $1bn on Kofax. The price roughly equals the total amount the company has spent on a dozen software firms since it established a software platform with the $280m purchase of Perceptive Software in May 2010. (Lexmark still refers to its software unit, which generated slightly less than a dime of every dollar of overall sales last year, as ‘Perceptive Software.’)

The Kofax buy, which is slated to close next quarter, would essentially double Lexmark’s software business. In 2014, that division generated $313m of sales, a touch more than the amount Kofax put up. However, the vast majority of Lexmark’s growth in software has come through M&A. On an organic basis, Lexmark has indicated that software revenue increased just 3% last year. For its part, Kofax has been growing at about twice that rate, although that has also been boosted by acquisitions. (Kofax announced four deals over the past two years.) Still, both companies are lagging the roughly 10% overall growth rates in the ECM and BPM markets that they serve.

At $1bn enterprise value, Lexmark is valuing Kofax at about 3.3x trailing sales. That’s exactly the multiple it paid for Perceptive but a full turn higher than its other significant deal, the $264m pickup of ReadSoft last May. To pay for its baker’s dozen of software transactions, Lexmark has funneled off cash from its legacy printer business. It plans to cover about $700m of the purchase of Bermuda-domiciled Kofax with offshore cash and borrow the remaining $300m at slightly more than a 1% rate. Goldman Sachs & Co advised Lexmark, while Lazard banked Kofax.

Like other hardware – and specifically, printer – providers, Lexmark has looked to buy its way out of that declining and low-margin market. (Its software business runs at a gross margin in the high-60% range, a full 30 basis points higher than the rest of the company.) Lexmark has been relatively focused in its M&A, targeting two core markets, while HP, for instance, has bought across a broad swath of the enterprise software sector, including application and data management, information security and datacenter technology. However, the Kofax acquisition is much larger and broader than any business Lexmark has nabbed so far.

We’ll have a full report on this transaction in tomorrow’s 451 Market Insight.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Bain reaches into Thoma Bravo’s closet for a Blue Coat

Brenon Daly

Contact: Brenon Daly

More than three years after going private, Blue Coat Systems has been flipped to another private equity firm at nearly twice the price of the initial leveraged buyout (LBO) by a Thoma Bravo-led consortium. Bain Capital said Tuesday that it will pay $2.4bn in cash for the old-line networking and security vendor. (Subscribers to The 451 M&A KnowledgeBase can click here to see our estimates for both the trailing revenue and cash flow at Blue Coat.) Thoma Bravo took Blue Coat private for $1.3bn in late 2011, after HP was rumored to have dropped out of the bidding.

Under Thoma’s ownership, we understand that Blue Coat returned to mid-teens percentage growth as it expanded beyond its core offering of network security and WAN optimization, both of which are rather mature markets. (For instance, a mid-2014 survey of more than 200 information security professional by TheInfoPro, a service of 451 Research, showed that almost nine out of 10 respondents (86%) have already deployed some form of Web content filtering, a long-standing offering from Blue Coat.)

Blue Coat made three acquisitions while in Thoma Bravo’s portfolio, including paying a rather ‘un-PE’ multiple for network analytics startup Solera Networks. (Click here to see our proprietary estimate of terms of that transaction.) Of course, being a PE-owned company, Blue Coat also fattened up its cash flow in recent years. According to our understanding, Thoma Bravo has more than tripled Blue Coat’s EBITDA since the LBO.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Telcos get busy again with M&A in February

Brenon Daly

Contact: Brenon Daly

Massive acquisitions by telcos, which pushed M&A spending to a recent record in 2014, once again helped to inflate the value of deals announced in the just-completed month of February. Overall, tech and telco acquirers spent $48bn on transactions across the globe, according to The 451 M&A KnowledgeBase. However, the three largest deals, which were all telco-related purchases, accounted for $30bn, or 60%, of the total spending in February.

Last month’s big-ticket acquisitions by BT Global Services, Frontier Communications and American Tower revived the telco shopping spree from 2014. Last year, telco and media purchases accounted for roughly half of the $439bn we tallied in M&A spending – the highest level in 14 years. (See our full report on M&A last year, as well as the outlook for this this year.) There were no significant telco transactions in January, which is one of the main reasons why M&A spending for the first month of 2015 was just one-fifth the amount spent in the second month of 2015.

Beyond the telco consolidation, there are clear indications that the broader tech M&A market is picking up the pace after the slow start. Expedia did its largest-ever deal last month, announcing the $1.4bn pickup of Orbitz Worldwide. And Canon, an infrequent acquirer, inked a $2.8bn buy. Even excluding the trio of telco deals, there were four transactions in February valued at more than $1bn – twice as many 10-digit acquisitions announced in January.

Additionally, the overall volume of M&A remained high in February. We tallied 331 transactions announced last month. That’s nearly one-third more than February 2014 or February 2013. Shoppers included Check Point Software, which announced its first acquisition in more than three years; four purchases by the insatiable acquirer Google; and a double-barrel set of deals by Under Armour.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.