Author: Brenon Daly

A change in command at Courion?

Brenon Daly

Contact: Brenon Daly

After a fitful and protracted M&A process, Courion has been sold to a private equity (PE) firm, according to several market sources. The deal, which we understand is closed, but has not been announced, would be the third acquisition by a buyout shop of an identity-related security vendor in the past half-year. However, our understanding is that Courion got about half the valuation of the other two larger identity and access management (IAM) vendors that were recently acquired.

Several sources indicated Courion traded at around $70m, which works out to roughly 2x sales. Rivals BeyondTrust and SailPoint sold for closer to 3x sales and 5x, respectively. (Subscribers to 451 Research M&A KnowledgeBase can see our estimated terms for BeyondTrust and SailPoint.)

In addition to those financial acquirers, many of the largest strategic shoppers – including Microsoft, IBM and CA – have been snapping up IAM technology, in part to help secure cloud offerings. The reason? Security remains the top-ranked inhibitor of cloud technology adoption, according to ChangeWave Research, a service of 451 Research. In the cloud – with its centralized IT resources and pooled data – knowing who is who and who has access to what is fundamental. Further, when users are accessing corporate resources that live outside the firewall, often from devices no longer under enterprise control, perimeter-based access controls are no longer effective.

That has certainly resonated with customers. In a survey of more than 200 IT security professionals in 2014, 451 Research’s TheInfoPro found that one-quarter (24%) of respondents forecast that they would be spending more in 2015 on identity-related security technology than they did in 2014. Not a single respondent indicated they would be trimming their budget for this crucial technology. (Identity was the only specific sector – among the dozen that we asked about – that didn’t have a single response indicating lower year-on-year spending.)

As is often the case in emerging markets, however, the strong demand for IAM hasn’t been evenly distributed across the vendors. Symplified, an early entrant in the IAM market that raised nearly $50m in venture funding, wound down last summer and sold its assets to EMC for pennies on the dollar. And while Courion is a far cry from the scrap-sale of Symplified, the company had struggled to put up growth in recent years. That blunted VC’s interest in putting new money into Courion, which hadn’t raised in about a decade, and ultimately put pressure on its valuation.

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

After a high-water mark, tech M&A spending ebbs

Brenon Daly

Contact: Brenon Daly

After a recent record run, tech M&A spending started slowly in 2015. Acquirers across the globe announced deals valued at just $10bn in January, only one-third the amount they dropped in January 2014 as they started a shopping spree that pushed last year’s total spending to a 14-year high. More broadly, January’s total is the lowest monthly M&A spending level since mid-2013.

While last month’s deals may not have been big, there were a lot of them. With deal volume topping 350 transactions, activity in January came in at one of the highest levels we’ve seen since the end of the recession. Buyers who rang in the new year with an announced acquisition included AT&T, Citrix, Dropbox, BMC and Demandware.

The activity, particularly by acquirers that have been largely absent from the M&A market recently, help to ease two primary concerns about the outlook for the rest of 2015. First, the recent flash of volatility hasn’t necessarily derailed deals. Wild swings and downward pressure in the US equity markets in January obviously make pricing acquisitions much more difficult. (US equity indexes fell about 3% last month alone.) But the uncertainty doesn’t appear to have eroded buyers’ confidence, which is a key component of M&A.

Additionally, coming into 2015, a number of market participants indicated that deals were getting ‘pulled through’ back in late 2014. In other words, acquirers were worried about the direction of the global economy, equity market performance and interest rates in 2015, so they pushed to get transactions done during the relatively supportive times of 2014. (It’s worth remembering that overall, deal volume last year hit its highest level in eight years. See our full M&A Outlook.) At least in early 2015, the M&A pipeline doesn’t appear to be dried up. There may not be as many big prints, but deals are still flowing to start the year.

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

Webinar: What to expect in tech M&A in 2015?

Brenon Daly

Contact: Brenon Daly

With a record-breaking year in tech M&A behind us, what’s in store for 2015? Join 451 Research on Tuesday, January 27 at 1:00 PM EST for a look ahead on where acquirers are likely to be looking to do deals, and what they’re likely to pay. The webinar, which highlights the analysis and forecasts in our 2015 M&A Outlook, is free to attend – register here.

We’ll start with a look back at 2014 to highlight some of the trends and big-ticket transactions that helped push tech M&A spending to its highest level since the Internet bubble burst. What had buyers spending freely last year – including 75 transactions valued at more than $1bn – and will that carry over to this year?

Then, we’ll address other timely topics, including:

  • What does the data from our surveys of corporate acquirers and bankers, as well as insight from our analysts, tell us to expect for tech M&A in 2015?
  • Specifically, what sectors of the IT landscape will be active this year – and why? We will highlight trends from a handful of major markets (mobility, cloud, security, networking) that are likely to drive deals.
  • Private equity firms announced more tech acquisitions in 2014 than in any other year, often paying prices they would not have paid in the past. Is this the start of a new aggressiveness by financial acquirers?
  • What’s the outlook for the IPO market, and which startups might be ready to go public this year?
  • Startups may be pulling down sky-high valuations in recent funding, but the forecast among corporate buyers for the exit valuations of startups isn’t nearly as bullish. How big is the bid/ask spread likely to be this year?

The webinar draws from both the qualitative insight of more than 100 analysts at 451 Research, as well as a number of quantitative resources to get a sense of the broad influences that are shaping M&A in 2015. To register for the webinar, click here.

What do the main buyers in the tech M&A market see for the year ahead?

Brenon Daly

Contact: Brenon Daly

Last year was a big year for tech M&A, but what was the biggest deal of year? To find out, we asked the main buyers in the tech M&A market: corporate development executives. As part of a broader survey, we had them look at the handiwork of their peers and give us their pick for the most significant tech transaction of 2014.

So which deal got the Golden Tombstone? Facebook’s $19bn cash-and-stock acquisition of WhatsApp. The purchase last February by the 10-year-old social network represents the largest VC-backed exit in history. It drew twice as many votes as the second-place transaction, SAP’s $8.3bn reach for Concur Technologies, which is the largest-ever SaaS acquisition.

Additionally, we asked the corporate acquirers what they expected for the coming year. Their responses point to a continuation of the record run of tech M&A. More than half of corporate development executives (58%) indicated that they expect their company to pick up the pace of dealmaking in 2015. That stands as the highest forecast in a half-decade and compares with just one in five respondents (6%) projecting a slowdown in their M&A activity in the coming year.

Other highlights from the survey of corporate development executives include a bearish outlook for startup valuations, a record forecast for IPOs and the expectation of unprecedented amount of competition in deals from their private equity rivals in 2015. Subscribers: See the full report.

Top vote getter for ‘most significant tech transaction’

Year Deal
2014 Facebook’s acquisition of WhatsApp
2013 IBM’s acquisition of SoftLayer
2012 VMware’s acquisition of Nicira
2011 Google’s acquisition of Motorola Mobility
2010 Intel’s acquisition of McAfee
2009 Oracle’s acquisition of Sun Microsystems
2008 Hewlett-Packard’s acquisition of EDS
2007 Citrix’s acquisition of XenSource

Source: 451 Research Tech Corporate Development Outlook Survey

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With buyers old and new placing big bets, tech M&A hits record in 2014

Brenon Daly

Contact: Brenon Daly

Spending on tech deals surged to a new record in 2014, driven not only by massive consolidation by old-line telco buyers, but also by the ever-increasing prices of bets placed on next-generation technology. Tech buyers across the globe announced transactions valued at $440bn last year, according to the 451 Research M&A KnowledgeBase. That topped the previous record (set in 2007) by 5% and, more dramatically, comes in at twice the average annual spending on tech deals since the credit crisis.

The nearly half-trillion dollars’ worth of deal value was, of course, dominated by telecommunications and media transactions. Last year’s two largest acquisitions (AT&T’s $48.5bn play for DIRECTV, and Comcast’s $45.2bn reach for Time Warner Cable) accounted for slightly more than 20% of the total yearly spending.

Add to that European telcos and cable outfits, which also took advantage of a highly attractive debt market, and bought up rivals at an unprecedented rate in 2014. Major buyers on the Continent included Altice, Vodafone and British Sky Broadcasting. Altogether, telco and media deals around the world accounted for roughly half of last year’s total spending.

The other half came from a series of speculative deals by emerging tech icons – emboldened by record amounts of cash and, in many cases, record prices for their stock. For instance, Facebook – which finished last year with shares trading around an all-time high – not only paid the highest price for a VC-backed startup ($19bn for WhatsApp) but also rolled the dice on a virtual reality company that barely had a prototype product (it paid $2bn in March for Oculus VR). Similarly, Google dropped $3.2bn on Nest Labs. The maker of ‘smart’ thermostats may offer Google a way into broader home-automation offerings. Or not.

More established tech stalwarts also paid up for deals last year. SAP announced the largest-ever SaaS transaction, its $8.3bn acquisition of Concur Technologies in the summer. SAP valued the travel and expense management application vendor three times more richly than SAP itself is valued. Oracle inked its largest deal in a half-decade, handing over $5.3bn for old-line hospitality software provider MICROS Systems in June.

And finally, in addition to strategic acquirers, financial buyers got back to business in 2014, announcing more than $50bn worth of transactions, according to the 451 Research M&A KnowledgeBase. Included in last year’s total are a number of headline-grabbing LBOs (TIBCO Software, Riverbed Technology, Compuware), as well as a healthy number of sponsor-driven midmarket transactions.

Global tech M&A

Year Deal volume Deal value
2014 3872 $439bn
2013 3275 $255bn
2012 3644 $186bn
2011 3794 $232bn
2010 3293 $190bn
2009 3030 $143bn
2008 3098 $326bn
2007 3654 $420bn
2006 4036 $418bn
2005 3054 $360bn
2004 2091 $219bn
2003 1514 $60bn
2002 1922 $81bn

Source: The 451 M&A KnowledgeBase

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

A buyout for Bitdefender?

Brenon Daly

Contact: Brenon Daly

Bitdefender is rumored to be the latest European antivirus (AV) vendor of scale to be picked up by a buyout shop. Several market sources have indicated that Romania-based Bitdefender, which is a division of a larger company and hasn’t taken outside funding, has been sold. Neither the price nor the private equity (PE) acquirer could be immediately learned.

According to our understanding, Bitdefender generates about $50m in revenue. The consumer-focused company says its AV technology protects 500 million users, which is more than twice as many as rival AVG claims. In addition to selling directly, Bitdefender also OEMs its offering to more than 100 partners, which partially accounts for how the company’s technology has made it onto a half-billion machines.

A number of PE firms already have Europe-based, consumer-focused AV providers in their portfolios, including Apax Partners with Sophos, Summit Partners with AVAST and TA Associates with AVG, although that company is now publicly traded. Also, General Atlantic (briefly) owned a minority stake of Kaspersky Lab.

In general, those investments haven’t generated stellar returns for the buyout barons. GA had a less-than-harmonious holding of Russian firm Kaspersky for about a year. AVAST didn’t make it public when it was on file two years ago. And both Sophos and AVG have been valued in the range of 2-3x sales. Applying that multiple to Bitdefender would value it at roughly $100-150m.

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

Buying a dried-up Riverbed

Brenon Daly

-by Brenon Daly, Christian Renaud

Announcing its largest-ever acquisition, private equity (PE) firm Thoma Bravo says it will pay $3.6bn for Riverbed. The take-private of the WAN optimization vendor comes after more than a year of pressure from activist hedge fund Elliott Management. Under terms, Thoma, which has a history of profitably acquiring infrastructure software providers, will hand over $21 for each of the roughly 170 million fully diluted Riverbed shares.

Thoma Bravo is valuing Riverbed at 3.4x the $1bn that the company has put up over the past year. (Sales growth has been underwhelming so far in 2014. Through the first three quarters of the year, Riverbed inched up its top line by 6% – just one-quarter the growth rate from full-year 2013.) The valuation is roughly in line with other recent significant take-privates such as Thoma’s leveraged buyout of Compuware and Vista Equity Partners’ LBO of TIBCO Software.

The primary reason why Riverbed’s growth has stalled – which precipitated the initial unsolicited approach from Elliott – is the considerable changes in market requirements (greater demand for traffic analysis and grooming) and enterprise networking (evolution to cloud-delivered services). A study by TheInfoPro, a service of 451 Research, earlier this year indicated that more customers were planning to cut their spending with Riverbed in 2014 than increase their spending with the vendor. We’ll have a full report on this transaction in tomorrow’s 451 Market Insight.

RVBD spend plan

 

Big Oil has big trouble; Big Data has big opportunity

Brenon Daly

Contact: Brenon Daly

If data is the new oil, as some futurists would have it, then the accompanying transfer of value came through loud and clear in Friday trading. As oil prices slumped to their lowest levels since the recession, a pair of data-centric startups skyrocketed onto the market. The IPOs of New Relic and Hortonworks, collectively, created $2.5bn of market value.

Both offerings priced above the expected range and then surged another 40% on a day that saw US stock markets tick lower, in part, because of the pronounced slump in oil prices. The debut left both companies trading at platinum double-digit valuations. (New Relic, which will put up about $115m in sales in the current fiscal year, is being valued on Wall Street at about $1.5bn, while Hortonworks, which will do roughly $50m in sales this year, garnered a $1bn valuation.)

New Relic, which collects billions of data points around the performance of applications and the IT systems that run them, priced its shares at $23 each and saw them soar to about $33 in mid-Friday trading. ( See our full report on the New Relic offering.)

Similarly, Hortonworks – a ‘big data’ vendor that sells a Hadoop distribution – priced its shares at an above-range $16 and then saw its stock change hands at roughly $23. (See our full report on the Hortonworks offering.)

Just to put a point of contrast between old oil patch and new digital economy, consider this: the cost of buying one share each of New Relic and Hortonworks is roughly the same as the cost of buying a barrel of benchmark crude oil. Wall Street was very clear on which investment option looks more rewarding right now.

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

Belden plugs into Tripwire

Brenon Daly

Contact: Brenon Daly

Belden’s acquisition of Tripwire marks not only the company’s largest purchase, but also the richest valuation it has ever paid. Belden is handing over $710m in cash for the security management vendor. That values Tripwire at nearly 5x sales, which is more than twice the multiple Belden has paid in its past half-dozen deals. (For its part, Belden trades at less than 2x sales, despite its shares hitting an all-time high upon the deal announcement.)

A company known primarily for cables and wiring, Belden has inked seven purchases over the past four years as part of a broader effort to get into new markets. Not all of those moves have worked. (For instance, it divested a wireless LAN startup after more than two years on the books. Despite the irony of a wiring provider buying a wireless vendor, Belden actually sold Trapeze Networks for more than it originally paid for it.) Nonetheless, growth in new markets is one of the main reasons why Belden shares have more than tripled since the end of the recession, roughly three times the gain in the broader US indexes.

Still, the pickup of Tripwire is a not-insignificant gamble. Strategically, Belden imagines extending Tripwire’s security, which is currently focused entirely on enterprises, to industrial settings. And financially, Belden is essentially clearing out its coffers to cover the transaction. (It is drawing down approximately $200m on an existing line of credit to help pay for Tripwire.)

And, as noted, Belden is paying up for Tripwire. Terms value the Portland, Oregon-based target at 4.9x sales. For context, Tripwire sold to its current owner – private equity shop Thoma Bravo – for about $225m, or 2.2x sales, in mid-2011, according to our understanding. So one way to look at the three-year period Tripwire was owned by Thoma Bravo is that while revenue didn’t quite double, the company’s price more than tripled.

The primary reason why Thoma Bravo is getting an above-market valuation on its exit is the operational efficiencies that it helped bring into Tripwire. The company is projected to grow in the high teens, which is twice the rate it was growing before being acquired by the PE shop. Maybe more importantly, Tripwire more than tripled its EBITDA margin, to above 30% currently, while also accelerating its growth.

Look for a more detailed report on Belden’s acquisition of Tripwire in tomorrow’s 451 Market Insight.

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

After starting with a sprint, tech M&A spending is slowing

Brenon Daly

Contact: Brenon Daly

After surging through the first three quarters of 2014, tech M&A spending is now normalizing as we head toward the close of the year. The aggregate total of spending on tech, media and telcom transactions across the globe in the just-completed month of November totaled just $18.5bn – less than half average monthly spending during the first nine months of the year. The recent slowdown in what had been a frenetic pace means 2014 is unlikely to break the eight-year-old record for tech M&A spending.

November’s deceleration comes after an even-slower October, which totaled just $12.9bn in deal value. Both those levels actually declined from the same months in 2013. Those were the first year-on-year declines registered in what had been a record pace for M&A spending. Through the first three quarters of 2014, spending was twice the level it had been in 2013, and was tracking to an all-time high.

This year has already set the record for annual spending on tech deals since the recessions. (It actually eclipsed the high-water mark from 2013 back in June.) Through November, deal-makers had already announced transactions valued at nearly $410bn, lagging the full-year 2006 record of $460bn. To get up near that lofty level, December spending will need to pick back up to the monthly level of about $40bn we saw through the first three quarters of 2014, rather than the average of about $15bn we’ve seen so far in the final quarter of the year.

Recent M&A activity

Period Deal volume Deal value
Oct.-Nov. 2014 633 $31.4bn
Oct.-Nov. 2013 531 $42.4bn
Oct.-Nov. 2012 588 $44.9bn

Source: The 451 M&A KnowledgeBase