Author: Brenon Daly

With one divestiture done, will Juniper cut the cord on Trapeze, too?

Brenon Daly

Contact: Brenon Daly

Having largely worked through an internal cleanup of its operations, Juniper Networks is now looking to shed some of those operations. The networking gear provider recently divested its Junos Pulse to private equity newcomer Siris Capital, pocketing an unexpectedly rich $250m for its mobile and network security division. With Junos Pulse off the books this quarter, we suspect that Juniper will now turn its attention to cutting the cord on Trapeze Networks.

The rumored divestiture of Trapeze (if it indeed comes to pass) would unwind Juniper’s $152m purchase of the WLAN gear provider back in November 2010. (Ironically, Juniper picked up Trapeze when it was divested by Belden.) Although Belden actually turned a (slight) profit on its ownership of Trapeze, we doubt that Juniper will come out ahead on any divestiture because Trapeze has lost much of its standing in the WLAN market. (Even Juniper seems to have acknowledged this, inking a rather involved partnership with WLAN rival Aruba Networks last month.)

Juniper’s moves come as the 18-year-old company faces pressure from activist hedge funds to pick up its performance. (Juniper shares have basically flatlined over the past decade, and have underperformed rival Cisco Systems more recently.) So far, Juniper has focused its efforts on its cost structure, cutting more than 400 jobs over the past year and consolidating its real estate holdings, for instance.

Fittingly for a company under scrutiny from Wall Street gadflies, Juniper’s cost savings have been put toward ‘shareholder friendly’ expenses, such as funding an increased share buyback as well as a newly announced dividend program. We would add that Juniper’s cash, which totals almost $4bn on hand, isn’t going toward M&A. The company hasn’t announced an acquisition in 2014. As things stand now, given Juniper’s focus on its financial operations, we could well imagine that the company will be a net seller – rather than buyer – of businesses this year.

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For tech M&A, fortune favors the bold

Brenon Daly

Contact: Brenon Daly

So far in 2014, the top end of the tech M&A market has been a little barren for the buyout barons. In fact, there’s been only one private equity-backed deal among the 20 largest transactions this year, according to The 451 M&A KnowledgeBase. For comparison, in 2013, three of the 10 largest acquisitions involved PE shops.

In most years, financial acquirers generally account for roughly one out of every five dollars spent on tech M&A. But this year, the buyout shops are increasingly finding themselves elbowed aside by corporate shoppers. These newly confident strategic acquirers are (for the most part) enjoying lofty valuations on Wall Street, while also rolling around in the richest treasuries they’ve ever had. (And the debt market stands ready and willing to fund bigger acquisitions, if companies want to draw on that.)

We often say that to do deals, all that’s required is currency and confidence. Both are plentiful for most corporate buyers, which is helping to put overall spending on tech, media and telecom (TMT) transactions on track for record levels. (See our full report on TMT dealmaking in Q2 and the outlook for the rest of 2014.)

The emboldened corporate acquirer is probably best exemplified by Zebra Technologies and its mid-April reach for the enterprise business being spun off of Motorola Solutions. In years past, it wouldn’t have been uncommon for a divested business like this to land in a PE portfolio for a year or two of ‘rehabilitation’ before flipping back to a strategic buyer.

Instead, Zebra – an infrequent acquirer that had never spent more than $150m on a single transaction – decided to step in and buy the business directly. (Never mind the fact that Zebra has to borrow virtually all of the $3.45bn to cover the purchase, or the possible difficulties of integrating and operating a businesses that is about 2.5x the size of Zebra’s existing business.) And how has Wall Street reacted to the uncharacteristically bold dealmaking at Zebra? Shares have tacked on about 25% in value from pre-announcement levels and currently change hands at their highest-ever level.

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

Big money for little companies

Brenon Daly

Contact: Brenon Daly

With Wall Street continuing to look like forbidding territory to most IPO candidates, where are money-burning companies going to restock their treasury? Increasingly, hedge funds and mutual fund giants are providing, collectively, the hundreds of millions of dollars in financing that might have otherwise come through IPOs.

This, of course, isn’t an entirely new phenomenon. But we can’t recall a time that has seen more late-stage funding than the just-completed second quarter. Okta, Atlassian, New Relic, Pure Storage and others all drew in financing during the past three months from investment firms that have historically only purchased shares in public companies. In many ways, it’s a wonder that it took the recent chill in the IPO market to spur this ‘crossover’ activity to new levels. (We’ll have a full look at the recent IPO market – as well as the other exit, M&A – in our report on Q2 activity available later today on 451 Research.)

From the money managers’ perspective, these investments in private companies offer a bit of portfolio diversification, as well as the opportunity to outpace the returns of the broader equity market, which has registered a mid-single-digit percentage gain so far in 2014. And on the other side of the investment, the late-stage companies stand to receive tens of millions of dollars from a single investor without all the SEC rigmarole and other public company exposure.

Further, with billions of dollars to put to work, the mutual funds and hedge fund giants haven’t shown themselves to be as ‘price sensitive’ as other traditional late-stage funders. (The discrepancy between valuations of illiquid private shares and freely traded public stock stands out even more now, as new issues are being discounted heavily in order to make it public at all. For instance, Five9 stock has never even reached the minimum price the company and its underwriters thought it should be worth, and currently trades at just 3.5 times this year’s revenue. Meanwhile, MobileIron shares have dropped almost uninterruptedly since the company’s IPO, falling back to only slightly above their offer price. MobileIron is currently valued at only about half the level that a direct rival received when it sold earlier this year.)

Like life, markets are cyclical and IPOs will undoubtedly come back into favor on Wall Street at some point. But in the meantime, many late-stage companies are calling on the big-money investors to keep the lights on. We would include Box in that category. The high-profile company, which has been on file publicly since March, has found its path to the public market a rather rocky one. Having already raised more than $400m in backing, we could well imagine the money-burning collaboration software vendor crossing off an IPO (at least for now) and going back to a crossover investor for cash later this summer.

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Another quarter, another record for tech M&A

Brenon Daly

Contact: Brenon Daly

The greybeards got even busier in Q2. After a record start to 2014, old-line acquirers in the tech, media and telecommunications (TMT) markets spent even more on M&A in the just-completed second quarter. The aggregate value of all TMT transactions across the globe in Q2 totaled a post-recession record of $143bn, roughly three times the typical amount spent in recent quarters, according to The 451 M&A KnowledgeBase.

Telecom purchases dominated the spending totals for the April-June period, accounting for four of the five largest deals in Q2. Included in that tally is AT&T’s $49bn planned acquisition of DIRECTTV, which stands as the second-largest TMT transaction since 2002.

On the other side of the lifecycle, startups haven’t particularly figured into recent deal flow. There was just one early-stage company exit among the 20 largest Q2 acquisitions. (And frankly, with Beats Electronics running at more than $1bn in revenue and having raised $500m in funding, we’re not so sure the headphone maker would still be considered a startup.) For comparison, the sales of six startups made the list of the 20 largest deals of Q1 2014.

Overall, Q2 spending on M&A came in 13% higher than the level for TMT transactions in the first three months of this year. Taken together, the $270bn shelled out so far in 2014 exceeds the full-year spending totals for every year since 2008. Further, the frenetic activity puts 2014 on track to surpass an astonishing half-trillion dollars worth of TMT acquisitions this year.

Recent quarterly deal flow

Period Deal volume Deal value
Q2 2014 953 $143bn
Q1 2014 816 $127bn
Q4 2013 787 $59bn
Q3 2013 829 $73bn
Q2 2013 760 $48bn
Q1 2013 798 $65bn
Q4 2012 824 $59bn
Q3 2012 880 $39bn
Q2 2012 878 $44bn
Q1 2012 920 $35bn
Q4 2011 874 $38bn
Q3 2011 955 $63bn
Q2 2011 952 $71bn
Q1 2011 926 $45bn
Q4 2010 797 $41bn
Q3 2010 791 $50bn
Q2 2010 809 $66bn
Q1 2010 861 $30bn

Source: The 451 M&A KnowledgeBase

ECM consolidators clash

Brenon Daly

Contact: Brenon Daly

The gloves are coming off in the latest consolidation in the enterprise content management (ECM) market. Just a month after accepting a $195m offer from the ever-acquisitive Lexmark, old-line Swedish ECM vendor ReadSoft has found itself in the center of an unusual public bidding war. On Wednesday, PE-backed Hyland Software topped the bid by a few million dollars.

The brawl over ReadSoft pits two able acquirers – one strategic, one financial – against each other. Collectively, Lexmark and Hyland have done 16 deals over the past half-decade alone. But looking inside those transactions, we can see differences between the buyers, which may help indicate how the fight for ReadSoft will play out. On paper, it would appear that Lexmark needs ReadSoft more than Hyland does.

For starters, Lexmark has been a more active acquirer than Hyland. Since the printer company established its ECM unit in mid-2010 with the $280m purchase of Perceptive Software, it has shelled out an additional $600m on another nine targets, according to The 451 M&A KnowledgeBase . In comparison, Hyland has announced just six deals since PE shop Thoma Bravo acquired a majority stake in July 2007.

Further, Lexmark has been more deliberate in buying larger companies, while Hyland has targeted smaller bolt-on acquisitions that typically bring either technology (document capture, for example) or vertical market specialization (e.g., healthcare) to its flagship OnBase product. In short, Hyland’s M&A approach – including playing the spoiler against Lexmark – appears more opportunistic than the systematic drive for scale at Lexmark.

In our initial analysis of Lexmark’s reach for ReadSoft, my colleague Alan Pelz-Sharpe noted that while the transaction would bring a new customer base and about $120m in revenue to Lexmark, there was a fair amount of technology overlap. (451 Research subscribers can click here for the full report.) But for Lexmark, it has little choice but to buy in bulk.

Because of the declines in its legacy core printer and ink business, overall revenue at Lexmark will drop again this year. While its software business is the fastest-growing division at the company, it can’t make up for the drop-off in printers. Lexmark has set the goal for its software unit hitting about $500m in revenue in 2016, which would be about twice the revenue it generated in 2013. To get there, Lexmark will have to continue to rely on M&A, which just may include countering for ReadSoft.

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

Record run for tech M&A continues in May

Brenon Daly

Contact: Brenon Daly

Spending on tech, media and telecom (TMT) deals in May quadrupled from the same month in the past two years, continuing the record pace of M&A activity in 2014. Dealmakers around the globe spent $61bn on 308 acquisitions in the just-completed month, according to The 451 M&A KnowledgeBase. That pushes the total value of TMT transactions announced so far in 2014 above an astonishing quarter-trillion dollars.

Altogether, worldwide spending on M&A in 2014 has surged to $237bn – exactly matching the amount spent in the first five months of the previous high-water mark set back in 2007. Another way to look at the spending total so far in 2014: the amount is only slightly lower than spending in the same January-May period of the past three years combined.

As has been the case throughout 2014, deals in May came from across the tech lifecycle, with old-line industries consolidating as well as flashy young startups getting picked up at big prices. AT&T’s $48.5bn cash-and-stock purchase of DirecTV stands as the second-largest TMT transaction of the past 12 years. On the other side, Apple announced its largest-ever acquisition, paying $3bn for Beats Electronics, an eight-year-old provider of headphones and a streaming music service.

With five months of M&A now in the books, the annualized pace for M&A spending is running at about $560bn for full-year 2014. That is a full $100bn higher than the previous annual record for TMT deals, set back in 2006, according to the KnowledgeBase.

M&A activity

Period Deal volume Deal value
Jan. 1 – May 31, 2014 1,447 $237bn
Jan. 1 – May 31, 2013 1,348 $90bn
Jan. 1 – May 31, 2012 1,534 $65bn
Jan. 1 – May 31, 2011 1,565 $102bn
Jan. 1 – May 31, 2010 1,406 $74bn
Jan. 1 – May 31, 2009 1,188 $42bn

Source: The 451 M&A KnowledgeBase

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Survey: Ma Bell won’t get ‘churned’ with DirecTV

Brenon Daly

Contact: Brenon Daly

AT&T’s planned $48.5bn purchase of DirecTV has one thing going for it that Comcast’s similarly sized acquisition of Time Warner Cable doesn’t: customers don’t necessarily hate the providers. That’s at least one way to handicap the outlook for the two proposed pairings, which total, collectively, about $94bn in transaction value. The two deals represent the second- and third-largest tech transactions since 2003.

In the end, the return on both of these mammoth bets by telcos will be determined by how well the new owners serve customers. On that count, AT&T – both by itself and with the addition of DirecTV – has much more goodwill among TV consumers that Comcast-Time Warner Cable, according to ChangeWave Research, a service of 451 Research. In a March survey of 4,375 North American residents, about one-quarter of respondents said they are ‘very satisfied’ with AT&T U-verse and DirecTV. That was more than twice the level that said they are very satisfied with Comcast (11%), and four times the level for last-placed Time Warner Cable (a paltry 6%).

Perhaps more importantly, the ChangeWave survey indicates that TV subscribers aren’t planning to stick with the service they don’t like. (We would note that for service providers, which rely on monthly billing subscription fees to offset huge capital expenditures, churn is particularly corrosive to business models.)

According to ChangeWave, one in eight respondents said they plan to switch from either Comcast or Time Warner Cable in the next half-year – half again as many who planned to jump from either AT&T U-verse or DirecTV. And where are the dissatisfied TV subscribers likely to look to get their fix of The Real Housewives of Orange County or SportsCenter ? Well, it just so happens that DirecTV and ATT U-verse are the most likely replacement service providers, according to ChangeWave.

CW TV switch

 

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Tech M&A spending rolls along at record rate

Brenon Daly

Contact: Brenon Daly

Tech M&A spending continued its record pace in April, putting 2014 on track to top a half-trillion dollars worth of deals. Assuming the pace holds, this year would mark the highest level of spending on tech transactions since the Internet bubble burst a decade and a half ago.

For the just-completed month of April, tech acquirers around the world announced some 302 deals valued at $48bn, a stunning six-fold increase over the same month last year and more than three times the level of April 2012. Consolidation last month in the old-line telco and cable industries led the parade of blockbuster transactions, which included five acquisitions valued at more than $1bn.

The spending in April actually accelerated what has already been a record start to 2014. (See our full Q1 report.) Through the first four months of this year, tech M&A spending has soared to $178bn. To put that amount into perspective, consider this: January-April spending has already exceeded the full-year totals of every year except one since the recession ended in 2009. More dramatically, year-to-date spending has even eclipsed the previous record of $166bn for the first four months of the go-go year of 2006.

Further, dealmakers don’t really see a slowdown in the frenetic pace. As part of our semiannual Tech M&A Leaders’ Survey , done in part with Morrison & Foerster, we noted that activity is currently running at a record level and asked respondents for their outlook on the overall tech M&A market for the rest of 2014. Nearly one-third (31%) projected an increase in activity, 41% said the pace is likely to hold steady, and 28% predicted a decline.

With more than seven out of 10 respondents forecasting that the broad tech M&A market will hold – or even accelerate – its current unprecedented activity, the outlook for dealmaking is more bullish than it has been in years. 451 Research and Morrison & Forrester will be holding a complimentary webinar to discuss the survey, which also includes a number of key findings around deal structures and valuations. To join the webinar, which will be held next Tuesday, May 6 at 10:00am PST, simply register here.

Monthly deal flow, 2014

Month Deal value Change vs. same month in 2013
January 2014 $30bn 168% increase
February 2014 $73bn 51% increase
March 2014 $27bn 391% increase
April 2014 $48bn 508% increase

Source: The 451 M&A KnowledgeBase

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Intralinks tracks down docTrackr

Brenon Daly

Contact: Brenon Daly

After opening up its M&A account last April with an opportunistic acquisition, Intralinks has followed that up with the somewhat more strategic $10m purchase of docTrackr. The purchase of the three-year-old digital rights management startup is significant because it shows Intralinks playing both offense and defense with M&A. Neither side used an advisor.

On the defense side, the deal ‘boxes out’ Box. The high-profile file-sharing company – which is likely to go public in the next few weeks and be valued in the billions of dollars – had licensed docTrackr for at least two years. As my colleague Alan Pelz-Sharpe notes in our report , there might not be much impact to Box’s business with docTrackr off the table, but Intralinks will mint some PR around the move, nonetheless.

In terms of building its business, docTrackr will slot into Intralinks’ enterprise business. That division, which generates nearly half the company’s overall revenue, is forecast to be the main growth engine at the company in the coming years. But for now, the enterprise division is basically flat. (All of Intralinks’ growth in 2013 – a year in which it increased total revenue 8% to $234m – came from its M&A-related business.)

Longer term, Intralinks has indicated it expects to grow its enterprise business 25-30% per year. That seems ambitious for a company that has seen sales there flat-line for two straight years. (Some of that performance is simply a function of accounting, with revenue lagging the actual subscriptions that Intralinks sells.) But even adjusting for that and looking at billings, the growth rate for Intralinks’ enterprise business has lagged that of rival collaboration vendors. The addition of DRM technology from docTrackr into the company’s platform hits a key point for customers, particularly those in the regulated industries that Intralinks has targeted.

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

IBM finds a bargain in Silverpop purchase

Brenon Daly

Contact: Brenon Daly

Fittingly enough for an acquisition to bolster its Smarter Commerce portfolio, IBM appears to have smartly picked up a bargain in its purchase of marketing automation (MA) vendor Silverpop. Big Blue didn’t release terms of the deal, but reports put the transaction value at roughly $250m-300m. Assuming that’s roughly accurate, it would value Silverpop at only about half the valuation that other significant MA providers have received in recent exits.

According to our understanding, Silverpop put up about $80m in sales last year. However, several industry sources have indicated that the Atlanta-based startup was only growing at about 10-15%. Other similar-sized MA firms are vastly outstripping that rate. For instance, Marketo boosted its top line almost 70% in 2013, and we estimate that HubSpot was right in that neighborhood, too. More broadly, a recent report from 451 Research’s MarketMonitor service forecasted 22% CAGR for the overall MA industry over the next four years.

Silverpop’s sluggish growth would appear to have put pressure on its valuation, with IBM paying 3-4x trailing sales for the company. Meanwhile, rivals such as Oracle, Adobe and salesforce.com have paid multiples ranging from roughly 6-10x trailing sales. Overall, the shopping spree has topped $7bn in spending for MA vendors.

Select marketing automation deals

Date announced Acquirer Target Price to sales ratio Deal value
December 20, 2013 Oracle Responsys 7.7x $1.6bn
June 27, 2013 Adobe Systems Neolane 8.6x* $600m
June 4, 2013 salesforce.com ExactTarget 7.6x $2.5bn
December 20, 2012 Oracle Eloqua 9.7x $956m
April 27, 2012 Intuit Demandforce 11.4x* $423.5m
December 22, 2010 Teradata Aprimo 6.3x $525m
August 13, 2010 IBM Unica 4.4x $523m

Source: The 451 M&A KnowledgeBase *451 Research estimate