Author: Brenon Daly

Overseas shopping in November drives tech M&A to post-recession record

Brenon Daly

Contact: Brenon Daly

Tech M&A spending in the just-completed month of November nearly doubled from the same month last year, as European shoppers went on an unusually big spending spree. However, the rest of the market was very quiet. The number of announced transactions last month sank to the lowest monthly level since the end of the recession.

Across the globe, the total value of tech deals announced last month came in at $23.3bn, slightly above the monthly average in 2013 but dramatically above the $12.2bn recorded in November 2012. Four of the five largest acquisitions announced last month involved targets based outside the US, including Germany’s Scout24 and Dutch software vendor UNIT4.

The surge in November spending means that 2013 will set a new record for the value of tech deals since the end of the recession. In the first 11 months of this year, buyers announced transactions worth an aggregate value of $222bn, higher than any other full-year total since the credit crisis knocked the economy into a tailspin from which is has only haltingly recovered.

The incomplete recovery shows up dramatically in the number of prints. Consider this: The number of announced transactions has declined, year over year, in every single month in 2013, leaving the total number of deals so far this year down 14% compared with last year. And deal flow is drying up even more. In November, buyers announced just 209 transactions – the lowest monthly total in four years and down nearly one-third from the level in November 2012.

Post-recession deal flow

Period Deal volume Deal value
January-October 2013 2,861 $222bn
January-October 2012 3,338 $163bn
January-October 2011 3,462 $204bn
January-October 2010 3,003 $173bn
January-October 2009 2,758 $137bn

Source: The 451 M&A KnowledgeBase

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High ground for Hyland? Rumors swirl about billion-dollar exit

Brenon Daly

Contact: Brenon Daly

A half-dozen years after acquiring a majority stake in Hyland Software, Thoma Bravo is rumored to be looking at selling its chunk of the enterprise content management (ECM) vendor. And the deal – if there is one – won’t be cheap: the asking price for Hyland is thought to be about $1.2bn.

According to our understanding, that would value Hyland at more than 4x trailing sales and about 15x EBITDA. Those multiples are slightly richer than the current trading valuation of ECM giant Open Text. Although we should note that Open Text shares are currently trading at an all-time high, up some 50% since the beginning of the year.

The bull market for shares of rival Open Text has prompted speculation that Hyland, which is being advised by Goldman Sachs, is dual-tracking. After all, Hyland has already been down at least some of the road to the public market. The 22-year-old maker of the OnBase product put in its IPO paperwork back in May 2004, but pulled it a half-year later. (Currently, Hyland has roughly five times the revenue and number of employees it did when it put in its prospectus almost a decade ago.)

While Hyland could certainly opt for a trade-sale, an IPO might just prove more lucrative in the long run. Some software investors might pass on putting money into a license-based company, but Hyland certainly has characteristics that would nonetheless find some buyers on Wall Street. The pure-play ECM company puts up about 20% growth, primarily by focusing on specific vertical markets, most notably healthcare, higher education and financial services.

That position tends to be more defensible than broad, horizontal ECM offerings, which have come under threat from old rivals (SharePoint) as well as startups (Box). (My colleague Alan Pelz-Sharpe has noted that Hyland most often bumps into vendors that were consolidated during the previous round of ECM match-making, such as FileNet and Documentum.)

Cleveland, Ohio-based Hyland also benefits from strong customer support, and it has a reputation as a solid company with ‘Midwestern’ values, and a culture of an ‘honest day’s wage for an honest day’s work.’) The company boasts a 98% maintenance renewal rate among its nearly 12,000 customers.

Hyland’s approach stands out starkly to the approach taken by the much larger – and more mature – Open Text, which has dropped more than $2bn on a dozen deals over the past three years. It gobbled up a number of ECM vendors before expanding into adjacent markets such as business process management and data integration. Still, Open Text’s consolidation strategy hasn’t hurt it on Wall Street, which values the company at $5bn.

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

Webinar: Tech M&A trends, valuations and more

Brenon Daly

Contact: Brenon Daly

For those of you not too busy trading freshly printed Twitter shares on Thursday, we invite you to join 451 Research and Morrison & Foerster for a webinar on the results of our semiannual M&A Leaders’ Survey. (451 Research clients can access our full report on the survey.) The webinar will be held at 10:00am PST (1:00pm EST), and you can register here.

Among other topics, we’ll be discussing both the near-term and longer-range M&A plans for many of the tech market’s top dealmakers. (For instance, we have views on whether or not we’ll see another boom in tech M&A – and what it would take to get there.) Additionally, Morrison & Foerster’s Co-Chair of Global M&A Practice, Rob Townsend, will offer insight from our survey topics around the growing trend of ‘acq-hires’ and, more broadly, HR issues that can come up in M&A.

And finally, going back to IPOs, we’ll have the forecast from our senior dealmakers about whether or not they expect to have to outbid the public market for the companies they want to buy over the next year. (Hint: The IPO market has never been more competitive, in their view.) Again, we’d love to have you join us tomorrow for what promises to be an insightful and useful webinar, which you can register for here.

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

Is the new (and improved?) BlackBerry ready to deals again?

Brenon Daly

Contact: Brenon Daly

After a sale process that was equal parts aspirational and delusional, BlackBerry has wrapped up its review of ‘strategic alternatives’ with a bit more money and a few new executives. It’s highly unlikely that combination – however well-intentioned – will do much to change the immediate trajectory at the Canadian company. A paltry 2% of customers who plan to buy a cell phone before the end of the year intend to pick up a BlackBerry, according to a September survey by ChangeWave Research, a service of 451 Research.

And candidly, there’s probably not much that can be done to change the final outcome at BlackBerry, which appears to be set for a long, slow grind toward oblivion. That’s at least one conclusion we would draw from the fact that all of the would-be buyers for the company passed on it. Even the kind-of/sort-of ‘stalking horse’ bid trotted off, with Fairfax Financial opting to limit its exposure to its largest holding by investing $1bn in BlackBerry rather than acquiring the whole thing.

One area where we may well see a change at BlackBerry, however, is in M&A. Understandably, the company hasn’t been a buyer as it has been trying to sell itself. The company hasn’t done an acquisition since March 2012, back when it was still known under its original name, Research in Motion.

But with BlackBerry getting a few more coins in its treasury from Fairfax, and an incoming CEO who has done some valuable acquisitions in the past, it could look to go shopping once again. (Don’t forget that BlackBerry’s new CEO, John Chen, picked up a handful of mobile technology companies when he was running fading database company Sybase. The mobile offerings were the primary asset that SAP wanted at Sybase when it paid $5.8bn for it back in 2010. At the time, SAP applications didn’t even run on the core Sybase database.)

Already the rumor-mill has been churning on a potential acquisition for BlackBerry: OpenPeak. Although all the upheaval at BlackBerry would appear to make any acquisition right now unlikely, this pairing would actually make a bit of sense. OpenPeak built BlackBerry’s Secure Work Space for iOS and Android, which was released in summer. The offering plays to the (sole) remaining strength at BlackBerry – mobile security and data management for IT departments – at the same time acknowledging that the overwhelming majority of devices coming into the enterprise are not BlackBerry-powered. Owning OpenPeak could advance both of those initiatives at BlackBerry.

 

An early frost chills tech M&A in October

Brenon Daly

Contact: Brenon Daly

After a rip-roaring summer that pushed tech M&A spending totals back to their highest levels since the end of the recession, an early frost chilled dealmaking in October. The aggregate value for tech, media and telecom transactions announced across the globe last month dropped to $11.2bn, just half the monthly average of 2013. Further, continuing the yearlong trend, the number of announced deals in October ticked lower, too.

The drop-off in spending in the just-completed month is even sharper when compared with October 2012. Last October saw an unusually large number of transactions valued at $1bn or more. The six mega-deals helped to boost spending in October 2012 to $32.7bn, three times higher than the spending this October. In comparison, last month we recorded only one transaction valued at more than $1bn. Somewhat unusually, the buyer in the largest acquisition in both last October and this October was the same: SoftBank. However, the Japanese telco dropped almost $20bn more on its deal last year (Sprint Nextel) than this year (Supercell).

Perhaps more of a concern than tech M&A spending, which is inherently lumpy, is the uninterrupted slide in deal volume. Once again, the number of announced transactions in October declined from the same month last year. That means that deal flow has dropped in every month so far in 2013. The net result: tech buyers have printed more than 400 – or almost 15% – fewer transactions so far this year than last year. In fact, the number of announced deals is tracking only slightly above the number announced in the recession year of 2009.

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

Are the go-go days for tech M&A go-go-gone?

Brenon Daly

Contact: Brenon Daly

Twice a year, 451 Research and Morrison & Foerster survey many of the top tech dealmakers to get their views on the M&A market, both on current activity levels and valuation trends, as well as forecasts. (See our full report on our recent M&A Leaders’ Survey.) In this go-round, we decided to extend the outlook with a rather provocative question: will we ever see another boom time in tech M&A?

Specifically, we asked respondents to look ahead for the next half-decade and give us their best guess as to whether tech M&A spending would ever regain the levels of 2006 and 2007, years in which buyers handed over a total M&A consideration of about $450bn. (Yes, almost a half-trillion dollars worth of deals were announced in both those years.) Hitting that level would effectively mean doubling the total amount spent on tech deals around the world in each year since the end of the recession.

The answer? Roughly 40% of respondents said it would probably happen, while 30% said it probably won’t happen. The remaining 30% said it was ’50-50′ whether spending would get back to prerecession boom levels any time before 2018. (Again, for more on this question, as well as the outlook for M&A activity and valuations in 2014, see our full report.)

What is the likelihood that M&A spending will recover to prerecession levels?

Response Percent
Absolutely will not recover 2%
Probably will not recover 27%
50/50 chance will recover 31%
Probably will recover 35%
Absolutely will recover 5%

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

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

Who has designs on Planview?

Brenon Daly

by Brenon Daly

Old-line project and portfolio management (PPM) vendor Planview may be getting new owners soon. The 24-year-old company is rumored to be close to wrapping up a sale process, which has been led by Lazard. The buyer is likely to be a private equity (PE) shop, although one tech company is also apparently taking a long look. No final price has been struck, but Planview will likely trade in the neighborhood of $200m, according to our understanding.

The rumored price would value Planview at roughly 3x trailing sales. That’s exactly the valuation of the last significant transaction in the PPM market. In August 2012, Thoma Bravo paid $990m, or about 3x trailing sales, for Deltek, a government-focused PPM provider. PE firms have been fairly active in the PPM sector, with Parallax Capital Partners and Vista Equity Partners, among others, having inked acquisitions.

In terms of strategic acquirers, Planview probably has the closest relationship with SAP, primarily through a long-standing association with Business Objects. And don’t forget, too, that rival Oracle has already snapped up a large privately held PPM vendor, adding Primavera Software five years ago. Although terms weren’t disclosed in that deal, we estimate that Oracle handed over roughly $350m for PE-backed Primavera.

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

PE shops taking home tech companies that are old and in the way on Wall Street

Brenon Daly

Contact: Brenon Daly

More and more, the portfolios of private equity (PE) firms are looking like retirement homes for the ever-maturing tech industry. Consider Marlin Equity Partners’ proposed $891m take-private of Tellabs, announced this morning. The company has been hawking its networking equipment gear since 1975, and has seen its share of ups and down over the past four decades in business. Tellabs currently finds itself in one of those protracted ‘downs,’ having shrunk for three straight years. The leveraged buyout (LBO) reflects that, with Marlin valuing Tellabs, net of its substantial cash holding, at just 0.4x trailing sales.

By our count, the Tellabs take-private is the ninth tech LBO valued at more than $300m announced so far this year. (To be clear, that’s equity value for a full business, and excludes any pickups of businesses divested by public companies.) On average, the companies that have been erased recently from the public market by PE firms were founded in 1990. The ‘youngest’ company was founded in 1998, exactly the same year Google incorporated itself.

Looking more closely at the list of this year’s 10 take-privates, we would note that only one company actually managed to get an above-market valuation. (That would be Vista Equity Partners’ $644m acquisition of Greenway Medical Technologies, which went off at 4.7x trailing sales.) Four other companies said goodbye to Wall Street at 1x sales or lower. On average, the significant LBOs of 2013 have gotten done at a median valuation of 2.1x trailing sales, a full turn lower than the broad market multiple for the 50-largest transactions of 3x trailing sales.

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

Barracuda sets up for an IPO that should go swimmingly

Brenon Daly

Contact: Brenon Daly

The holdout is over for Barracuda Networks. After a decade of steady expansion behind closed doors, the closely held information security (infosec) vendor is now set to step onto the public market. And it will be a big step by a big company: At about a quarter-billion dollars in revenue this fiscal year, Barracuda is roughly twice as large as other infosec firms that have come public recently.

Barracuda shipped its first product – a firewall – back in 2003. It has used a half-dozen or so acquisitions since 2006 to move into other infosec markets, as well as expand into storage. The company’s core security business represents about two-thirds of overall revenue, with the remaining revenue coming from its faster-growing storage business. It sells primarily to SMBs, having rung up some 150,000 customers.

Barracuda’s planned offering comes at time when Wall Street is particularly bullish on infosec IPOs. Most notably, FireEye doubled in its debut last month on its way to creating almost $5bn in market value. That’s a head-spinning valuation for a company that will do about $150m in sales this year.

But we wouldn’t necessarily hold out FireEye, with its triple-digit growth rates and enterprise focus, as a comparable offering to Barracuda. Instead, we might look back to the IPO four years ago from another appliance-based, multiproduct infosec provider, Fortinet.

Although that company is about twice as big as Barracuda, it is growing at just half the rate of Barracuda. Currently trading at about the midpoint of its 52-week range, Fortinet is valued at roughly $3.5bn, or about 6x this year’s sales. Putting that multiple on Barracuda, we come up with a rough valuation of about $1.5bn for the company. That’s probably a baseline valuation for Barracuda as it hits the market.

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

Tech buyers play defense, push Q3 tech M&A spending to near record

Brenon Daly

Contact: Brenon Daly

Tech M&A spending in the just-completed third quarter edged toward a post-recession record, as buyers announced more blockbuster transactions than they have in any quarter since the credit crisis ended. This summer’s combination of slowing growth rates and rising interest rates lent an urgency to big bets from a number of tech giants that might have otherwise let deals slip away from them. In the July-September period, we tallied a post-recession record of 15 transactions valued at more than $1bn. That means that almost half of the 10-digit deals announced so far in 2013 were printed just in the past three months.

The surge in big-ticket transactions helped push aggregate Q3 spending to just under the highest quarterly levels since the end of the recession. Overall, buyers spent $71.8bn on 800 purchases of tech, telco and Internet companies around the globe in Q3, according to The 451 M&A KnowledgeBase. That boosted M&A spending levels in just the first three quarters of 2013 higher than full-year levels in both 2010 and 2012. Further, 2013 is tracking to basically match 2011 as the highest amount of annual spending on tech acquisitions since the credit crisis.

Yet, even as spending neared record levels, the tech industry showed its age. Deal flow in the July-September period featured big moves – large-scale, cost-driven consolidations as well as significant divestitures – that come in a maturing industry. Many of the biggest prints in the quarter appeared to be ‘defensive’ deals, which also came through in the below-market multiples paid in eight of the 10 largest Q3 transactions.

Meanwhile, on the other side of the M&A spectrum, we would note that not a single VC-backed startup sold for more than $1bn this summer. Further, just one VC portfolio company (Tumblr) has hit that threshold in 2013, compared with four startups that pocketed 10-digit exits in 2012.

Another sign of the ‘graying’ of tech is that there are fewer buyers and less activity in the market. The number of deals announced so far this year is tracking to its lowest level since the depth of the recession. The number of transactions announced in the past three months has dropped 13% compared with the same period in 2012. The decline continues a slide that we have seen all year long. In fact, spending in every single month in 2013 has been lower than the corresponding month in 2012. A full report on Q3 M&A activity and valuations will be available for subscribers on the 451 Research website tomorrow.

Recent quarterly deal flow

Period Deal volume Deal value
Q3 2013 800 $72bn
Q2 2013 751 $46bn
Q1 2013 785 $64bn
Q4 2012 851 $64bn
Q3 2012 912 $39bn
Q2 2012 916 $44bn
Q1 2012 918 $34bn
Q4 2011 904 $44bn
Q3 2011 969 $64bn
Q2 2011 980 $76bn
Q1 2011 919 $45bn

Source: The 451 M&A KnowledgeBase

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