Author: Brenon Daly

Tech M&A stuck in low gear

Brenon Daly

Contact: Brenon Daly

Tech dealmakers continued to stay on the sidelines in the just-completed Q2 as worries about the slowing US economy and a financial collapse in parts of Europe had them rethinking their acquisitions. Spending on deals across the globe in the April-June period plummeted to $43bn, a 40% slide from the same quarter in 2011. Further, the number of transactions slid 9% year-over-year to 878 – the lowest quarterly total in a year and a half.

On a year-over-year basis, tech M&A spending declined in every month of Q2. Viewed more broadly, that means that buyers have spent less money on deals in five of the six months so far in 2012 compared with 2011. The waning activity has left the total value of acquisitions announced in the first half of 2012 at its lowest level in three years. Somewhat ominously, the spending rate so far in 2012 puts the full-year level at almost exactly the same level as the recession-wracked year of 2009.

2012 monthly activity

Month Deal volume Deal value % change in spending vs. same month, 2011
January 340 $4.1bn Down 65%
February 266 $10.4bn Up 16%
March 282 $16.8bn Down 30%
April 277 $14.1bn Down 47%
May 310 $15.6bn Down 47%
June 291 $13.3bn Down 20%

Source: The 451 M&A KnowledgeBase

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The (bargain) quest for Quest

Brenon Daly

Contact: Brenon Daly

Nobody wants you, then everyone wants you. In the year leading up to the proposed management buyout of Quest Software in early March, shares of the management software vendor had shed one-quarter of their value. (At one point in its slide last August, the stock dipped to $15 – its lowest point in two years.)

The ongoing bidding war, of course, has changed all that. Since sinking to its low-water mark last summer, Quest’s valuation has risen a cool $1bn, with an unidentified suitor (widely assumed to be Dell) bidding about $2.4bn for the old-line software company on Monday. The latest offer is $27.50 per share, some 20% higher than the $23 per share offered by Insight Venture Partners back in early March. Just to put some context around the price, Quest stock hasn’t changed hands above $30 in 11 years.

And yet, even with the four rounds of bumped bids, Quest is still trading slightly below the median valuation of significant acquisitions so far this year. According to The 451 M&A KnowledgeBase, the 50 largest transactions in 2012 have gone off at 3 times trailing sales. The latest bid for Quest values the company at 2.7 time trailing sales.

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LANDesk lands the largest MDM deal so far

Brenon Daly

Contact: Brenon Daly, Chris Hazelton

Two months ago, LANDesk Software switched from being a company that got bought to a company that does some buying of its own with the pickup of Managed Planet. (The old-line systems management vendor has had five owners in recent years.) LANDesk followed up that acquisition with another one earlier this week, reaching for mobile device management (MDM) vendor Wavelink. What’s more, the transaction is likely the largest one in the MDM sector so far.

Although terms weren’t disclosed, the deal triggered a Hart-Scott-Rodino (HSR) review, which would indicate that it is valued at more than the threshold level of $68m. (A source confirmed the HSR review of the transaction.) We understand that the price was actually closer to $90m, or about 4.5 times our estimated revenue for Wavelink of $20m. That would move LANDesk’s acquisition of Wavelink ahead of the sector’s previous big print, Symantec’s purchase of Odyssey Software. (Terms weren’t disclosed, but we estimate that Big Yellow paid $60m for its MDM partner Odyssey.)

As its own market segment, MDM emerged three years ago as iPhone and Android devices started popping up in offices and IT needed management tools since Research In Motion’s highly popular BlackBerry Enterprise Server did not support these devices at the time. Over the past 18 months, more than 80 vendors of varying sizes and sustainability have appeared to offer software and services to manage the ever-increasing number of smartphones and tablets.

That has tipped MDM toward commoditization, which is reflected in recent deal flow in the sector. For instance, big-name buyers such as Motorola Mobility, RIM and Numara have all done MDM deals valued at less than $10m, according to our estimates. However, there are a couple of medium-sized private MDM providers that are nearing breakeven and driving the evolution of this market to include application and data management.

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The IPO machine is back in ServiceNow

Brenon Daly

Contact: Brenon Daly

The Wall Street machine is primed to churn out its next new technology public company, as ServiceNow gets set to debut next week. Sure, the gears of the machine got jammed up a bit in the last offering (Facebook shares are still under water), but it should be humming again with the IPO of the on-demand helpdesk vendor.

Eight-year-old ServiceNow will almost assuredly create more than $2bn in market value overnight and, we suspect, restore the way an IPO is ‘supposed’ to work. (Well, let us qualify that last point: Wall Street speculators – which is how we characterize people who play IPOs, rather than invest in a company for the long term – simply expect new offerings to be priced to pop. And when the shares don’t, well, they dump and run, as Zuckerberg & Co. learned firsthand.)

But we don’t expect any ‘Facebook hangover’ for the ServiceNow IPO. The reason? The company is not only growing solidly (nearly doubling revenue), but is also generating relatively predictable growth, with long-term annual contracts (averaging 2.5 years) and renewal rates that run at almost 100%.

Unlike Facebook, ServiceNow also has the advantage that it is selling into a well-established market, although it is approaching it in a disruptive way. (Meanwhile, the existing IT systems management giants are suffering through tough times: Mercury Interactive has all but disappeared inside a reeling Hewlett-Packard, while BMC has attracted the unwelcome attention of a hedge fund for the company’s ‘underperformance.’)

And finally, there’s the matter of who’s running the two companies and their respective relationship with the would-be buyers of their stock. At Facebook, CEO Mark Zuckerberg couldn’t be bothered to meet with Wall Street investors during much of the roadshow. On the other hand, ServiceNow CEO Frank Slootman made investors a boatload of money on the last company he took public. He steered Data Domain through its IPO in 2007 and then sold the data de-duplication vendor two years later for roughly three times the value it came public at.

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Box eyes a new round at $1bn valuation

Brenon Daly1 Comment

Contact: Brenon Daly

Box is back in the market. Several sources have indicated that the enterprise content management and collaboration startup is currently looking to raise $100m in new funding, on top of the roughly $160m it has already pulled in. Box’s valuation is said to be north of $1bn.

That’s a heady valuation for a company that’s likely to finish this year at about $60m, according to sources. The round (assuming it does get raised) comes at a time when competition is heating up for Box. For instance, Citrix has made a series of acquisitions to piece together an enterprise collaboration and file-sharing platform. (Those small deals came after Citrix was rumored to have missed out on acquiring Box at a price thought to be roughly $600m.)

Likewise, VMware has used small purchases to bolster its Project Octopus while its parent, EMC, recently reached for synchronization startup Syncplicity to expand its collaboration offering. Other tech giants have rolled out their own collaboration platforms through organic development, such as Google’s Drive, Microsoft’s SkyDrive and even Apple’s iCloud. (Additionally, Microsoft is adding much more cloud functionality to its SharePoint product in its next release, due out late this year or early next year.)

Box – along with dozens of other cloud- and drive-themed rival offerings – effectively provides centralized storage as well as a shared file system for all of the documents at an enterprise. As we see it, the seven-year-old company is currently facing two main challenges, and is likely to put at least some of its new funding toward these.

First, since Box is competing as an enterprise software vendor, it needs to hire more sales agents to land enterprise accounts. We understand that the company has added dozens of experienced enterprise sales agents and is looking to bring on dozens more. Second, Box needs to establish itself as a platform on which other software shops can develop additional applications and enhancements. Earlier this year, the company introduced a new API – its first in four years – to draw in more developers.

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Qualys eyes an IPO

Brenon Daly1 Comment

Contact: Brenon Daly

Late last year and even into this year, there were rumblings that Qualys may get taken out before it could get out. Rumors were flying that the vulnerability management vendor had attracted M&A interest from two well-heeled shoppers that have both done large information security acquisitions: Check Point Software and Dell.

A pairing with either of the rumored suitors would have made a great deal of sense, adding threat scanning and analysis capabilities to the would-be buyer’s existing portfolio. Check Point needs vulnerability management capabilities as a way to add more information about what happens inside the firewall. Meanwhile, Dell, through its SecureWorks acquisition, not only integrates Qualys’ reports, but also offers Qualys as a managed service.

According to our understanding, interest from both would-be suitors diminished as Qualys held out for a price approaching $1bn. (That would represent a valuation of about 10 times this year’s bookings for Qualys.) So Qualys is now tracking to an IPO, where it is probably likely to debut at a $600-700m valuation but could well grow into a billion-dollar valuation on its own. (See our full report on the Qualys IPO.)

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Renewed rumors have BMC reaching for AirWatch in MDM play

Brenon Daly

Contact: Brenon Daly

The on-again, off-again rumors surrounding BMC and AirWatch are on again. Early word of the talks surfaced about a half-year ago, but we understand that a number of events may have interrupted discussions between the IT management giant and the mobile device management (MDM) startup.

For starters, BMC printed two transactions in January, including the purchase of Numara Software, a $300m acquisition that was the company’s largest deal in nearly four years. Additionally, Numara brought some rudimentary MDM capabilities from a tiny startup that it had acquired a couple of months before selling to BMC. Our understanding is that BMC is looking for more robust MDM technology than what it picked up with Numara, as well as its own purchase of tiny Aeroprise.

On the other side, valuations of MDM vendors have been skyrocketing. It was recently reported, for instance, that rival MobileIron raised its latest round at a valuation in the half-billion-dollar neighborhood. There was no word on what AirWatch would be going for.

However, any high-multiple acquisition could pose challenges – at least in terms of perception – for BMC, which has been under fire on Wall Street recently for its relatively paltry valuation. Last week, hedge fund Elliott Management bashed what it called ‘poor management execution’ at BMC, and renewed its call for a sale of the company. Elliott noted that BMC stock has underperformed both its rivals and the broader market recently.

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

Google takes another swing at Office

Brenon Daly

Contact: Brenon Daly

Google has reached for the popular maker of mobile software suite Quickoffice, the fourth notable acquisition the company has made in its effort to take on Microsoft Office. Each of the purchases has given Google specific pieces of technology that have helped draw users away from Office, which stands as the dominant desktop productivity suite and has generated tens of billions of dollars of sales for Microsoft over the past two decades.

Looking to siphon off some of those incredibly high-margin sales, Google has scooped up startups offering online word processing (Upstartle with its Writely program), spreadsheet programs (iRows), as well as collaboration and sharing of Office documents (DocVerse). As it built on those deals over the past six years, Google has always pitched its offering – first in Google Docs, then in Google Apps and now in Google Drive – as a Web-based alternative to the largely desktop-based Office franchise. (Of course, Microsoft also offers a hosted, or cloud, version of its popular suite in the form of Office 365.)

With Quickoffice, Google is shoring up the technology around a productivity suite for the post-PC era, as Quickoffice is installed on more than 400 million devices. In addition to the broad user base, Google also gets some much-needed technology that should help iron out some of the wrinkles that can pop up when converting Microsoft Office documents to Google formats. Additionally, Quickoffice can run Office apps on the iPad, while Microsoft has yet to release an official version of Office for the rival tablet. (It is rumored to be working on one, however.)

While terms of the acquisition weren’t released, we would note that Quickoffice has a rather compelling business model, with an extremely low cost of customer acquisition. It gets paid by licensing its software suite to device makers and then generates business on top of that by upselling customers to subscription offerings. (We understand that ‘aftermarket’ business was running at about $5m a quarter recently.) Not bad for a business that was founded in 1996 inside the recently disappeared Palm Inc. For the record, Google has now acquired pieces of two wireless pioneers: Palm and Motorola Mobility.

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

Salesforce.com puts $1bn to work to buy parts of its Marketing Cloud

Brenon Daly

Contact: Brenon Daly

Salesforce.com has now shelled out a cool billion dollars to acquire the makings of its Marketing Cloud. The marketing offering, which is built on the back of the company’s two largest acquisitions, represents the most significant push to grow beyond the on-demand sales force automation product that it’s primarily known for. At stake: billions of dollars of market value for the richly valued SaaS kingpin.

On Monday, the company announced that it will pay $689m in cash and stock for Buddy Media, a social media marketing platform that counts 8 of the 10 largest advertisers as clients. The business, which should officially become part of salesforce.com by the end of October, will be combined with Radian6, a social media monitoring startup that salesforce.com picked up a little over a year ago for $326m.

Both transactions valued the target companies at a double-digit price-to-trailing-sales multiple. Buddy Media is being valued at an eye-popping 27 times 2011 revenue, roughly twice the valuation that Radian6 garnered. For its part, salesforce.com trades a little above 7x trailing sales.

Salesforce.com has shown through its M&A program – where it has acquired core parts of not only its Marketing Cloud, but also its Service Cloud offering – that the company is acutely aware that it can’t sustain an above-market valuation on a single product. With its platform being built on ever-pricier acquisitions, salesforce.com is gambling that it can use M&A to pull off a portfolio expansion that precious few software vendors have done successfully. To date, it’s been hard to bet against the company: Since its shares came public almost eight years ago, salesforce.com is up more than 700%, compared to a flatline S&P 500 over that same period.

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

A not-so-merry month of May for M&A

Brenon Daly

Contact: Brenon Daly

Spending on tech deals in the just-completed month of May fell by half from the same month in the previous year, amid renewed concerns about US growth and European economic stability. Overall, the total value for all tech acquisitions announced around the globe last month hit just $15.3bn, with the number of transactions dipping 10% (year over year) to 302. The aggregate value of deals stands as the lowest total for the month of May in eight years.

The weakness in May means that spending has now dropped in four of the five months in 2012, compared with 2011. That has dragged down the total value of transactions announced so far this year to just $64bn – one-third below the first five months of 2011.

The growing economic worries also weighed on Wall Street, with the major stock indexes dropping about 7% last month. Specific to tech companies, bellwethers such as Cisco Systems, Dell and NetApp all reported weaker-than-expected quarterly results in May. Of those three tech giants – all of which lost about one-fifth of their market value in May – only Cisco announced an acquisition last month.