Author: Brenon Daly

LinkedIn looks to keep users more linked with SlideShare acquisition

Brenon Daly

Contact: Brenon Daly

In its largest-ever acquisition, LinkedIn said Thursday afternoon that it will pay $119m for SlideShare in an effort to draw more people to the professional network and keep them there longer. SlideShare has some 29 million unique monthly visitors, and the combination should allow LinkedIn members to expand their professional development and identity. It also significantly increases the amount of content on LinkedIn’s network, which is crucial for the company to grow beyond a site that the 160 million registered users only access when they are looking for a job.

The purchase, which continues the company’s practice to cover its M&A bill with a mix of cash and stock, represents a significant inorganic move to bump up engagement on top of LinkedIn’s earlier in-house efforts such as forming professional groups and a dedicated news page. To date, LinkedIn has had success with its strategy.

As it announced the SlideShare acquisition, LinkedIn also reported financial results for its first quarter. Sales for the January-March period doubled to $189m, with the business running at a solid 20% ‘adjusted EBITDA’ margin. Perhaps more importantly, revenue from all three segments of its business (hiring, marketing, subscriptions) posted strong growth. It’s fairly rare that a fast-growth business (LinkedIn has at least doubled revenue for seven straight quarters now) can put up consistent results across completely different business units without a misstep.

Wall Street has certainly noticed that performance. Shares hit their highest level since last May’s IPO, changing hands at about $120 each in Friday afternoon trading. That values the company at $12.3bn, or more than 13 times the forecasted revenue of roughly $900m for 2012. In comparison, old-line job board Monster Worldwide is valued at only $950m, despite being on track to generate slightly higher revenue this year.

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

Buying into the social side of HR

Brenon Daly

Contact: Brenon Daly

After three consolidation plays in the fragmented human capital management (HCM) market, private equity-backed rollup Peoplefluent has expanded into enterprise collaboration with the acquisition of Socialtext. Although 10-year-old Socialtext was one of the pioneers of collaboration software (or ‘wikis,’ as they were known in the early days) and did attract some 6,500 users, it struggled to actually put up revenue.

According to our understanding, Socialtext was only generating about $5m in revenue. Peoplefluent – backed by Bedford Funding, whose principals served as executives at ERP rollup Geac – isn’t renowned for paying high multiples. It paid less than 2 times sales for both of its main consolidation acquisitions, 2008’s platform purchase of Authoria and 2010’s reach for Peopleclick. (Earlier this year, it also added a learning management vendor, Strategia Communications.)

Peoplefluent’s move to add collaboration to its HR platform comes almost exactly two years after HCM giant SuccessFactors paid $50m for social enterprise software provider CubeTree. Additionally, we’ve seen salesforce.com combine elements of its acquisition of collaboration software startup Manymoon with its step into the HCM market through its high-multiple purchase of Rypple. And salesforce.com just added another small part to its collaboration offering, tucking in tiny startup Stypi

Tech M&A slump continues in April

Brenon Daly

Contact: Brenon Daly

The deal drought continued into April, with spending on tech transactions around the globe during the just-completed month coming in at only $12bn. That’s less than half the level of spending on tech M&A that we recorded in April during the same month last year.

Spending on deals this year has now dropped in three of the four months, compared with 2011. (The $12bn of spending in April essentially matched the monthly average of the previous three months so far this year.) Additionally, the number of acquisitions in April slumped to its lowest level this year.

The low spending and light volume goes against what most observers projected for 2012. Many buyers – flush with cash and enjoying their highest stock price in a decade or so – indicated that they would be active in the M&A market after many deals got knocked off the table due to the European debt crisis in the back half of 2011.

But now, it seems like pricing is the problem. In the recent M&A Leaders’ Survey from 451 Research / Morrison & Foerster, two-thirds of respondents said rich valuation expectations at target companies were keeping deals from getting closed. Only 10% of the survey respondents said pricing wasn’t a hindrance in closing deals. (See the full report.)

In terms of the acquisitions that did get announced last month, we couldn’t help but notice the stark contrast between the two targets of the largest (non-patent) deals in April.

On the one hand, we saw Vodafone Group’s $1.7bn purchase of Cable & Wireless Worldwide, a company that traces its roots back to the 1850s, generates nearly $3.5bn of sales and has 6,000 employees. And on the other hand, there was Instagram – a company with no revenue, only a dozen employees and a 2010 vintage that nonetheless fetched $1bn in its sale to Facebook.

2012 activity, month by month

Month Deal volume Deal value % change in spending vs. same month, 2011
January 340 $4.1bn Down 65%
February 272 $11.1bn Up 16%
March 289 $19.9bn Down 30%
April 267 $12.3bn Down 55%

Source: The 451 M&A KnowledgeBase

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Survey: lots of M&A talk, but few prints

Brenon Daly

Contact: Brenon Daly

Although key members of the broad dealmaking community indicate they have stepped up their activity in the M&A market recently, actually closing deals has proven challenging so far this year because of pricing and renewed concerns about the stability and growth outlook across the globe. That’s one of the main findings from the inaugural survey by 451 Research and Morrison & Foerster of more than 300 executives, corporate development officials, lawyers/bankers and other dealmakers.

In the survey, slightly more than half of the respondents (52%) said they are seeing more activity over the past half-year than they have during the same period in either of the two previous years. That’s more than twice the number who said activity has tailed off recently. Further, respondents projected that the heightened activity will translate into actual prints at some point this year: Nearly six out of 10 (59%) respondents said they expected to be busier in 2012 than they were last year, compared to just one out of 10 (8%) who said the opposite. We’ll have a full report on the survey in tonight’s Daily 451, including what’s driving current dealmaking and what’s keeping respondents from doing deals.

M&A spending outlook

Period Increase Stay the same Decrease
2012 forecast 59% 33% 8%

Source: M&A Leaders’ Survey from 451 Research / Morrison & Foerster, April 2012

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LANDesk’s measured return to M&A

Brenon Daly

Contact: Brenon Daly, Dennis Callaghan

As a company that has had five different owners in recent years, LANDesk hasn’t necessarily always had the stability and support that’s needed to do deals of its own. But on Tuesday, the systems management vendor, which traces its roots back to the mid-1980s, stepped back into the M&A market with a measured, try-before-you-buy acquisition of existing partner Managed Planet. LANDesk already licensed Managed Planet’s analytics product as part of its larger offering, easing the technical due diligence in the transaction.

LANDesk’s purchase of analytics vendor Managed Planet represents a relatively low-risk – but potentially high-value – return to acquisitions, adding capabilities such as hardware discovery and analytics to LANDesk’s existing offering. Although small, the deal helps LANDesk know more about managing the business of technology, getting metrics on the value and usage of IT assets, guiding future purchases, upgrade decisions, cloud migrations and so on.

The transaction stands as the first one since Thoma Bravo carved LANDesk out of Emerson Electric in August 2010. With the acquisition, LANDesk – and its deep-pocketed private equity owner – appears to be telegraphing that it will continue shopping. We understand that LANDesk is currently looking at another potential purchase that might get done in the next few months.

Spirent secures its testing platform with Mu

Brenon Daly

Contact: Brenon Daly, Eric Hanselman

A relatively infrequent shopper, Spirent Communications has picked up Mu Dynamics, adding security testing for applications to the company’s performance-testing portfolio. The deal, which is only the British company’s second acquisition in the past half-decade, was announced last week and closed Monday. Spirent paid $40m in cash for Mu, which is projected to contribute about $18m in sales next year. (We understand that talks got going only in December, with Duff & Phelps’ Pagemill Partners unit advising Mu.)

The purchase of Mu Dynamics should also help Spirent expand its market, both in terms of customers and products. Traditionally, Spirent has sold its performance analysis offering as a hardware-based platform to network equipment manufacturers that use it to test the performance of products before they launch them. (It primarily competes in this market with Ixia, although Spirent is much larger and more profitable than its rival.) With Mu, Spirent will get a software product that can be more quickly and easily deployed, even within corporate IT departments.

As more and more applications are run on virtualized infrastructure, the process of testing is adapting. Where hardware-based systems have traditionally been used in test environments, it’s much more difficult to connect them to the virtual and ‘cloudy’ application deployments that are predominating. Spirent’s move will give it tools to address these environments. Ixia has also developed product capabilities in this area. Software versions of testing products can also scale well to match the increased scaling demands placed on applications.

Additionally, Spirent obtains Mu Dynamic’s small – but potentially disruptive – cloud-based testing division called Blitz.io, which bumps up against startups such as SOASTA, Apica, AppDynamics, LoadStorm and other SaaS testing providers. Blitz.io already has some 15,000 users.

While both the performance and security of applications is important to increased cloud application adoption, security is turning out to be a far more significant factor. In a survey earlier this year, ChangeWave Research, a service of 451 Research, found that companies gave higher marks to the reliability of cloud apps than they did to the security of them. Further, of the companies that are not currently running cloud applications, one-third of them cited ‘security concerns’ as the reason they have passed so far. That was twice as high as any other concern voiced by the more than 1,500 respondents to our survey.

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

Splunk soars in rip-roaring IPO

Brenon Daly

Contact: Brenon Daly

In a rip-roaring debut, Splunk soared onto the public market Thursday in an IPO that created more than $3bn of market value for the data analytics vendor. That’s a heady, double-digit valuation for a company that’s likely to generate only about $200m in sales this year. (Just as we predicted in last week’s special IPO report, the company has captured the attention of Wall Street. Subscribers can click here to read what else we see coming in the IPO pipeline in the next few months, and how the offerings are likely to fare.)

But Splunk’s rich pricing simply reflects the tremendous opportunity that the company has in front of it. If the name ‘Splunk’ conjures up images of exploring a cave, or ‘spelunking,’ we might suggest that a more accurate way to view the company is one ready to run – and run quickly – into a wide-open greenfield.

The company, which has already garnered 3,700 customers across a broad number of industries, makes the pitch that any company with large amounts of data is a potential customer. Splunk’s core offering is a search product that helps users make sense of the ever-increasing volumes of data, much of it machine-generated.

After it got going in 2003, Splunk had most of its use cases around IT operations and security. However, the company has expanded its product to also cover application performance management, online customer experience monitoring, marketing and beyond.

Originally, Splunk’s seven underwriters set a range of $8-10 for each share, but then ended up pricing at double that level at $17 each. In the aftermarket, the stock nearly doubled again, changing hands in the low $30s in mid-Thursday trading on the Nasdaq. (It trades under the ticker SPLK.)

A final interesting little market anecdote about the offering: With roughly 100 million shares outstanding, Splunk is starting its life as a public company at almost exactly the same amount ($3.3bn) that Hyperion Solutions finished its life as a public company. Splunk’s current CEO Godfrey Sullivan was previously CEO at Hyperion, which sold to Oracle five years ago.

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

Marketo buys into social marketing with Crowd Factory

Brenon Daly1 Comment

Contact: Brenon Daly

Announcing its first-ever acquisition, Marketo said Wednesday that it is picking up Crowd Factory. The deal adds Crowd Factory’s social campaign management technology to Marketo’s marketing automation platform, expanding the distribution of marketing pitches to social channels such as Facebook pages and Twitter.

Although terms weren’t disclosed, we imagine that this was a small technology tuck-in. As we understand it, Crowd Factory was planning on raising a new round of financing of about $10m, but instead took the offer from Marketo. (Crowd Factory had already raised money from Storm Ventures, Hummer Winblad Venture Partners and Peninsula Ventures.) Our understanding is that Crowd Factory generated a little more than $1m in 2011 (with just two sales people) and was planning on tripling revenue this year.

For Marketo, this purchase rounds out its platform, adding cross-channel capabilities as well as bringing analytics to measure returns on the sharing of social campaigns, such as sweepstakes pages. The technology additions should help the company compete in the red-hot marketing automation space, which has seen significant moves by rivals recently. ExactTarget went public last month, creating some $1.6bn in market capitalization, while Eloqua has been on file since last summer. We could certainly envision Marketo following with an IPO of its own, but probably not until it tops $50m in revenue next year.

Software AG feels the need for speed in latest acquistion

Brenon Daly

by Brenon Daly

Moving to bolster its middleware messaging technology, Software AG said Monday that it would pick up London-based my-Channels. The acquisition of 13-year-old my-Channels, which is probably best known for its Nirvana product used in foreign currency trading, will provide technology to the German BPM giant that will allow customers to stream data to a variety of sources. Software AG plans to release the first product integrated with the newly acquired Nirvana technology before the end of the year, although the technology will be interoperable with its webMethods suite shortly.

The purchase by Software AG, which is its first deal in almost a year, has a few echoes with an acquisition Informatica did almost two years ago. Like my-Channels, 29West focused on high-volume, low-latency messaging for financial services firms. Informatica indicated that it paid about $40m for 29West, which we suspect is more than Software AG paid for my-Channels. However, according to our understanding, 29West had almost three times the revenue of the UK-based startup

IBM reaches into the app layer for Varicent

Brenon Daly

Contact: Brenon Daly

IBM has mostly stayed away from acquiring application vendors, reaching instead for companies that typically either bolster its sprawling Global Services division or infrastructure software business, particularly in the management layer. Big Blue stepped a bit out of its regular acquisition area on Friday with the purchase of sales performance management (SPM) vendor Varicent Software. IBM is adding Varicent, which helps companies manage quotas and incentives for sales agents, into its Smarter Analytics division.

Although IBM didn’t disclose terms of the deal, we estimate that nine-year-old Varicent was generating about $35m in sales, give or take a few dollars. That would make it less than half the size of its publicly traded SPM rival, Callidus Software, which increased revenue 18% in 2011 to $84m. Callidus currently trades at slightly north of 3 times trailing sales. Slapping that multiple on Varicent gives a price in the neighborhood of $100m, which is probably a reasonable starting point for valuation.

Of course, Callidus’ current valuation doesn’t reflect any acquisition premium that an acquirer would have to pay. Also, we would probably make the case that Callidus has a more valuable revenue stream, given that more than half of its revenue comes from subscriptions. (Last year, Callidus reported that SaaS revenue hit $45m of the $84m in total sales. More importantly, the subscription business grew twice as fast as the company’s overall revenue.) Varicent was more of a traditional software provider, with license and maintenance plus a bit of consulting. Finally, one other SPM vendor to keep an eye on is Xactly. We understand that company, which has raised roughly $70m in venture backing, may be looking to go public in 2013.

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