Author: Ben Kolada

Increasing interest in Internet M&A, as Getty Images sells for $3.3bn

Ben Kolada

Contact: Ben Kolada

In another sign of growing interest in the digital media sector, and in Internet companies in particular, Getty Images has announced that its management and The Carlyle Group are acquiring the company from Hellman & Friedman for $3.3bn. The consortium is paying nearly 40% more for the company than H&F did just four years ago when it took Getty private in a $2.4bn deal. The deal is the largest Internet content and commerce acquisition since Silver Lake Partners and Warburg Pincus announced in May 2010 that they were taking Interactive Data Corp private for $3.4bn.

With the exception of a dip in 2003, M&A volume in the broad Internet content and commerce category has risen every year since we began tracking tech acquisitions in 2002. Unlike the greater tech sector, Internet deal volume was even resilient during the recent recession. According to The 451 M&A KnowledgeBase, while overall yearly tech M&A volume dropped 25% from its high of 4,032 transactions announced in 2006 to 3,020 in 2008, Internet M&A volume rose 10.5% over the same period.

Both older Internet properties and hot upstarts are attracting interest. The advent of social media has enabled today’s Internet startups to rapidly market their products to millions of consumers through powerful word of mouth marketing. Meanwhile, older Internet vendors that survived the tech industry’s nuclear winter a decade ago have now matured, and many are seeking liquidity.

Also driving M&A activity is the rise of serial Internet acquirers such as Google, which has picked up 31 Internet firms. And we’re seeing a resurgence of Internet consolidation shops, such as Rebellion Media and MITRE.

Internet content and commerce annual deal volume

Year Deal volume % change
2012 YTD 441 N/A
2011 787 26%
2010 625 9%
2009 572 13%
2008 504 4%
2007 485 6%
2006 456 53%
2005 298 62%
2004 184 8%
2003 170 -36%
2002 265 N/A

Source: The 451 M&A KnowledgeBase

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Actian persuading Pervasive to go private

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

After a tough 15 years in the public spotlight, Pervasive Software may have finally found a graceful exit. The data integration vendor, whose revenue has flattened since the turn of the century, today announced that it has received an unsolicited $154m buyout offer from Actian.

Pervasive would be wise to accept the offer, as the Austin, Texas-based company had done little to excite investors during its public lifetime. The company’s annual revenue has been roughly in the $40-50m range ever since 2000, and its shares have appreciated less than the broad, tech-heavy Nasdaq.

The lackluster performance factored into today’s offer. Actian’s bid values Pervasive at 2.3 times trailing sales. The best comparable deal is IBM’s Cast Iron Systems pickup in May 2010, which we estimate was valued at 6.7x revenue. And Boomi took an estimated 20x valuation in its sale to Dell in November 2011, though that target was much smaller. In fact, had it not been for Pervasive’s strong cash balance, the deal value would have been much less palatable. Pervasive held $42m in cash and no debt as of June. That treasury reduces the acquisition’s total cost to Actian by more than one-third.

Pressuring Pervasive’s shareholders to act on the offer, Actian is taking an unusually persuasive tone in its acquisition announcement, blatantly pointing out that its offer is the highest closing price reached by Pervasive’s common shares in the past 10 years. The deal carries a 30% premium to Pervasive’s closing share price on Friday, August 10.

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Dell as a mobile manager?

Ben Kolada

Contact: Ben Kolada, Rachel Chalmers, Chris Hazelton

Dell hasn’t hidden its intentions of leveraging its hardware legacy to extend into the enterprise IT market, particularly in regards to software. The PC and server giant recently reinforced its goals with the $2.6bn acquisition of systems management vendor Quest Software. But, as we point out in a recent report, its next move is likely to be in mobile management.

Former CA Technologies CEO and current head of Dell’s software division, John Swainson, made our job a bit easier. Swainson hasn’t been explicit with his plans, but we read some of his recent statements as a signal that Dell may make an imminent move into mobile device management.

That makes sense. Connected devices are the primary target for new applications. They’re also fountains of data that can be gleaned and distilled into BI – which is among the four focus areas for Dell’s software group: security, systems management, business intelligence and applications. In a report detailing the possible future of Dell’s mobile management, we prognosticate about how the company may move into this sector, and with whom. Click here to read the full report.

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Rebellion Media set on consolidating digital media

Ben Kolada2 Comments

Contact: Ben Kolada

Rebellion Media was founded just earlier this year, but has already announced enough acquisitions to make itself appear like a veteran player in the digital media sector. From its first acquisition announcement, Sortable.com, announced July 11, the company has been printing a deal a week. In fact, Rebellion is buying companies at such a breakneck pace that official announcements are playing catch-up to Rebellion’s corporate website, which already lists all of the brands it has acquired so far.

Waterloo, Canada-based Rebellion Media isn’t hiding its intentions, saying on its website that it will continue to be ‘aggressive’ in M&A. The startup has so far announced acquisitions of content, mobile and Web development and e-commerce-related vendors. Targets so far have been located in its home country, Canada, but future deals are likely throughout North America and beyond.

The company primarily targets content and reference Internet properties in the health and wellness, technology, entertainment and sports verticals. But it isn’t restricting itself to this group. Rebellion recently announced the purchase of Jingu Apps, an LBS-based mobile instant messaging and friend-finding service. The company has reinforced its acquired assets with its traffic and monetization platform called TRACE, which stands for ‘Traffic, Revenue and Content Engine.’

Rebellion isn’t yet working with bankers, instead preferring to use M&A knowhow that its executives garnered from their prior experiences. CEO Ted Hastings was previously president of digital media rollup shop Cyberplex. As for funding, the company has taken an undisclosed amount of financing from American Capital. Although we weren’t given specific guidance on who or where Rebellion might acquire next, future transactions could be in the SEM/SEO and e-commerce sectors.

Rebellion Media’s announced M&A

Date announced Target Target summary
July 31, 2012 Universal Properties Owns domain names for purposes of Web development and search engine optimization.
July 24, 2012 Jingu Apps LBS mobile instant messaging application that enables BlackBerry and iOS users to connect with nearby users of WhatsApp, Hookt, LiveProfile, Touch and Kik mobile social networks and communities.
July 17, 2012 Scott Hastings (10 sports websites) Group of combat sports news and reference content websites, including www.fighters.com, www.fightline.com, www.mmatraining.com and www.mmaconvvert.com.
July 11, 2012 Sortable.com Provides online electronics buying advice and reference content that allows consumers to compare and rate products.

Source: The 451 M&A KnowledgeBase

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Google’s admission of failure?

Ben Kolada

Contact: Ben Kolada

Google has finally found a way to monetize Facebook’s platform. After failing to acquire Facebook when it had the chance several years ago, and now with its own attempts at social networking a bit spotty, official word came on Tuesday that Google is acquiring social marketing startup Wildfire Interactive. Google is reportedly paying $250m for Wildfire, a respectable price tag that likely values the target at 7-10x revenue.

Google’s own ‘Insights for Search’ search analysis engine shows interest in Orkut, its attempt at a social network that found most of its popularity outside the US, and its Google+ social network trending downward over the past 12 months. Meanwhile, interest in Facebook has remained remarkably high.

In acquiring Wildfire, Google is recognizing its social shortcomings, and not a moment too soon. There has been rapid consolidation of social marketing startups in just the past three months.

Sector stalwarts Vitrue and Buddy Media have already been acquired by Oracle and salesforce.com, respectively, leaving only a few hot startups left. Beyond Wildfire, we’d point to GraphEffect, Hearsay Social, Syncapse and Lithium Technologies as the next to go. And there will likely be bidding competition for these firms. Large CRM vendors SAP and Microsoft could make a play here, as well as Teradata, which could buy into social to build on top of its recent purchases of marketing specialists Aprimo and eCircle.

Recent select M&A in social marketing

Date announced Acquirer Target Deal value
July 31, 2012 Google Wildfire Interactive Not disclosed
July 10, 2012 Oracle Involver Not disclosed
June 4, 2012 salesforce.com Buddy Media $689m
May 23, 2012 Oracle Vitrue $325m*
April 18, 2012 Marketo Crowd Factory Not disclosed

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

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RealPage getting social, acquiring RentMineOnline

Ben Kolada

Contact: Ben Kolada

With seemingly all consumer-facing tech now trending toward social, why shouldn’t property management software vendor RealPage get in on the game as well?

The company took a step in that direction on Monday, when it announced the $6m acquisition of SaaS startup RentMineOnline, a rental-marketing startup that enables property managers to set up campaigns that residents use to recommend their rental property to friends through email and social networks.

RealPage is handing over $6m, with an earnout of up to $3.5m based on an unspecified revenue milestones. Excluding the earnout, the deal values RentMineOnline at 4x trailing sales (it generated approximately $1.5m in revenue for the 12 months ended June 30). The San Francisco-based company was founded in 2007 and had taken funding from fbFund, Partners in Equity, Seed Camp, and Alex Hoye, the former CEO of GoIndustry, which closed its $31m sale to Liquidity Services earlier this month.

The deal is a complementary addition to RealPage’s LeaseStar service. In announcing the acquisition, RealPage stated the intent was to build up its LeaseStar multichannel managed marketing service, which enables property owners and managers to market and secure rental leads more effectively.

And for a bit of irony, although RentMineOnline was headquartered in San Francisco, we expect its platform will have a greater effect in almost any market but the City by the Bay. Rental costs in San Francisco have skyrocketed recently, leading to a ‘beggars can’t be choosers’ environment where apartment seekers are likely to take whatever option is available, whether the apartment was recommended or rejected.

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NetScout pleases investors, telco customers

Ben Kolada

Contact: Ben Kolada

NetScout Systems on Thursday found itself in the fortunate position of pleasing both investors and customers. The company reassured its investors by announcing better-than-expected revenue in its FY 2013 first quarter, and in a separate announcement, also reassured its telco customers with the tuck-in acquisition of certain of Accanto Systems’ service assurance assets.

On the financial front, NetScout reported that revenue came in at the high end of its previously reported guidance. The company generated $76.4m in its FY 2013 first quarter, a 21% increase over the year-ago period and above the $74.7m that analysts had been expecting on average. Net income for the quarter grew 109%, to $5m. Shares of NetScout were up 12% in midday trading.

Somewhat overshadowed by NetScout’s earnings call was the small tuck-in acquisition of certain of Accanto’s service assurance assets. Accanto provides service assurance products that enable telcos to monitor and manage the delivery of voice services over converged telecom networks. NetScout is purchasing Helsinki-headquartered Accanto’s Pantera hardware probes and middleware and session analysis applications assets, which are based in Modena, Italy.

Although the acquisition announcement was secondary to the earnings release, the deal is still welcome news to NetScout’s telco customers. NetScout claims that the intent of the deal is to extend its own nGenius Service Assurance product’s control plane and data plane monitoring capabilities. NetScout said in the press release announcing the transaction that Accanto’s assets will bolster nGenius Service Assurance’s support for NGN voice services, including IP multimedia subsystems, and add incremental support for legacy circuit-switched voice, including SIGTRAN and SS7.

The acquisition, which includes the assumption of approximately 35 Accanto employees, is expected to be EPS-neutral. Mooreland Partners advised Accanto on the sale, which is expected to close this month.

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Healthy M&A activity in medical speech recognition and transcription

Ben Kolada

Contact: Ben Kolada

There’s seemingly been a burst in deal volume in the niche medical-focused speech recognition and transcription market lately. On Thursday, iMedX announced the acquisition of Electronic Medical Transcription Services (eMTS), capping off a growing line of acquisitions in this sector. Driving deal flow, among other things, is healthcare professionals’ increasing use of transcription and voice recognition systems and various legislation being passed that provides incentives for digital clinical documentation.

One such bill is the Health Information Technology for Economic and Clinical Health Act, also known as the HITECH Act, which became law in 2009. HITECH provides incentives for healthcare providers to use electronic health records, which store clinical data in a digital format.

Although the eMTS buy is likely quite small in the grand scheme of things, there is big M&A money being poured into medical speech recognition and transcription deals.

Earlier this month, One Equity Partners bet its money on this market when it announced that it was taking M*Modal private for $840m, or $1.1bn when including $260m of net debt. That transaction was announced almost exactly a year after M*Modal was acquired by rival MedQuist, which assumed the target’s name.

We’ve previously written that Nuance Communications, with its Nuance Healthcare unit, has been a major consolidator in this sector. In March, Nuance announced that it was paying $313m for medical-focused rival Transcend Services – its largest purchase since its last significant medical acquisition in April 2008, when it paid $363m for eScription. Nuance’s Healthcare division generated $583m in trailing sales as of March 31.

Recent select M&A in medical transcription and speech recognition

Date announced Acquirer Target Deal value
July 2, 2012 One Equity Partners M*Modal $840m
March 7, 2012 Nuance Communications Transcend Services $313.5m
August 15, 2011 Nuance Communications Loquendo $75m
July 14, 2011 Nuance Communications Webmedx Not disclosed
July 11, 2011 MedQuist M*Modal $130m

Source: The 451 M&A KnowledgeBase

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Shallow pool in mobile optimization becoming shallower

Ben Kolada

Contact: Ben Kolada

After Allot Communications dipped its toes into the pool of mobile optimization targets by acquiring small Ortiva Wireless, Citrix cannonballed with the acquisition of Bytemobile. These two deals significantly drained the already shallow pool of acquisition targets in this market. Interested buyers should dismiss the ‘don’t run when wet’ precaution, and jump in before there’s no water left.

Consumers are buying data-intensive devices in droves, and data consumption is exploding as a result. Because seamless data use is considered a right rather than a privilege these days, cell carriers unable to provide flawless transmission risk customer desertion. Tackling this concern, mobile operators are employing every option available to relieve their bandwidth bottlenecks, including relying on a new breed of mobile traffic optimization firms.

As these upstarts emerge as viable solutions, they’re becoming increasingly attractive acquisition targets both for the vendors that traditionally have served telcos, and for non-traditional vendors hoping to pull in cash-rich telco customers.

However, interested acquirers need to move fast. In a recent report, we identified 11 remaining vendors, ranging from pre-revenue firms to established midmarket players. But less than half of those vendors target mobile optimization as their core business. Click here to see who we think may be next in the buyout line.

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Independent now, but will independenceIT someday be acquired?

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

Application hoster and desktops-as-a-service provider independenceIT (iIT) announced on Wednesday the tech-and-talent acquisition of cloud management platform Veddio Cloud Solutions. The cloud aggregator’s dashboard platform will be used to control iIT’s cloud workspace products. According to The 451 M&A KnowledgeBase, this is iIT’s first acquisition on record, but it won’t be its last. As it continues to fill out its product platform, will the company someday turn from acquirer to acquired?

Veddio offers a dashboard application that integrates services from a variety of Internet infrastructure providers, such as telco competitive carriers and MSPs. Through its dashboard, Veddio offers white-label application and cloud hosting, hosted PBX, email hosting, managed firewall, domain name registration, software virtualization and data backup and recovery services. As of the acquisition announcement, the five-employee firm had approximately 150 channel partners.

Though this is iIT’s first acquisition, according to our records, the company is planning additional inorganic moves both in the short and long term. We’re told it is eyeing another tech-and-talent acquisition. Specific details weren’t provided, but the next play will likely focus on the delivery of cloud services.

We’d also note that, although currently becoming more of an acquirer, independenceIT could someday become acquired. The small firm (it has 31 employees) could already be considered a prized target. The pickup of Veddio should provide for triple-digit-percent growth and when we last covered iIT, in 2010, we noted that it had already been profitable for two years.

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