Author: Mark Fontecchio

I am a research manager for 451 Research's M&A KnowledgeBase.

Driverless vehicles the focus of latest tech deals by GM, Toyota

Mark Fontecchio

Contact: Erin Zion

GM accelerates its push into driverless vehicles with the pickup of self-driving car systems maker Cruise Automation. The automaker will use the target’s sensor-based navigation technology and 40-person team to develop driverless cars within its recently formed Autonomous Vehicle Development business unit. The race to be first to market with automated driving technology is crowded, and includes traditional automakers like GM and Toyota as well as technology titans such as Google and Apple. The battle will be fought among traditional automakers developing their own smart car technology in-house and technology firms leasing their smart car technology to carmakers or getting into vehicle manufacturing themselves.

In addition to the Cruise acquisition and the formation of its in-house development business, GM has invested $500m in ride-sharing startup Lyft, which it wants to supply with a fleet of on-demand self-driving cars within the next decade. However, it isn’t the only automaker steering into this area. Toyota recently announced the ‘acq-hire’ of 16 automated driving software engineers from Jaybridge Robotics, a deal that follows the announcement last November of a five-year, $1bn investment in its own AI smart car research center called Toyota Research Institute. Tesla Motors has rolled out increasingly hands-free features On its Model X and S such as computer-assisted parking, steering and collision avoidance, and just two weeks ago automotive supplier Continental bought Advanced Scientific Concepts’ driver-assistance camera systems.

Technology vendors, however, have a head start. Google’s Self-Driving Car Project was formed in 2009, and has been continuously and publicly road-testing its LIDAR system-modified Lexus SUVs as well as its own autonomous prototype vehicles. Meanwhile, Apple has kept a tight lid on its work on a self-driving electric car. Uber also plans to fuel the ride-sharing economy with driverless vehicles. Even video-processing semiconductor supplier Ambarella has made inroads into autonomous cars, nabbing navigation control systems provider VisLab last summer.

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Cisco ‘sparks’ collaboration software with Synata buy

Mark Fontecchio

Contact: Mark Fontecchio

The race to replace email as the de facto standard for internal enterprise communications heats up as Cisco acquires Synata to power the search functionality in its Spark enterprise messaging offering. In addition to the tuck-in of Synata’s 10 employees, Cisco announced that it will invest another $150m toward supporting outside developers who are building apps around Spark. The deal marks Cisco’s fifth in the collaboration space since 2013, according to 451 Research’s M&A KnowledgeBase, and the company’s top line has benefited: its collaboration sales jumped 10% to $4.2bn in the past 12 months. The increased investment comes as a number of diverse vendors are converging on the enterprise collaboration and messaging market.

While collaboration software is convenient for instant communications, it can lead to a sea of messaging data that makes it difficult to find past conversations. Better search functionality helps providers pitch enterprise collaboration and messaging tools as a legitimate alternative to the old standby of email. Synata’s technology will help Cisco Spark do just that. In a recent survey of IT decision-makers, 80% said that instant messaging was of high importance when evaluating smartphones for their organization.

Those IT priorities are driving multiple players to push into collaboration. Microsoft recently revamped Lync as Skype for Business and purchased Talko at the end of 2015 to improve its VoIP capabilities. It’s not just legacy enterprises like Microsoft and Cisco that are drawn to this market. High-value startups such as Slack and Huddle are also making a mark here, and unified communications service supplier RingCentral and conference calling firm PGI bought into this sector last year. Even Facebook, with the recent launch of Work Chat, is eyeing this opportunity.

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Digital Realty peers into new business with Telx purchase

Mark Fontecchio

Contact: Mark Fontecchio

Digital Realty Trust (DRT) buys Telx Group, moving into the interconnection business and adding a services element to the primarily REIT company. DRT is paying $1.9bn to acquire Telx from private equity firms ABRY Partners and Berkshire Partners, a price that represents a valuation increase of 5-6x over what Telx sold for to ABRY/Berkshire in 2011, according to 451 Research’s M&A KnowledgeBase.

This takes DRT into a more services-oriented business, shifting its strategy and putting it into direct competition with one of its key tenants, Equinix. The services aspect will reduce margins yet provide higher revenue per square foot. In that respect, it has some similarities to a deal in May, when REIT firm QTS Realty Trust paid $290m for Carpathia Hosting to move up the stack.

Telx has 20 facilities, mainly in top US markets, with a total of 1.3 million gross square feet of space. DRT has a similar global footprint to Equinix but is missing interconnection options outside of the US. We wonder if Interxion could also be a potential target, in the ‘you might as well go big or go home’ philosophy. Picking up Interxion – recently left at the altar when would-be acquirer TelecityGroup was bought by Equinix – would provide DRT interconnect assets in Europe as well.

There have been 16 interconnection/peering deals dating back to 2002, according to the KnowledgeBase. Telx – with its sales to GI Partners, ABRY/Berkshire and now DRT – has been by far the biggest target, accounting for three of those 16 transactions and almost 95% of the disclosed and estimated value.

Bank of America Merrill Lynch and Morgan Stanley advised Digital Reality, while DH Capital and Barclays Capital banked the sellers. For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Avast scores virtual mobile infrastructure deal

Mark Fontecchio

Contact: Mark Fontecchio

Virtual mobile infrastructure (VMI) sees some M&A activity, with Avast Software picking up Remotium. One of the top IT security concerns for mobility is securing corporate data on individually owned devices, according to 451 Research’s survey of IT decision-makers in June. Remotium’s VMI SaaS alleviates that by providing employees access to corporate applications and data without them residing on mobile devices. The move helps Avast’s push into enterprise mobility security and opens up the potential for more M&A in the sector.

Remotium is one of a handful of startups – along with a couple big players – that is providing VMI, as we noted in April. The technology includes a virtual machine on a remote server that provides users access to mobile apps on their devices, giving employees a way to work with enterprise apps without having any corporate data on the end device. While VMI M&A has been virtually nonexistent up to now, some money has started to flow into the space – Remotium rival Hypori, for example, has raised almost $14m in the past year for its VMI software.

Other potential targets in the sector include Israel-based Nubo Software and California-based Sierraware. They and Hypori were about the same size as Remotium when we last checked, with 20-30 employees.

PayPal adds money-transfer business before eBay split

Mark Fontecchio

Contact: Mark Fontecchio

PayPal agrees to pay $1.1bn in cash for Xoom, an online money-transfer company with a large international and mobile presence. Xoom allows people to move money internationally, often done through mobile devices, while taking a service fee for each transaction. The deal allows PayPal stronger entry into the money-transfer market on the eve of its split with parent company eBay.

The $1.1bn deal value equates to $25 per share, about a 30% premium to what Xoom was trading for a month ago. Xoom’s revenue grew 30% to $160m in 2014, but it reported an operating income loss because of a one-time $31m charge due to criminal fraud targeting the company’s finance department. The incident led to Xoom’s CFO resigning. J.P. Morgan Securities advised PayPal on the transaction, while Qatalyst Partners advised Xoom.

PayPal is expected to spin off from eBay on July 17, about 13 years after it came under the auction site’s ownership. In that time, PayPal’s business has grown dramatically – for example, its $1.8bn in EBITDA last year was 10x its revenue when eBay bought it. The payments provider has made 10 acquisitions in that time, according to 451 Research’s M&A KnowledgeBase, with totals pending of $2.2bn. More than half of that amount has come just this year, as PayPal has readied itself for separation from eBay. Xoom is its biggest deal ever, while the $285m purchase of Paydiant in March signaled PayPal’s strong desire to get into the mobile payments business.

Western European MTDC M&A is on a ‘raised floor’ in 2015

Mark Fontecchio

Contact: Mark Fontecchio

Western Europe has seen landmark datacenter consolidation thus far this year – a trend we predict will continue in the near future. Data regulation requirements, increasing demand for high-quality datacenter space and latency concerns are three factors driving M&A in the datacenter market in 2015.

A lot is happening in the Western European multi-tenant datacenter (MTDC) market outside of the big deals, with smaller regional players looking to grow their service portfolios and extend their reach across the continent with smaller facilities outside of major metros. We expect to continue to see increased M&A activity throughout Europe as the region recovers from the economic crisis.

According to 451 Research’s M&A KnowledgeBase, there were 19 datacenter hosting acquisitions in the first five months of 2015, compared with just seven in the same period last year. What’s more striking is the deal value – some $4.7bn this year compared with $1.2bn in all of 2014. To be sure, the deal value in Western Europe this year is inflated by Equinix’s $3.6bn reach for TelecityGroup. But datacenter M&A in the region has always been dominated by oversized transactions. In 2012-14, single acquisitions accounted for 78%, 57% and 68% of total deal value.

Read more about Western European MTDC in our recent market review.

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Avago buys Broadcom in huge chip deal

Mark Fontecchio

Contact: Mark Fontecchio

Go big or go home has been the mantra in the semiconductor business of late, and there is no better example than Avago Technologies’ $37bn reach for Broadcom today. The purchase price is more than double the next-biggest chip deal that we’ve tracked, with the combined company becoming one of the largest global suppliers of semiconductors.

With four transactions for nearly $45bn, Singapore-based Avago has become the most active acquirer in the semiconductor sector since 2013 in volume and value, according to 451 Research’s M&A KnowledgeBase. Its two largest – for Broadcom today and LSI in 2013 – have diversified Avago’s chip portfolio with storage and networking semiconductors so it is less reliant on the volatile wireless business. They have also followed the pattern of consolidation that has infected the entire semiconductor market, with buyers seeking big targets with opportunities to cut operating expenses. To wit: Broadcom brings in about 30% more sales than Avago, but its profit margin is 14 percentage points lower. Avago wants to reach a 40% margin on the combined entity, which is higher than either company alone.

The 39.1x multiple of Broadcom’s enterprise value over trailing EBITDA is almost three times the median EBITDA multiple on billion-dollar chip deals, according to the KnowledgeBase. Broadcom’s continued growing revenue and the paucity of remaining large semiconductors targets are two main factors in that higher-than-usual valuation. The deal includes $17bn in cash and the rest in Avago stock, with Broadcom shareholders owning about 32% of the combined business. Avago will fund the acquisition with $8bn in cash, $9bn in new debt and 140 million Avago shares worth $20bn. The transaction is expected to close early next year. Both boards have approved the deal, but it’s still subject to approval by regulators and shareholders.

Consumers get smart with home automation tech

Mark Fontecchio2 Comments

A report by ChangeWave Research, a service of 451 Research, finds that the outlook is bright for home automation technology. Similarly, our M&A KnowledgeBase has seen significant acquisition activity in that space as well as the broader Internet of Things (IoT) arena. As a result, we expect increased interest in IoT and connected homes, both for consumers and tech dealmakers.

According to a recent ChangeWave survey of 2,152 consumers, more than half said they plan to use smart thermostats and home monitoring in the future. Other home automation technologies such as smart lighting and locks are also expected to see increased use down the road.

The survey found Nest Labs to be the second-most-popular smart thermostat manufacturer, behind Honeywell. Nest and parent company Google have been the most-active acquirers in home automation – since the start of 2014, Google has spent more than $3.7bn on the connected home, starting with its reach for Nest and then Nest’s purchases of Dropcam and Revolv. Other acquirers in the home automation space have included Silicon Labs and British Gas, which bought connected home devices and monitoring software, respectively.

From a broader perspective, the IoT sector has seen record-breaking M&A activity. Buyers this year have inked 39 IoT acquisitions for $14.8bn, which surpasses the $14.3bn deal value for IoT transactions in all of last year. Semiconductor deals have driven the bulk of spending thus far this year, with ARM, Intel and NXP Semiconductors each announcing two or more IoT-focused purchases.

Home-automation-future-use

App Annie buys Mobidia to improve mobile app usage intelligence

Mark Fontecchio

Contact: Mark Fontecchio

App Annie makes its second acquisition in the past year with the pickup of Mobidia. The target, with 30 employees, provides mobile app usage data for mobile carriers and application providers. Its technology will augment App Annie’s existing analytics for app stores and downloads.

The deal comes just a few months after App Annie, founded in 2010, secured a new $55m round of funding, bringing its total financing close to $100m. It has been about a year since App Annie’s last acquisition, when it bought its main competitor Distimo.

The purchase of Mobidia will give App Annie added momentum in the industry, expanding its app usage dataset and solidifying the company’s positioning beyond app store analytics as a provider of market intelligence for the global app economy. The global number of active mobile application users is projected to increase 20% this year to 2.17 billion, while mobile apps downloads will jump 35% to 185.94 billion, according to 451 Research. As more companies rely on mobile application revenue, demand for market intelligence on mobile apps will continue to rise.

tracking-mobile-apps-users

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PTC heats up IoT business, buys ColdLight

Mark Fontecchio

Contact: Mark Fontecchio

PTC continues to build its Internet of Things platform, paying $100m for data analytics provider ColdLight Solutions. Traditionally known for CAD and PLM software, PTC has now spent nearly $400m since late 2013 on three deals to jumpstart and grow its IoT business, according to 451 Research’s M&A KnowledgeBase.

The play here will be for PTC to position the flagship ColdLight data and analytics platform (currently branded Neuron) capabilities across the majority of its current technology stack, including SLM and PLM, but most importantly within its IoT business unit. IoT investments only pay off if the data generated by these systems can be translated into valuable business insights. ColdLight will bring those capabilities to the entire PTC stack, which will further strengthen the amount of value it can create for its customers.

PTC’s IoT business went from zero to $19m in the past six months, compared with the same period last year. That contrasts to the rest of PTC’s segments – CAD, PLM and SLM – which dropped 5% to $620m in that same period. Still, IoT generates just 3% of the company’s revenue, so incorporating its growth into PTC’s core portfolio is crucial to its total topline.

ColdLight posts about $2m in revenue per quarter, so the $100m deal values the business well beyond 10x trailing revenue – a much higher multiple than the 1.8x median multiple on IoT transactions, according to the KnowledgeBase. That’s probably an unfair comparison seeing as many IoT deals are in the semiconductor and hardware space, where multiples tend to be lower. A better comp would be Hitachi’s reach for Pentaho in February. While that purchase was considerably bigger (see our estimate here), the TTM revenue multiple was about the same, and the rationale was similar – buying a data analytics software firm to provide IoT capabilities for the acquirer’s core business.

PTC’s IoT deals

Date announced Target Deal value
December 30, 2013 ThingWorx $112m
July 23, 2014 Axeda $170m
May 5, 2015 ColdLight Solutions $100m

Source: 451 Research’s M&A KnowledgeBase

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