Author: Scott Denne

Walmart fuels e-commerce strategy with $3.3bn Jet.com buy

Scott Denne

Contact: Scott Denne

Walmart prints the largest-ever e-commerce deal with its $3.3bn purchase of Jet.com. The acquisition helps Walmart fill specific gaps in its business and, more broadly, highlights the growing role of M&A among consumer-facing businesses that need to change their strategies to connect with a more connected population.

The world’s biggest retailer has struggled to achieve growth in recent years. Last year’s sales were down a hair and in the two previous years it posted just 2% growth, amid rising expenses. Part of its strategy to change that trend is to invest in e-commerce. However, e-commerce in the US was a negligible contributor to its growth last quarter and internationally, where Walmart is scaling up its e-commerce operations, it’s had trouble doing so. Founded in 2014, Jet has a team that knows how to scale up quickly – the business is already approaching $1bn in annual goods sold.

Jet’s differentiator is its ability to lower prices through a better understanding of shipping and fulfillment costs. That also aligns with a notable Walmart priority: the company plans to invest heavily in reducing its prices over the next few years to recapture what was once its edge in the offline retail market. Jet’s team may have limited ability to help Walmart on pricing its in-store goods; however, the target has the knowledge to enable Walmart to more effectively battle Amazon in terms of price.

Today’s transaction highlights the degree to which offline brands have embraced online technologies as an important avenue to engage with customers, rather than a secondary distribution channel. Until last year, large tech acquisitions by retail and consumer goods vendors were a rarity. No longer. Unilever’s entry into the shaving market via its pickup of Dollar Shave Club, recent deals by Nordstrom and Bed Bath & Beyond, and a string of mobile app purchases by athletic apparel giants Under Armour and adidas show that digital transformation isn’t limited to the IT department.

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Verizon strikes $4.8bn deal for Yahoo’s core biz

Scott Denne

Contact: Scott Denne

Verizon moves to augment its media business with the $4.8bn purchase of Yahoo’s central assets. The deal, which wraps up years of speculation about Yahoo’s future in the new media landscape, will see its core business and operations head to Verizon to be integrated with AOL, while its investments and other assets will stay behind in a company that will be renamed and restructured as a publicly traded, registered investment entity.

Aside from licensing revenue from some of the noncore patents that Yahoo will keep, nearly all of its $4.9bn in trailing revenue will head over to Verizon. The transaction values the target’s assets at about 1x trailing revenue, compared with the 1.6x that Verizon paid for AOL last year. The discrepancy in value reflects the depth of the comparative technology portfolios. Both vendors spent heavily on ad network businesses in the back half of the past decade and early years of this one. More recently, AOL turned its investments toward programmatic, attribution and other advanced advertising technology capabilities. Yahoo doubled down on content while its ad network technologies aged.

This move is all about scaling Verizon’s media footprint. Both Yahoo and AOL have roots in the Web portal space. And both are selling to Verizon for similar prices. But Yahoo’s media assets are substantially larger. AOL generates roughly $1bn from its owned media properties – Yahoo pulls in 3.5x that amount. Owning Yahoo’s media properties will enable Verizon to offer greater reach to advertisers and therefore land bigger deals and at better margins than the ad network revenue that made up almost half of AOL’s topline. Also, having a larger audience for its owned properties will provide AOL’s ad-tech business with more data that it can use to improve its audience targeting.

Telecom services is a saturated market with few net-new customers. Most growth comes from winning business away from competitors. With this acquisition (and AOL before it), Verizon plans to leverage its investments in mobile bandwidth and distribution – its existing mobile and TV customers – to find growth in the digital media sector. According to 451 Research’s Market Monitor, digital advertising revenue in North America will increase 12% this year to $40.6bn, compared with just 4% growth for mobile carrier services.

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

Workday nabs Platfora for big-data analytics

Scott Denne

Contact: Matt Aslett

In keeping with the trend of SaaS application vendors snagging stand-alone analytic capabilities, human capital management specialist Workday has bought Platfora, a big-data discovery and visualization provider. Workday’s motivation for the purchase is to complement the analytic capabilities already built into Workday Financial Management and Workday Human Capital Management – without users having to export data outside Workday.

Workday is not disclosing how much it is paying for Platfora, and while we imagine it was more than the $26.3m and estimated $35m it previously spent for Identified and Cape Clear Software, respectively, we would be surprised if the target’s backers generated a significant return on the combined $95.2m they invested in its four funding rounds.

While it has been reticent to share exact numbers, Platfora has clearly built up a decent-sized list of customers. Over time, the company has shifted its focus beyond Hadoop visualization to also address data discovery and preparation, while adding support for open source SQL-on-Hadoop projects and the Apache Spark in-memory processing engine. Platfora also provides Workday with a data discovery and visualization offering that it can use to complement the analytic capabilities that it has already added to its own applications, as well as enable business users to access data from external sources and bring it into Workday for analysis.

Workday’s Platfora buy follows similar acquisitions of analytic specialists by other SaaS application providers – such as Salesforce’s reach for EdgeSpring and Zendesk’s pickup of BIME Analytics (formerly known as We Are Cloud), although Workday doesn’t compete directly with either of these. In fact, it could be said that all three are looking to add value to take on a common enemy – incumbent enterprise application vendors such as Oracle, SAP and Infor.

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

Nuance voices desire to expand in customer service with TouchCommerce buy

Scott Denne

Contact:  Scott Denne Sheryl Kingstone

Nuance Communications breaks a two-year M&A dry spell with the $215m purchase of TouchCommerce. Building off its earlier acquisitions of Varolii and VirtuOz in 2013, today’s announcement gets Nuance deeper into the customer service segment with analytics software and tools for both self-service and agent-assisted service via multiple mobile and desktop channels.

Amid flat revenue and a cost-cutting program, Nuance hadn’t announced a new acquisition since its tuck-in of document software provider Notable Solutions in July 2014. In previous years, it directed some of its M&A spending toward customer service, although most went toward building out its medical transcription division – its largest business and one that declined slightly through its last fiscal year and the first two quarters of its current one.

Nuance isn’t the only one increasing its investments in customer service. According to 451 Research’s M&A KnowledgeBase, acquirers have spent $1.4bn on that category so far in 2016, putting it on pace to be the second-largest year on record. Our data suggests that the investments, particularly in mobile-heavy players like TouchCommerce, is warranted. According to a recent 451 Research Voice of the Connected User Landscape survey, 37% plan to deploy customer self-service capabilities over the next 24 months.

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

SoftBank makes hard turn into IoT market with purchase of ARM

Scott Denne

Contact: Scott Denne

SoftBank Group digs deep into its treasury for a bet that won’t pay off for several years. The company will spend $32.4bn to acquire ARM Holdings, a provider of chip designs for the mobile ecosystem. SoftBank will hand over $22bn of its own cash and fund the remainder of the all-cash deal with a bridge loan that it expects to repay with the proceeds of its sale of Supercell and a chunk of its Alibaba stock (both transactions were previously announced). That will leave SoftBank, which finished its recent fiscal year with negative free cash flow of $4bn, with about $2.5bn in cash and $25bn in debt.

The acquisition is the second-largest semiconductor deal, edged out by Avago’s $37m purchase of Broadcom last year. Despite the wave of large-scale consolidation in the chip industry over the past two years, $30m-plus chip pairings are rare. The third-largest transaction, the take-private of Freescale Semiconductor, was announced almost a decade ago and was just over half the size of today’s deal.

SoftBank will pay 20.9x trailing revenue for ARM. That’s the first time any company has cracked the 20x mark in a $1bn-plus chip acquisition. Even 10x has only been passed on two previous occasions, according to 451 Research’s M&A KnowledgeBase. As a supplier of intellectual property, not the chips themselves, ARM has a stronger profit margin compared with other chip vendors. That accounts for some of the high multiple. Still, the roughly 46x EBITDA multiple is one of the highest among such transactions.

Part of the rationale for the deal – and the valuation – is built on the emerging Internet of Things (IoT) opportunity. As a major licenser of system-on-chip technologies, ARM stands to play a major role in that market. And SoftBank, as a provider of wireless connectivity services in both Japan and the US, anticipates that substantial synergies will develop among the companies’ offerings, although it admits that such synergies won’t generate meaningful revenue or cost savings for many years.

That said, the overall growth of IoT will provide tailwinds for ARM to grow into its valuation with or without synergies. According to 451 Research’s Market Monitor, service providers globally will post $11bn in annual revenue servicing M2M connections. That number will nearly triple by the end of 2020.

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

Mobvista sees path to a broader gaming platform with GameAnalytics in the fold

Scott Denne

Contact: Scott Denne

Mobvista makes its second international deal of the year with the acquisition of mobile behavioral analytics vendor GameAnalytics. Fueled by its recent listing on China’s NEEQ exchange, an over-the-counter board for Chinese startups, Mobvista is expanding from its roots as a mobile ad network into a broader platform for gaming monetization. Its previous transaction, the $25m purchase of NativeX, brought it reach into the US market as well as video advertising and other rich media formats.

Today’s pickup of Copenhagen-based GameAnalytics gets it software that provides game developers with audience behavioral and segmentation data that can be deployed for marketing campaigns or product development. The move mirrors Tapjoy’s (much earlier) transformation from a mobile ad network into a gaming monetization platform with its reach for South Korea’s 5Rocks two years ago. Other competitors selling a broad platform for game developers include Chartboost and Unity Technologies, a game engine developer that announced a $181m funding round earlier this week.

Mobvista is one of an expanding number of China-based businesses using M&A to grab a bigger share of the mobile app ecosystem. So far this year, Chinese companies have acquired 10 mobile assets for a total of $9.2bn – both numbers are higher than the total at the same point in any other year, according to 451 Research’s M&A KnowledgeBase. This year’s deal value total, bolstered by Tencent’s $8.6bn acquisition of Supercell, is already double that of any other previous year. Mobile apps are a large and high-growth market in China. According to 451 Research’s Mobile Marketing and Commerce Forecast, mobile advertising revenue in China will increase 86% this year to $11.6bn and account for more than one-quarter of the global market.

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

A fast-growing market for marketing software

Scott Denne

Contact: Scott Denne

Marketing software M&A is surging through the first half of the year. In the first two quarters of 2016, spending on marketing acquisitions reached $4.2bn, putting this year on pace for a category record, according to 451 Research’s M&A KnowledgeBase. In no small measure, the boom is being fueled by private equity (PE) firms. Already this year, financial sponsors have spent $3bn on vendors in this space. That’s triple last year’s total, a level that itself was more than the cumulative total of the previous seven years.

Uncharacteristically, the PE deals have also carried the highest multiples. Vista Equity Partners’ $1.8bn take-private of Marketo valued the target at 7.9x trailing revenue – higher than any other marketing target with over $10m in sales. EQT’s $1.1bn purchase of Sitecore was the third-highest multiple at 5.2x. (Telenor’s pickup of ad-tech firm Tapad was the second-highest.)

The companies garnering the lowest valuations were those providing marketing software for small businesses. In late June, ReachLocal sold to Gannett for just $156m, or 0.4x, following a painful restructuring to focus on more profitable SMB accounts with a larger suite of products to entice them (the firm was built around search engine marketing software). Its competitor Yodle fared just a bit better, selling for $342m, or 1.6x, as slowing growth set up obstacles to a public offering.

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

Talend to test the waters on Wall Street

Scott Denne

Contact: Scott Denne

European data-integration company Talend has set its sights on a US listing. Should Talend make it to the public markets, it would become the second venture-backed tech IPO of the year. Last week’s offering by Twilio showed that Wall Street still has an appetite for growth stocks – it currently trades at more than double its IPO price. Talend does little to satisfy that hunger. While Talend and Twilio both posted accelerating growth rates last year, Talend’s topline jumped just 21%, compared with Twilio’s 88%.

Talend’s unveiled IPO prospectus shows that it put up $76m in revenue last year, amid signs that growth is accelerating as subscription revenue increases and services fees hold steady. Subscription revenue rose 27% to $63m while services fees stayed flat at $13m. That pushed its growth rate up three percentage points from 2014’s figure and caused the topline to grow 34% year over year (YoY) in the first quarter. Losses have persisted. Talend has generated a net loss of $19-22m for each of the three years covered by the filing. Its first-quarter numbers show a similar trajectory for 2016.

A secondary sale of the company’s stock last summer valued the business at about $250m. At that level, the company would trade at 3x trailing revenue. We would expect it to price up from that level. Yet it’s hard to envision Talend trading at a multiple beyond that of its open source compatriot Red Hat. For comparison, the latter company garnered a 5.5x multiple on 18% growth YoY last quarter and trailing 12-month revenue of $2.1bn. Talend’s valuation could also be pulled down by fears over the ‘Brexit’ decision, as more than half of its revenue comes from the EMEA region.

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

Cisco puffs up M&A totals with CloudLock buy

Scott Denne

Contact: Scott Denne

Cisco continues its aggressive streak with the $293m purchase of CloudLock. The networking equipment giant has spent $2.2bn on five deals since the start of the year – its busiest first half since 2012. It’s not just the amount of spending that marks the aggressive streak. Cisco has been paying healthy multiples. Today’s transaction values the cloud security vendor at over 10x trailing revenue: its acquisitions of cloud application manager CliQr and early-stage chip startup Leaba Semiconductor were also likely above that multiple.

To pick up CloudLock, a cloud application security broker, Cisco needed to continue to pay a high multiple, as several deals in that segment have gone off at a premium. Adallom and Elastica were able to fetch above $200m when they sold to Microsoft and Blue Coat, respectively. Both were only starting to generate revenue. Skyfence was able to get $60m from Imperva before earning a dime in revenue.

Cisco has been particularly active in security M&A. In addition to CloudLock, it paid $452m for Lancope and $635m for OpenDNS, both at above-market multiples. There’s good reason for that. Security is the company’s second-fastest-growing segment, up 17% to $482m in sales last quarter. The macro trends are in its favor. According to our most recent Voice of the Enterprise: Information Security survey, 62% of all IT managers expect security budgets to increase over the next 12 months.

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

Cavium nabs QLogic in latest billion-dollar chip deal

Scott Denne

Contact: John Abbott Scott Denne

Sixteen months after its direct rival and onetime parent Emulex was swallowed up by giant chipmaker Avago, QLogic is set to also become part of a more diversified silicon company. Networking and communications semiconductor firm Cavium has agreed to acquire QLogic in a deal that values the target at approximately $1bn. Over the past few years, Cavium has been showing an increasing interest in enterprise and cloud datacenter infrastructure, looking beyond networking into the server and storage sectors. It says there’s little product overlap and plenty of synergies in the combination. Cavium has taken a long, hard look at QLogic’s product portfolio and plans to immediately kill off several legacy product lines when the transaction closes to boost QLogic’s tepid growth into the double-digit range.

Both Emulex and QLogic needed to become part of larger organizations to survive and prosper. Their key positions as suppliers to the server and storage OEM market made them highly desirable properties within more diversified chipmakers, where cross-selling opportunities are everywhere. And with increased activities focused on converged infrastructure, further opportunities are emerging. There is also a clear need for Cavium to diversify. Nokia and Cisco are its two biggest customers, while Alcatel-Lucent (now merged with Nokia) was its fifth-largest client. This isn’t quite as dangerous as it sounds, as there are many design wins spread across the different divisions of those vendors. However, it’s in Cavium’s best interest to extend its business at scale into the datacenter and storage sectors, and to diversify both its customers and revenue sources.

Cavium will pay $15.50 ($11.00 in cash and 0.098 of a share of Cavium) per QLogic share. The deal value is $1.4bn and after backing out QLogic’s cash, it gives the target an enterprise value of about $1bn. Combined, the companies generated $870m in revenue over the past 12 months, with just over half coming from QLogic. Cavium will fund the purchase with a $750m loan, $400m in new Cavium equity and the remainder in cash. The transaction is expected to close in Q3 2016.

This is the latest in a string of acquisitions that shows little sign of slowing, despite an overall deceleration of tech M&A this year. QLogic’s sale marks the eighth $500m-plus semiconductor deal of the year and puts 2016 on pace to best last year’s record tally of such transactions. The level of consolidation and remaining number of chipmakers that can command that kind of valuation point to an impending slowdown.

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