Author: Scott Denne

ShopKeep orders up a helping of inorganic growth with restaurant PoS system Ambur

Scott Denne

Contact: Jordan McKee

ShopKeep has acquired Ambur, a restaurant-focused tablet point-of-sale (PoS) vendor. The addition is intended to expand ShopKeep’s capabilities in the full-service restaurant vertical, helping it target larger, multi-location prospects. One of the target’s founders, Ansar Khan, has already joined ShopKeep in a business development capacity, though Ambur will remain a separate entity for now. The deal comes little more than six months after ShopKeep bought payment processor Payment Revolution.

Ambur’s PoS software offers a variety of front-of-house and back-of-house functionality. On the front end, it supports features such as order management, item modifiers, delivery/takeout, table layout and reservations. Management-focused tools include reporting, user groups and permissions, item inventory, payroll and employee summaries. Ambur is payment processor-agnostic, and stores data locally on the device with a Dropbox backup.

ShopKeep has turned its focus to inorganic growth in 2015 as it scales toward an IPO-able size. Its pickups of Payment Revolution and Ambur, while dissimilar, are designed to broaden its addressable market and revenue prospects. The reach for Ambur is particularly strategic in this regard given the latent opportunities for tablet PoS in the table-service restaurant sector. As midsized restaurants grow increasingly dissatisfied with their legacy back-office systems, this vertical will become the next battleground for tablet PoS providers. ShopKeep is wise to move in this direction, as its current-generation software is not suitable for larger restaurants that demand a more focused service.

We’ll have a full report on this transaction in tomorrow’s 451 Market Insight.

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GoDaddy scoops up Apptix’s hosted Exchange customers

Scott Denne

Contact: Liam Eagle Scott Denne

GoDaddy is not typically in the business of obtaining subscribers via M&A. Its deals (10 in the past 24 months) tend to focus on picking up technology or market specialization. The fact that GoDaddy is willing to shell out for Apptix’s hosted Exchange business speaks to the company’s confidence in the lifetime value of these users. Reselling Office 365 has been a major driver of new business since GoDaddy began offering it in January 2014. As an upsell from domain registration (GoDaddy’s largest business), hosted email might be a more frictionless sale than even Web presence.

GoDaddy will pay $23m for the asset and will inherit approximately 60 employees. Following the close, the acquired customers will be migrated to Office 365 through GoDaddy. Apptix posted about $15m in annual revenue from its hosted Exchange business. In addition to the upfront consideration, GoDaddy is on the hook for an earnout that could be as high as $16m if every customer migrates to GoDaddy. A more likely scenario, according to the seller, is that it will get paid 50% of the earnout.

Apptix’s desire to part with its multi-tenant Exchange hosting users speaks to the challenge of positioning a mass-market hosted Exchange product in a world where Office 365 (hosted by Microsoft) is a simple alternative. Almost across the board, service providers focused on Exchange hosting have been narrowing their focus on specialized situations, such as hybrid, private and custom engagements for which Office 365 might not be a fit.

Pacific Crest Securities advised Apptix on its sale.

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BlackBerry sweetens its own turnaround

Scott Denne

Contact: Scott Denne Chris Hazelton

BlackBerry looks to right another ship with the $425m cash acquisition of Good Technology. Brimming with confidence following the comeback from its own near-sinking, BlackBerry is taking on the mobile management software vendor, which was poised for a public offering earlier this year, yet never pulled the trigger – instead, it added another $80m in private financing to its then-dwindling cash pile.

BlackBerry is transforming itself from a device maker to a mobile security software provider for enterprises. Good is a leading mobile security vendor, but the two companies have often clashed when it comes to mobile messaging. With the future in supporting and securing mobile apps, Good is further along on this route when it comes to iOS and Android. This deal offers BlackBerry a major opportunity to catch up to and surpass the competition. Good has more than 2,000 ISV- and customer-developed apps, which now gives BlackBerry one of the largest mobile app ecosystems. There may be some overlap in customers, but BlackBerry did experience a long period of customer migration, and some of that went to Good. In effect, BlackBerry might be buying back former customers.

Good posted decent growth last year, racking up $211m in revenue for an increase of 32%. However, its losses were excruciating, at $95m for the year, and losses the previous two years were in the same neighborhood. While spending heavily on topline acceleration isn’t rare among its peers, Good didn’t have much to show for it once you take into account that one-third of that revenue came from its legacy consumer products and intellectual property licenses, two segments that were not expected to be meaningful contributors in the long term – more so today as BlackBerry was Good’s most significant licensee.

We’ll have a full report on this transaction in our next 451 Market Insight.

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Cross MediaWorks drawing BlackArrow at evolving TV ecosystem

Scott Denne

Contact: Scott Denne

BlackArrow becomes the latest acquisition target as legacy media businesses seek ways to cope (and maybe even benefit) from the secular shift in television viewing habits. The 10-year-old maker of technology for delivering ads into video-on-demand streams has sold to Cross MediaWorks, a reseller of local TV ad inventory.

BlackArrow’s platform enables cable and other TV service providers to sell ads into DVR and other forms of streaming video (across both Internet Protocol and QAM standards). In addition to the ad-insertion products, BlackArrow has developed a number of capabilities that should benefit Cross MediaWorks in packaging together ad inventory, including software for affiliate stations to manage their inventory – which could have applications for Cross to sell to networks and use internally – as well as an audience management platform to enable customers to develop targeted media plans.

The company was one of several startups that launched in the first half of the past decade to pursue the opportunity to bring some of the ad-targeting techniques of the Web into the world of television advertising. For most of its life, BlackArrow – as well as peers Canoe Ventures, INVIDI, Visible World and THIS TECHNOLOGY – was simply too early. Once reliably large, TV audiences were bleeding into DVR and across a larger pool of cable networks, but media buyers had yet to feel that they needed to buy differently to reach those audiences.

During that period, the company grew to a respectable business of about $20-30m in annual revenue, mostly through its capability to enable advertisements in DVRs. Now these once-early businesses are looking timely. In addition to today’s deal, Comcast took out both Visible World and THIS TECHNOLOGY earlier this year and Verizon paid $4.4bn to push AOL’s ad technology further into the TV ecosystem.

What’s changed is that viewers are fleeing traditional television for online video and video-on-demand services, the largest of which doesn’t even have advertisements in its content. As that happens, broadcasters and service providers need tools and technologies to optimize the audiences they have. Earlier this month, both Disney and Viacom fell short on quarterly earnings due to weakness in TV ad sales. And as surveys from ChangeWave Research, a service of 451 Research, show, the move away from paid TV services is gaining momentum.

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

Seagate pushes up the stack with Dot Hill

Scott Denne

Contact: Simon Robinson Scott Denne

Seagate finally opened up its wallet a bit, paying $694m for storage-systems company Dot Hill Systems. With an enterprise value of $645m, Seagate values the target at 2.6x trailing revenue. While certainly not an industry record (and half a turn below the median for similarly sized storage deals), it’s a 79% premium on Dot Hill’s prior-day stock price. And the purchase marks a high for Seagate, which hasn’t broken the 1x TTM revenue mark on any hardware or systems vendor in at least a decade, according to 451’s M&A Knowledgebase.

The Dot Hill acquisition marks another notable step in Seagate’s transition from an HDD manufacturer into a broader supplier of data-storage products and services. Historically, HDD manufacturers have been reluctant to develop systems-level products, lest they tread too strongly on the toes of their major server and storage OEM customers. However, Seagate has been here before – in 2000 the company acquired storage systems specialist Xiotech for $360m. This was not a successful move, and Seagate later unloaded the company.

So why does Seagate think it can succeed this time around? A couple of things have changed the dynamic and emboldened the HDD suppliers. First, there are only two major HDD manufacturers remaining: Seagate and WD/HGST (with Toshiba a distant third). This effective duopoly means that the major storage/server OEMs have little choice when it comes to sourcing their HDDs (especially if they wish to dual-source). Second, and perhaps more significant, is the fact that large-scale and hyperscale datacenter operators (Internet/cloud giants, large service providers and even some large enterprises) are bypassing traditional storage systems approaches and direct-sourcing their HDDs from the manufacturers.

Perella Weinberg advised Seagate on the transaction, and Needham & Company and Morgan Stanley advised Dot Hill. We will have a detailed report on this transaction in tomorrow’s 451 Research Market Insight Service.

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Pure’s playbill

Scott Denne

Contact: Scott Denne

It’s a play we’ve seen before: an enterprise company ingests massive amounts of venture capital to fund eye-popping top-line growth before debuting on Wall Street for Act Two. This version stars Pure Storage, a darling of the all-flash array market. Leave the kids at home for this one – Pure is posting an obscene amount of growth and when the curtain rises, it’ll be seeking an equally obscene valuation.

Pure’s now-public IPO prospectus shows that the company finished its most recent fiscal year with $174m in revenue, fully 4x its sales from the previous year. On a trailing basis, it generated $224m in revenue and the most recent quarter showed a more modest 3x year-over-year growth. As one would expect, there’s a massive investment in sales and marketing underlying that growth. That investment appears to be paying off as its sales and marketing spending – $153m last year –is ratcheting down to 87% of its revenue, from 128% last year and 177% the year before.

As expected, Pure still posts huge losses: $183m last year, up from $79m the year before. Its trajectory, however, points to eventual profitability. Overall, its costs are coming down – at least as a share of revenue – and the margins on its products are making meaningful gains. In the most recent quarter, Pure reached a 64% gross profit on its product sales, up from 59% last year and 49% the year before. To put that in perspective, NetApp, a storage provider that’s about 30-times larger (for now), generated a 54% product margin last year.

Pure’s last venture round, a $225m series F in April 2014, put a $3bn valuation on the company. No doubt it will be looking for a boost from that. To get a meaningful bump up, it will have to be valued at or above 15x trailing revenue. That’s a tough spot to hit, though not impossible. Recent high-flying hardware IPOs Arista Networks and Nimble Storage are both currently putting up about 7x off of comparably mild levels of growth (40-50%). For a better comp, you’d have to go back to the 2007 debut of Data Domain, whose growth was equally impressive, though slightly behind Pure’s, and whose IPO priced at 12x in a more sedated market for tech stocks.

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Datacenter consolidation hits a record pace as Europe gets more international

Scott Denne

Contact: Mark Fontecchio

Global datacenter consolidation in 2015 is on a tear, and the reason varies by continent. European MTDC suppliers on the hunt for regional diversity are printing an unprecedented increase in the number and value of deals, while North American providers are outpacing overall M&A volume as they move up the stack to offer more managed services.

Through the first seven months of this year, there have been 11% more tech deals compared with 2014, yet colocation and hosting transactions are up 49%, according to 451 Research’s M&A KnowledgeBase. Western Europe alone is up 67% in datacenter deal volume. Datacenter consolidation is clearly outpacing the rest of the field.

Western European datacenter deal value has skyrocketed more than the rest. Last year, 4% of all datacenter M&A value went to Western European targets; this year, it’s half. Equinix buying UK-based TelecityGroup accounts for most of that – the $3.6bn price is the largest datacenter transaction in the KnowledgeBase. As we have previously noted, one of the key reasons for all of the consolidation activity in Europe is because customers in traditional markets are seeking reach into locations where new builds are difficult. The highly fragmented European market still has many regional providers with significant pull in their locales. They are now being subject to M&A conversations as bigger players look to enter territories without building new facilities.

In North America, it’s different. While geo-based deals are still aplenty (e.g., CyrusOne’s $400m purchase of Cervalis ), more large transactions have focused on providers moving up the stack and offering additional managed services. Digital Realty’s reach for Telx and QTS Realty’s pickup of Carpathia Hosting are prime examples.

Biggest datacenter deals of 2015

Date announced Acquirer Target Target HQ Deal value
May 29 Equinix TelecityGroup Western Europe $3.6bn
July 14 Digital Realty Trust Telx Group North America $1.9bn
March 2 NTT Communications e-shelter Western Europe See estimate
January 14 Zayo Group Latisys North America $675m

Source: 451 Research’s M&A KnowledgeBase

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HP moves into PaaS, containers with Stackato purchase

Scott Denne

Contact: Scott Denne Jay Lyman

After a muted presence in M&A over the past few years, HP has set a stronger pace for acquisitions in 2015 by printing its fourth deal with the pickup of Stackato, ActiveState’s PaaS business. HP’s earlier deals of the year filled gaps in security (Vaultive) and networking (Aruba Networks and ConteXtream) – this transaction plugs two holes in its cloud offering.

HP was among the few enterprise cloud providers that did not have its own PaaS play. With Stackato, HP obtains an enterprise, polyglot private PaaS that also benefits from its basis in the open source Cloud Foundry software and community. Furthermore, the deal gives HP a much-needed stake in the container space through Stackato’s integration and support for Docker and containers.

Valuations in the PaaS sector have been a mixed bag, and there’s been little M&A activity. A couple of companies (Heroku and Tier 3) were taken out early in transactions valued above $100m. The market has also seen some tuck-ins (AppFog and dotCloud). Though terms of HP’s Stackato buy aren’t known, we noted early last year that Stackato was approaching a $10m run rate.

HP’s move comes amid the convergence of IaaS and PaaS. Other acquisitions, customer demand for IaaS-like experience in PaaS, deeper enterprise pushes from the likes of Amazon and Google via PaaS, and software from a number of providers have all contributed to a blurring of the lines, particularly when it comes to managing PaaS and IaaS, which is increasingly integrated. With its existing IaaS software in HP Helion (based on OpenStack), along with the acquired Eucalyptus, HP can now join the IaaS PaaS party by pairing with Stackato.

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Technicolor turns to Cisco to keep pace with ARRIS

Scott Denne

Contact: Scott Denne

Technicolor fends off the danger from a merger of two rivals with a deal of its own. And what a deal. Technicolor will pay $600m for Cisco’s set-top box hardware unit – a mere 0.3x projected 2015 sales – and become a business that generates more than $3bn in set-top box revenue. Still short of the pending combination of ARRIS and Pace, but close enough to ensure that Technicolor won’t lose that battle based on scale alone.

Aside from the valuation – ARRIS’s purchase put a 0.8x trailing multiple on Pace – the two deals are quite similar. By tying up with Cisco, Technicolor gets broader exposure to the North American cable market to complement its European satellite base; ARRIS bought Pace in large part to boost its non-US sales.

Cisco’s set-top box unit needs some tuning – the cause of the lower multiple. In its previous fiscal year, sales of service-provider video infrastructure dropped by $812m, primarily due to lower set-top sales. In the first three quarters of the current fiscal year, the category slipped $271m, with the company once again blaming set-tops. Technicolor will pay Cisco $450m in cash and $150m in newly printed equity (with a lock-up commitment), and give the networking vendor a seat on its board.

It’s not just competition from ARRIS. Technicolor needs scale to continue to compete for the largest deals among service providers, which are themselves consolidating. According to 451 Research’s M&A KnowledgeBase, the past 12 months alone have seen seven acquisition of television service providers valued at more than $1bn.

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eBay auctions off Enterprise unit

Scott Denne

Contact: Scott Denne

Just days away from spinning off its PayPal division, eBay inks a deal to divest eBay Enterprise, its e-commerce software and services business, to a consortium of private equity (PE) firms for $925m. The Enterprise unit was formed through the 2011 acquisitions of fulfillment service GSI Commerce and e-commerce software vendor Magento, as well as a smattering of smaller software purchases.

The transaction is valued at 0.8x trailing revenue – a number that’s familiar to Sterling Partners, one of the PE firms leading the deal. Sterling snagged Innotrac, a similarly sized order fulfillment provider, in 2013 at a nearly identical multiple. It’s worth noting that eBay Enterprise comes with a broader software portfolio than Innotrac did. In addition to Sterling, Permira Funds, Longview Asset Management and Innotrac itself are also participating in the buyout.

Valuations of e-commerce software companies have been somewhat subdued in the M&A market lately. Google’s 2013 pickup of channel intelligence at just over 4x trailing revenue appears to be the recent high-water mark. Multiples on the public markets, however, tend to be more generous, with Demandware and the newly public Shopify garnering above 15x.

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