Author: Scott Denne

Restaurant deal highlights TripAdvisor’s new tack

Scott Denne

Contact: Scott Denne

Following a short break to digest its largest-ever acquisition, TripAdvisor gets back to the deal table early in the year with the purchase of Amsterdam-based restaurant review and reservation site IENS. The move illustrates that TripAdvisor is poised to continue rolling up travel businesses, but with a new approach.

As we noted earlier , TripAdvisor has ramped up its dealmaking of late, although inking larger transactions isn’t the only change in its M&A approach. As the IENS buy shows, TripAdvisor is shifting its M&A beyond its core business of travel accommodation reviews and bookings. The company’s $200m takeout of Viator in July – it’s most recent deal until today’s announcement – expanded its presence in sightseeing, particularly booking tickets for attractions. Likewise, the transaction before that, the pickup of France-based restaurant reservation provider lafourchette (like today’s IENS purchase) got it deeper into restaurants, particularly booking reservations.

Before these three deals, almost all of TripAdvisor’s 21 acquisitions were done to expand the content and reach of its hotel review business. There’s also another nuance to its recent transactions. TripAdvisor has been steadily moving beyond ‘advising’ travelers and into booking. When it bought Viator, it was already providing reviews of tourist attractions; and when it reached for lafourchette, it had a long history in the restaurant review space. That’s a trend reflected in TripAdvisor’s own product development, as it expanded into hotel metasearch in recent years and launched a direct booking feature on its site at the end of last year.

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Feeling vulnerable, Alert Logic buys Critical Watch

Scott Denne

Contact: Scott Denne

Alert Logic reaches for vulnerability manager Critical Watch to add 15 years’ worth of vulnerability data to its cloud and analysis products. Though it already had vulnerability scanning capabilities, Critical Watch was built for distributed systems and can provide a foundation for the security offerings that Alert Logic is developing for cloud environments.

Critical Watch also performs tens of thousands of vulnerability checks and has a library of vulnerability content that Alert Logic can plug into for its security analytics product line, but would be difficult to replicate on its own. The deal adds 17 employees to Alert Logic.

Though maturing, vulnerability management continues to grow in importance. According to surveys by TheInfoPro, a service of 451 Research, 9% of IT professionals identified vulnerability management as a major infosec pain point in the second half of 2014. That’s up from just 4% a year earlier. Only mobile devices and user behavior received higher responses.

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Telstra’s unusual, unsurprising Pacnet purchase

Scott Denne

Contact: Scott Denne Agatha Poon

Telstra reaches for Pacnet in an uncharacteristic – but rational – deal. The $297m purchase price, at a $697m enterprise value, makes Pacnet a substantially larger target than anything Telstra has bought. According to The 451 M&A KnowledgeBase, Telstra has made six acquisitions (including today’s) this year. Prior to today’s announcement, it had never paid more than $270m in a transaction (a mark it set earlier this year with the pickup of video software vendor Ooyala) in the past 15 years.

Also, like Ooyala and unlike Pacnet, most of its past acquisitions aimed to move the Australia-based telecom giant into ancillary offerings, while the Pacnet buy supplements a core business. Earlier this year, Telstra bought Ooyala as well as a video ad serving business, Videoplaza, to supplement that. It inked two acquisitions to bolster its healthcare software offering, after having scooped up the foundational piece of that business with the 2013 reach for Database Consultants Australia’s eHealth division. Telstra was a muted acquirer from 2010-2012, but even in its earlier phase of active M&A (11 deals between 2004-2009), it largely focused on snagging Asian Web properties.

With Pacnet, Telstra is obtaining assets such as datacenters and fiber and undersea cables that support its ambition to make the company a strong regional and global player in enterprise services, which is already a $4bn business annually.

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Atos’s Xerox buy is no Bull

Scott Denne

Contact: Scott Denne

France-based outsourcer Atos reaches across the pond with the $1.1bn pickup of Xerox’s IT outsourcing (ITO) business. The purchase price values the target at 0.7x 2014 revenue, which is above Atos’ norm. The outsourcing and managed services provider has been a bargain hunter in its biggest acquisitions. In fact, you have to go all the way back to 2003 to find a deal where it paid 0.5x trailing revenue – everything disclosed since then has been below that.

For its last big buy – France-based hardware maker and outsourcing shop Bull – Atos paid $847m, or an enterprise value of 0.3x revenue. Before that it ponied up $1.1bn for Siemen’s ITO unit, valuing the target at a mere 0.2x revenue (on top of that it took cash from Siemens to cover the cost of lost contracts, delayed projects and layoffs).

All that’s not to say Atos wasn’t shopping carefully with this transaction. For one thing, Xerox’s ITO business posted revenue growth in the high single digits in each of the past three years, unlike those earlier purchases. Also, the multiple it’s paying for Xerox’s ITO unit is just a hair lower than the 0.85x median multiple on similarly sized ITO deals over the past 24 months, according to The 451 M&A KnowledgeBase. Finally and most importantly, Xerox brings Atos into the US market in a big way. Nearly all of Xerox’s ITO customers are in North America, whereas only 7% of Atos’ business comes from that region.

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Host Europe snags a competing German hosting company

Scott Denne

Contact: Scott Denne

Oakley Capital Investments unloads intergenia to an old friend. Host Europe, a Germany-based hosting and managed services provider that was owned by Oakley until 2010, is buying its competitor in a deal that values the target at $261m. The sale generates a 2.5x return to Oakley, which took a 51% stake in intergenia in late 2011 for $54m.

Past ownership isn’t the only thing that Host Europe and intergenia have in common. Both companies focus on German-speaking markets. Both have a large Web hosting business and are attempting to move upmarket with managed services and more SMB customers. And both have inked recent acquisitions in support of this move: intergenia nabbed internet24 in 2013 and Host Europe picked up a pair of companies that same year (domainFACTORY and Telefonica Germany Online Services) and, of course, intergenia today.

Despite the numerous small datacenter shops remaining and M&A growth across other sectors, 2014 hasn’t been a banner year for multitenant datacenter acquisitions in Western Europe. Only 36 firms in that region have been bought so far – compared with 29 in all of last year. And few transactions have been substantial. In fact, today’s deal is the largest purchase of such a company this year, according to The 451 M&A KnowledgeBase.

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WD reaches up the storage stack

Scott Denne

Contact: Tim Stammers Scott Denne

Could Western Digital’s Skyera acquisition be its first step to becoming a full storage systems vendor? The purchase brings the disk drive giant a product to immediately move up the stack and become a systems provider. We don’t believe, however, that Skyera’s systems were the main motivation for the deal.

Skyera was building all-flash storage arrays, with much of the focus on building its own flash drives and controllers. That intellectual property and expertise will fit well inside WD’s existing lines of PCIe, SAS and SATA enterprise flash drives, as well as its embedded offerings. It could also provide some of the building blocks for WD’s HGST subsidiary to put together its own array.

Skyera’s systems have not seen huge success in the highly competitive all-flash array market, as they lack standard enterprise features such as multi-controller availability, as well as data management services. And the company appears to have had trouble attracting new capital to its most recent round, relying on existing investors (including WD) to fund it with an undisclosed amount of capital, on top of the roughly $70m that Skyera raised across two earlier rounds.

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

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Intuit’s international accounting

Scott Denne

Contact: Scott Denne

Intuit extends its overseas holiday by picking up Acrede, a UK-based payroll software provider. In four of Intuit’s seven acquisitions this year, the accounting software vendor has reached for a business based outside the US. That’s in stark contrast to the previous 11 years, when it nabbed a total of two international businesses.

Until recently, sales of Inuit’s core accounting products were limited to US customers as expansion overseas meant not only hiring local staff, but revamping the offering to comply with local regulations. Recently, the company has begun to expand into a few international markets, including Canada, the UK, India and Australia. Acrede’s payroll SaaS has been built for use in multiple markets and specializes in catering to businesses with payroll needs that stretch across borders; those attributes give Intuit the opportunity to expand its international capabilities as well as cater to larger customers who themselves operate across borders.

It’s no coincidence that payroll software is a big part of Intuit’s thrust into international markets – revenue from online payroll products accelerated in its most recent fiscal year, increasing 25%. Even its desktop payroll offerings posted growth last year, in opposition to the rest of its desktop wares. The overall business grew 8%.

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Accel-KKR takes a second helping of WCM

Scott Denne

Contact: Alan Pelz-Sharpe Matt Mullen Scott Denne

Accel-KKR makes its second move into Web content management (WCM) in as many days with the acquisition of EPiServer. As the faster-growing of the two, EPiServer likely traded hands at a higher multiple than Ektron, which Accel-KKR bought yesterday.

Ektron has had a difficult few years. The company went from a peak of 300 employees to about one-third of that today. It has also undergone turmoil at the top, losing senior executives in the process. But it would be too easy to portray this as simply a case of bad management, since the WCM sector has also been in turmoil and many players have just fallen off the map. Ektron has remained a well-regarded and visible player, especially within .Net IT environments.

EPiServer, in contrast, has plotted a steady and modest course of growth over the past few years, pushing toward $50m in revenue and continuing to build the partner network that characterized its go-to-market model.

The WCM market went from hugely hyped and overvalued in the early 2000s to an arena that has been ravaged by low-cost ‘good enough’ alternatives as well as buyer obstinacy in staying on old platforms, due to the complexity and risk of moving. Those high-end customers are starting to migrate, but their tastes and requirements have gone from encompassing the largely commoditized Web publishing use cases that previously predominated, to supporting social media, e-commerce and deeper personalization and mobility.

There are no indications yet that EPiServer, Ektron and North Plains Systems (a digital asset manager that Accel-KKR bought in 2011) will be operated as anything other than separate entities, but a combination of all three would create a mature, reputable organization with many cross-selling opportunities. Each party has – to varying degrees – existing global presences, so a combined entity would have a considerable head start over newer entrants.

Subscribers to 451 Research’s Market Insight Service can access a more detailed report on Ektron’s sale here and will find a Deal Analysis on Accel-KKR’s EPiserver buy in tomorrow’s sendout.

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CenturyLink seeds DR biz with DataGardens buy

Scott Denne

Contact: Scott Denne Al Sadowski

CenturyLink reaches deeper into dedicated services with the acquisition of disaster recovery vendor DataGardens. The deal is the latest of several by CenturyLink as it continues to expand its legacy telecom business into hosting, managed services and cloud as its wireline calling and networking business shrinks amid a shift toward mobile and VoIP calling.

Terms of the transaction weren’t disclosed, but it falls on the lower end of CenturyLink’s purchases, and is likely more reminiscent of AppFog ($15-25m) than Tier 3 (click here for our estimate on that sale). While small, the acquisition does show a subtle shift in CenturyLink’s M&A strategy in that it’s looking toward more specialized services to layer on top of its existing assets.

Its past deals that transformed the company from a telecom services provider into a multitenant datacenter business were high-priced platform plays. Its $2.5bn pickup of Savvis brought CenturyLink into the hosting and colocation arena, and its takeout of Tier 3 gave it an infrastructure-as-a-service platform. DataGardens adds a disaster recovery service to that platform. We expect CenturyLink to continue to build and buy additional dedicated workloads for its Tier 3 technology, especially services such as disaster recovery that it can upsell to its legacy business networking customers.

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OpenText returns to M&A with Actuate purchase

Scott Denne

Contact: Scott Denne

OpenText comes off its M&A holiday with the $330m acquisition of business intelligence and analytics vendor Actuate. This is OpenText’s first deal since just over a year ago, when it inked its largest purchase – the $1.2bn GXS buy.

Its reach for Actuate shows that OpenText still has the same M.O. despite its longest break in dealmaking since 2007. The enterprise information management provider values the target at 2.5x trailing revenue, in line with both the GXS valuation and the median valuation of its disclosed and estimated acquisitions over the past four years, according to The 451 M&A KnowledgeBase.

With this transaction, OpenText rescues Actuate from a punishing period in its 16 years as a publicly traded company. Over the past year (but before the deal announcement), Wall Street sent Actuate’s stock tumbling down by half, in response to the lower-than-expected profits posted during its transition to a SaaS model. While Wall Street may not have been impressed with Actuate’s transition to SaaS, OpenText was. SaaS revenue accounts for the lion’s share of OpenText’s recent growth and its last two big transactions – GXS and the $246m pickup of EasyLink Services in mid-2012 – were both done, in part, to bolster that segment of its business.

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