Author: Scott Denne

Thoma Bravo gets better than face value from Compuware

Scott Denne

Contact: Scott Denne

At first glance, the $2.5bn take-private of Compuware looks like a fairly typical (though larger) Thoma Bravo deal – the private equity firm has bought many aging, but profitable, tech companies for multiples that are similar to this transaction. After stripping away the results for Covisint, the services business that it’s unloading as part of the deal, the terms look quite different.

The acquisition values Compuware at $10.92 per share, but that includes the 80% stake that Compuware holds in Covisint, a former subsidiary that Compuware took public last year, which will be distributed to Compuware shareholders ahead of the close. That per-share price gives Compuware a 3.1x trailing revenue valuation and 21.5x enterprise value to EBITDA multiple – both are on the high end of what Thoma usually pays.

Since Thoma isn’t actually paying for Covisint, stripping out that company’s financial performance and implied value makes Compuware a relative bargain. After backing out Covisint’s low revenue and high operating expenses, the EBITDA multiple drops to 12.3x, well below the median 17.4x for a Thoma Bravo take-private, not to mention the 22.3x it put up for Compuware rival Keynote Systems last year, according to the The 451 M&A KnowledgeBase.

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Summer ends with M&A hot streak

Scott Denne

Contact: Scott Denne

As summer turns to fall, tech M&A shows no sign of cooling off. In August, we’ve seen the value of disclosed and estimated acquisitions double from last year to $29.74bn on 290 transactions, matching last year’s total.

As in the rest of this record year, telecom consolidation drove the total up, as Telefonica’s $9.83bn purchase of Brazil’s Global Village Telecom accounted for a full third of the value of August’s announced transactions.

Though telecom was the biggest contributor, there were five other $1bn+ deals this month from multiple sectors, such as gambling technology and payments. Compare that with two $1bn+ acquisitions last August, neither of which crossed $2bn. Rounding out the list of this month’s largest transactions were a pair of gaming companies, FunPlus and Twitch, which were both just shy of the $1bn mark.

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HubSpot markets a potential IPO

Scott Denne

Contact: Scott Denne Matt Mullen

HubSpot takes the covers off its financial performance by filing its S-1. Like many recent SaaS IPOs, the documents show strong growth but steep losses. The company points to the nearly untapped market for its software ? and our surveys indicate that this is indeed the case, but HubSpot and its competitors will have to continue to spend heavily to build that opportunity.

HubSpot generated $93.8m in revenue for the most recent 12-month period ? an impressive 46% increase compared with a year earlier, but growth is declining from the 50% the company posted in 2013 and the 81% in 2012. During that same period, it had a $35.7m net loss, a figure that only grew 34% year over year. While losses as a percentage of revenue continue to tick down, HubSpot is many years away from putting up annual profits (not that we expect a lack of profits to impact the offering).

A recent survey by ChangeWave Research, a service of 451 Research, revealed that only 24% of companies had either deployed or planned to immediately deploy any form of digital marketing technology. Among companies with 10-1,000 employees (HubSpot’s sweet spot), nearly two-thirds said they had no near-term plans to begin using digital marketing technology, highlighting that while there is certainly a sizable chunk of the market that has yet to be tapped, the job of persuading the majority of potential customers that such investments are worthwhile is an ongoing challenge.

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Gaming has Amazon Twitch-ing

Scott Denne

Contact: Scott Denne

Amazon reaches for Twitch, a website for watching and broadcasting videogame play, in a $970m deal that could benefit multiple parts of the Amazon empire. In picking up Twitch, Amazon could boost its Prime offering with original content while helping many other parts of the company, from its core retail sales to its advertising business and, of course, its gaming foray.

While Amazon Prime, its subscription media business, lags Netflix, it’s gaining ground fast. According to a June survey by ChangeWave Research, a service of 451 Research, 42% of subscribers to an alternative TV service chose Amazon, up from 33% a year earlier, and only half what Netflix garnered. That same survey also showed the impact of original content on those numbers – 20% of Netflix subscribers said they mostly use the service for original content, compared with just 4% for Amazon. To be clear, Amazon hasn’t indicated how or whether Twitch will be integrated with Prime, but it just bought itself billions of hours of unique content.

Twitch, with a substantial audience overseas, also provides an opportunity to grow Amazon’s media business beyond North America via sales of premium features such as ad-free viewing and larger uploads. Through the first half of 2014, Amazon’s international media revenue – the slowest portion of its business – grew just 5%, or about one-third the rate that unit grew in North America.

Owning Twitch also gives Amazon a fertile ground for entering the gaming market itself – an Amazon console has long been rumored and the company recently acquired game studio Double Helix Games. It also expands Amazon’s reach into a desirable demographic – young men – that it can sell to directly and leverage for its advertising business.

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Murata nearly brings Peregrine parity with IPO price

Scott Denne

Contact: Scott Denne

Murata Manufacturing’s $465m acquisition of Peregrine Semiconductor marks a tranquil end to the target’s two years as a public company. Peregrine went public at $14 per share two years ago this month and has agreed to sell to Murata for $12.50 per share. Though the price is a loss for its initial shareholders, it could have been far worse and the 76% premium from Peregrine’s price 30 days ago helps soften the blow.

Peregrine came through 2012 with a gain for shareholders, then a key OEM (rumored to be Apple) diversified its radio frequency component supply chain, sending the company’s stock down and contributing to stagnated revenue since the start of 2013. Peregrine is not the only semiconductor vendor that’s been hurt by an overreliance on one of the two major smartphone OEMs (Samsung and Apple). Earlier this year, Cirrus Logic snagged Wolfson Microelectronics in a $488m deal aimed at spreading out the customer base for its audio chips, and Audience, a Cirrus competitor, picked up Sensor Platforms for $41m to try to push its products beyond the smartphone market.

According to The 451 M&A KnowledgeBase, the premium for Peregrine’s stock is the highest for any chipmaker in the past 12 months, but Peregrine shareholders aren’t the only ones to get bailed out of a poor-performing semiconductor stock with a hefty premium. Avago Technologies’ $6.6bn purchase of LSI at 36% brought that company’s stock up to levels it hadn’t seen since 2006, and the 75% premium that M/A-COM Technology handed to Mindspeed Technologies shareholders helped level off a 36% drop in the target’s stock in 2013.

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VMware thinking long and short in CloudVolumes pickup

Scott Denne

Contact: John Abbott

With just 25 employees, CloudVolumes is a relatively small purchase for VMware, but one with big implications. By grabbing CloudVolumes, the virtualization vendor seeks an immediate boost to its desktop virtualization efforts and help in fending off a long-term threat from Docker.

The first version of its VMware View desktop virtualization software (a successor to VMware VDM) was introduced in 2008, but has taken longer than expected to gain momentum. VMware has made a handful of tuck-in acquisitions to bolster its desktop virtualization capabilities, including Desktone, Wanova and RTO Software. CloudVolumes provides a more efficient, cost-effective and easier to manage means of providing users with persistent virtual desktops.

While VMware is clearly keen to keep one step ahead of its direct competition, one of the biggest motivations behind this particular purchase may have been the huge rise of interest in Docker, the open source engine that automates the deployment of applications in lightweight, portable containers. Adding CloudVolumes, which virtualizes everything above the operating system (not just apps but also data, settings, libraries and user profiles), gets VMware similar capabilities.

We’ll have a more detailed look at this acquisition in tomorrow’s 451 Market Insight.

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Mad Mimi lands in GoDaddy’s inbox

Scott Denne

Contact: Scott Denne

GoDaddy swaps out its email marketing software as it heads toward a public offering. The Web hosting giant had an acquisitive streak last year, printing seven deals, but today’s purchase of Mad Mimi is only its second of 2014. That the transaction comes amid a relative M&A drought and replaces an existing product highlights the importance that GoDaddy places on email marketing capabilities – and rightly so.

Though there’s plenty of buzz around social and other corners of the marketing software business, email dominates digital marketing. According to a survey by ChangeWave Research, a service of 451 Research, 76% of respondents use or plan to use email marketing, 25 percentage points higher than any other category of marketing software. And while 41% plan to increase spending on digital marketing, only 2% expect to cut back.

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

Google nabs Jetpac to defend mobile turf

Scott Denne

Contact:  Scott Denne

Google’s momentum in desktop advertising made it the dominant player in mobile. Now, facing encroachment from players like Yahoo and Facebook, the search giant is making acquisitions to add mobile capabilities. Google’s latest target is Jetpac, a three-year-old startup that built a recommendation app powered by contextual analysis of pictures across Instagram. The technology will be used to enhance the company’s mobile search and Google Now.

In the past year, Google has acquired about eight companies to bolster its mobile services. These include Emu, a mobile messaging platform that uses artificial intelligence to provide relevant information and recommendations based on the user’s location and interests, and Songza Media, a music streaming and playlist curation app.

Google’s competition hasn’t been idle in this time. Twitter has picked up companies like Namo Media and TapCommerce to improve its mobile ad products, while Yahoo bought Flurry to help scale its mobile ad efforts.

We’ll have a detailed report on Google’s Jetpac acquisition in tomorrow’s 451 Market Insight.

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Wayfair seeks value in public markets

Scott Denne

Contact: Scott Denne

Wayfair preps a public offering, setting itself up to be among the few e-commerce companies to obtain liquidity at an attractive price. Exits for online retail vendors have been tough to come by – there have been few recent IPOs, and the value and volume of acquisitions have declined.

The home décor retailer posted $1.11bn in trailing revenue, with a $59.6m loss, while growing about 50% year over year. Its financial profile is similar in sales and spending to Zulily, except the latter company has grown nearly twice as fast through the first half of 2014, and has slightly better margins and a bit lower operational costs that have tipped it into the black, while the red ink has grown on Wayfair’s income statement.

Wayfair’s slower growth will likely translate into an enterprise valuation that’s lower than the 4.5x trailing revenue Zulily posts. Even a multiple that’s half what Zulily fetches would be a strong bump from the roughly $1.8bn post-money valuation on Wayfair’s last round, and well above the 0.5x median multiple in acquisitions of e-commerce providers in the past 24 months, according to The 451 M&A KnowledgeBase.

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Hitachi’s late de-dupe deal

Scott Denne

Contact: Scott Denne Dave Simpson

Years later, Hitachi Data Systems follows the competition with a de-duplication acquisition of its own, buying longtime partner Sepaton. Prior to yesterday’s announcement, there hadn’t been a purchase of a de-dupe company in nearly four years.

Almost all of HDS’s hardware rivals – including EMC, IBM and HP – already have strong plays in the data-protection software space. For backup and recovery, HDS primarily relies on its reseller partnership with CommVault. We expect HDS to eventually integrate Sepaton’s technology with its HDIM software, which is the result of its purchase of data-protection vendor Cofio. In addition, we anticipate tight integration of Sepaton’s platforms with HDS’s primary storage systems and software.

Past de-dupe deals

Date announced Acquirer Target Deal value
August 14, 2014 Hitachi Data Systems Sepaton Not disclosed
December 20, 2011 Imation Nine Technology $2.5m
July 19, 2010 Dell Ocarina Networks Click for estimate
June 1, 2009 EMC Data Domain $2.35bn
April 18, 2008 IBM Diligent Technologies Click for estimate

Source: The 451 M&A KnowledgeBase

Subscriber’s to 451 Research’s Market Insight Service can click here for a detailed report on HDS’s acquisition of Sepaton.

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