Author: Scott Denne

Vantiv nabs Mercury for $1.65bn

Scott Denne

Contact: Scott Denne Jordan McKee

Amid a slowdown in its growth, Vantiv picks up payment technology processor Mercury Payment Systems for $1.65bn in a bid to boost its integrated payment offerings. This is Vantiv’s second acquisition of an integrated payments company in less than a year, a reflection of the importance of this emerging corner of the point-of-sale (POS) market.

Founded just over a decade ago, Mercury sells integrated payment-processing services that are built to connect with other business software, such as CRM or accounting systems. As more software becomes available to SMBs, more of them are exchanging isolated payment systems (where Vantiv’s roots lie) for integrated payments. Not only is this trend likely to accelerate as tablets and mobile devices gain a larger footprint in POS systems, but integrating payments with other systems will make it less likely that customers would replace Vantiv/Mercury. Vantiv first got into integrated payments with its $162.5m purchase of Element Payment Services in July.

While Vantiv’s revenue grew 14% in 2013, the company expects to post just single-digit percentage growth in 2014, so gaining a bigger stake in an expanding market like integrated payments is an attractive proposition. The deal also provides Vantiv with a new channel to target SMBs, as Mercury sells its services through software developers and a network of local POS distributors.

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GI Partners’ datacenter strategy hits a new Peak (10)

Scott Denne

Contact: Scott Denne Kelly Morgan

Private equity firm GI Partners picks up Peak 10 for a purchase price that’s likely $750-850m. The final price is below where we heard it was initially being shopped, but is about two times what Welsh Carson Anderson & Stowe paid for the datacenter business in 2010.

The acquisition is GI Partners’ largest takeout of a datacenter business. The firm’s wagers in the space have ticked up since its acquisition in 2006 of Telx, which it sold five years later to ABRY Partners. The purchase of Peak 10 comes on the eve of the anniversary of IBM’s acquisition of GI Partners’ portfolio company SoftLayer for $2bn in 2013. GI bought SoftLayer in 2010 for about one-quarter of that price.

Now, all eyes will be on GI to see if it combines Peak 10 with ViaWest, which it has a minority interest in. Geographically, the two would fit together nicely and both target SMB customers with colocation plus cloud and managed services. Peak 10 is based in the southeastern US and has been steadily expanding its datacenter footprint while also adding to its services. ViaWest provides similar services from its locations in Colorado, Minnesota, Nevada, Oregon, Texas and Utah.

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With or without Dre, Apple’s M&A has a new beat

Scott Denne

Contact: Scott Denne

Though the rumored acquisition of Beats Electronics would signal a major change in Apple’s M&A practice (aside from being more defensive than a typical Apple purchase, at $3.2bn it would be the company’s largest deal by a factor of 10), a subtle change in its strategy has been underway since Tim Cook took the helm following the retirement of Steve Jobs two and a half years ago.

Under Cook’s leadership, we’ve seen Apple acquire 21 companies – 14 have come in the past 12 months alone, according to The 451 M&A KnowledgeBase. In the eight years preceding Cook’s tenure, Apple purchased just 16 businesses and only twice paid more than $100m, while Cook has done so on at least three occasions (AuthenTec, C3 Technologies and Topsy Labs).

It’s not just a change in leadership style that has spawned the change in acquisitions. Apple’s cash, while substantial under Jobs, has only increased – as has the pressure to spend it. Today Apple has about $150bn in cash and marketable securities; three years ago, it held $65bn. The competitive environment was different then: Spotify, having just launched in the US, hadn’t started to eat into iTunes’ revenue. Also, Samsung was still a distant fourth place in the smartphone market, compared with its position today as a close second to Apple, according to surveys by ChangeWave Research, a service of 451 Research.

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Panduit’s hot for cooling vendor SynapSense

Scott Denne

Contact: Rhonda Ascierto Scott Denne

Panduit, primarily a datacenter cabling vendor, has acquired SynapSense, a datacenter infrastructure management (DCIM) software company. This is Panduit’s second acquisition in the DCIM market, which hasn’t seen much M&A overall. The company is working on providing a unified offering of datacenter technologies, with software at the center.

We forecast more than 40% CAGR for the DCIM market. Despite that growth, it is a challenging environment for small pure-play firms like SynapSense. The market is plagued by protracted sales cycles and crowded with more than 55 vendors, including several large datacenter equipment makers and enterprise IT software providers.

SynapSense brings dynamic cooling optimization software to Panduit’s asset management and monitoring offerings, which it shored up with the acquisition of Unite Technologies almost two years ago. SynapSense’s software is sophisticated and relatively mature – yet perhaps too advanced for much of the slow-to-change datacenter space.

We would expect Panduit to continue to grow its software reach via future M&A as software and services are becoming an important competitive differentiator for all datacenter equipment suppliers.

We’ll have a more detailed analysis of this deal in tomorrow’s 451 Market Insight.

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FireEye likes the look of nPulse

Scott Denne

Contact: Javvad Malik Scott Denne

FireEye follows up its $1bn Mandiant purchase with a smaller bite: the $60m acquisition of nPulse Technologies. In addition to the $60m in cash, FireEye is on the hook for $10m in stock for an earnout and another $10m in retention payments for the 30-employee company.

Its latest buy brings FireEye network forensics capabilities to go along with its network threat detection and the endpoint forensics it picked up with Mandiant. FireEye now joins several competitors that have built or bought network forensics, including LogRhythm, which recently announced a forensics product, and Blue Coat, which acquired Solera Networks last year (and subsequently purchased Norman Shark, which competes with FireEye’s core offering).

We would expect FireEye to keep hunting for new acquisitions. While it now has network and endpoint forensics as well as network-based threat detection, it’s missing endpoint threat detection, though it does have a partnership with Verdasys for endpoint detection. CEO Dave Dewalt has been vocal about the need to build FireEye beyond its original network detection products, and the company just raised $446m in a second public offering.

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Google’s recent acquisitions go back to its roots

Scott Denne

Contact: Scott Denne

With Google’s announcement that it has picked up Adometry and its purchase in February of spider.io, the search giant has now made two acquisitions in support of its core business. The deals come after a nearly three-year hiatus from buying advertising companies. Its last announced advertising acquisition was the purchase of online exchange AdMeld in June 2011.

The recent transactions come as Google faces a slowdown in part of its ad business. Advertising revenue on Google’s own websites grew 20% in 2013 to $37.45bn, but sales from its ad networks and exchanges decelerated. That revenue was up only 5% to $13.13bn in 2013, compared with a 20% rise the year earlier, while already thin gross margins tightened during those years.

Adometry sells advertising attribution services that could boost Google’s network revenue by helping advertisers understand which ads help move prospects closer to a purchase, rather than giving all the credit to the last ad a customer clicks. It could also help Google attract more brand advertisers to its properties and networks, in addition to the direct-response advertisers that are drawn to Google’s pay-per-click model.

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EMC makes another flashy bet

Scott Denne

Contact: Scott Denne

EMC makes another bet on an early-stage flash storage technology with the acquisition of stealthy startup DSSD. The deal comes almost two years to the day after EMC bought into the all-flash array market by purchasing XtremIO. That transaction, and another acquisition aimed at bolstering EMC’s position in flash, both got off to questionable starts.

Like DSSD, XtremIO had yet to bring its product to market when it was acquired by EMC for an estimated $430m in May 2012. Eighteen months passed before that technology was widely released, and even today some of its basic functions are still in beta release. Last summer, EMC bought disk-pooling software maker ScaleIO with the intention of focusing the product entirely on flash, but later backtracked on that strategy and said the software would continue to work on disk as well.

A changing storage landscape that includes the emergence of flash, as well as cheaper scale-out and cloud storage, is having an impact on EMC. Last quarter, its storage product revenue dropped 6.9% year over year, with the decline focused on its high-end products, where sales grew 2% in 2013.

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After ‘Deer Hunter’ success, Glu stalks bigger prey

Scott Denne

Contact: Scott Denne

Glu Mobile has built a business around revitalizing tired gaming brands for play on smartphones. In its latest effort, Glu sets out to turn around PlayFirst, maker of ‘Diner Dash,’ a casual game that was successful on PCs during the past decade but struggled to gain traction on smartphones and tablets.

Glu has shown a talent for transformations: at the time of its 2007 IPO, its business was selling feature-phone games through carriers, a business that was eviscerated by the launch of the iPhone that same year. Two years ago, Glu spent $5m to acquire the trademarks and other IP around the ‘Deer Hunter’ games from Atari and yesterday it topped the high end of its quarterly revenue guidance by 17% due to the strength of that series. ‘Deer Hunter’ accounted for 37% of its $47m revenue in the first quarter.

The purchase of PlayFirst, however, has some key differences from its ‘Deer Hunter’ buy. For one thing, with an enterprise value of $15.3m, the PlayFirst purchase is three times the size of the ‘Deer Hunter’ pickup and starts costing Glu money on day one, as PlayFirst lost $5.2m last year and its revenue is declining. PlayFirst generated $11.4m in revenue last year, but is currently only on a $7m run rate for this year. Also, Glu’s not grabbing IP it can build on – the company is getting an existing set of games that already attempted to crack the mobile market but failed to gain meaningful traction.

PlayFirst adds casual games to Glu’s portfolio, which has seen little success beyond action titles. Glu expanded its catalog of casual games with the $4.5m acquisition of Blammo in 2011, but none of those games have matched the success of its top action franchises. Only one of the brands from Glu’s Blammo buy broke the $1m revenue mark last year.

Despite having been out of the market for nearly two years, Glu indicated that PlayFirst may just be one of several deals to come. In conjunction with the announcement, the company filed to sell an additional $150m of its stock, in a move that Glu’s management says is intended to give it the capacity to pursue similar turnaround opportunities.

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Startups flood into cloud security, M&A will follow

Scott Denne

Contact: Adrian Sanabria Scott Denne

Cloud application control (CAC) has emerged suddenly, spawning 15 startups, by our count, in less than two years, and three acquisitions since last fall. The market was born out of the need for nuanced control of enterprise SaaS applications: a gaping hole in offerings across many security categories, including next-generation firewalls and identity and access management.

Given the abundance of available startups and the relevance of this technology to so many vendors, we expect to see more acquisitions in this sector in the near future. We would be surprised if most CAC providers haven’t fielded some interest in an exit at this point.

Cloud application control acquisitions

Date announced Target Acquirer Employees Deal value
September 26, 2013 SaaSID Intermedia 20 Not disclosed
January 15, 2014 CloudUp Networks CipherCloud Two Not Disclosed
February 6, 2014 Skyfence Networks Imperva 20 (estimated) $60m

Source: The 451 M&A KnowledgeBase

Whether CAC eventually takes shape as a feature of a firewall or a cornerstone of a consolidated identity management and cloud encryption offering, this market is here to stay as all enterprises will require a way to control access and data outside their own perimeter.

We’ll explore this sector in depth in a report in tomorrow’s 451 Market Insight.

Acquisitions looming in firewall management

Scott Denne

Contact: Scott Denne Javvad Malik

Firewall management companies began to crop up a decade ago to help organizations tackle firewall sprawl, but that corner of the security market has seen few acquisitions, despite its age. Now that all the vendors in that space are expanding beyond pure firewall management, we expect a few of the five vendors here – FireMon, Skybox Security, RedSeal Networks, AlgoSec and Tufin – to take advantage of high valuations among security companies and look for an exit. While the category continues to grow modestly, none of these vendors has emerged as the clear leader, with most hovering around $25m in annual sales.

In trying to stand out from the crowd, they’ve all expanded in recent years beyond firewall management and into adjacent areas such as network risk assessment and network orchestration. As pure firewall management vendors, there was little interest in buying them: their sales came from being positioned as a neutral party with the ability to manage products from different security vendors. Getting picked up by a large security vendor could put that position in jeopardy.

Over the last 12 months, security companies have sold at a median valuation of 8.3x trailing revenue, according to the 451 M&A KnowledgeBase. Many may still be stymied, however, by a perception that they’re still primarily firewall management vendors, thereby affecting their valuation potential.

We explore this sector in depth in a report here.

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