Author: Scott Denne

Williams-Sonoma orders augmented reality

Scott Denne

Contact: Scott Denne

Retailers have inked a handful of deals in an effort to fend off competition from Amazon and adapt to a blossoming era of mobile-enabled shopping. Yet few buyers have reached for companies with advanced technology, instead opting to bolt on digital media, e-commerce and services businesses. Williams-Sonoma’s $112m pickup of Outward counters that trend and shows that retailers could become true tech buyers as digital commerce entails more than stitching on a website.

With its acquisition of Outward, Williams-Sonoma, a maker of upscale household wares and (through its Pottery Barn subsidiary) furniture, obtains technology that enables 3-D renderings of its inventory for use across multiple digital platforms, including a forthcoming augmented reality (AR) app that helps customers visualize furniture purchases in their own homes.

It was that mobile capability that drove Williams-Sonoma to pay $112m for a company that raised just $11.5m in venture capital. The buyer believes that more immersive capabilities on its mobile website and app have already led to sales and will continue to do so in the future. According to a study done by 451 Research’s VoCUL in the first quarter, 35% of consumers research a purchase on their smartphone at least once a week before going to a store.

For other retailers looking to follow Williams-Sonoma, there are a handful of assets remaining. Although furniture shopping is a niche application of AR, such startups have gotten their fair share of venture capital, having raised a total of $34.8m across six vendors, including Marxent, Modsy and Hutch, according to 451 Research’s M&A KnowledgeBase Premium. Today’s deal, along with Amazon’s purchase of Body Labs and Bed & Beyond’s acquisition of Decorist, could spark retailers to buy more ecommerce technologies.

Still, if past is precedent, retailers aren’t likely to rush into acquiring companies like Outward, which has filed for eight patents related it its imaging technology and was built by a team of Qualcomm veterans. Instead, they’re likely to continue to snag their e-commerce counterparts as they’ve done so far this year. According to the M&A KnowledgeBase, 11 of the 26 deals by brick-and-mortar stores in 2017 have been acquisitions of online retailers.

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

Cloudflare signals new push into mobile 

Scott Denne

Contact: Scott Denne

Positioned near the top of one budding corner of the CDN market, Cloudflare is angling to take a share of another with the purchase of Neumob. Its latest deal, a departure from Cloudflare’s mostly infosec M&A in the past, gets the Internet performance-optimization vendor software to bolster the performance of mobile apps.

Offering a service that protects and accelerates websites has made Cloudflare into a business with more than $170m in venture capital and annual revenue in the same neighborhood (subscribers to 451 Research’s M&A KnowledgeBase Premium can access a detailed profile of the company). Its security capabilities have pushed it near the top of the fastest-growing segment of the CDN market, defending against distributed denial-of-service (DDoS) attacks.

According to 451 Research’s VotE: Information Security survey, 38% of respondents planning to implement an anti-DDoS service were considering Cloudflare, second only to Akamai, which scored less than three percentage points higher. 451 Research’s Market Monitor service projects that this portion of the CDN market will expand by 40% this year, so it’s understandable that two of Cloudflare’s three previous acquisitions would fortify its security features.

In Neumob, it’s picking up a company whose software analyzes the signal available to a mobile device and adjusts the API calls to make the most of that signal. Although terms weren’t disclosed, it’s likely a modest-sized deal given that Cloudflare plans to shut down the service and integrate the software with its own. Neumob had about 20 employees and had raised $11m in funding. While such mobile acceleration targets have drawn strategic interest, most, like Neumob, were acquired at an early stage. Last year, privately held Instart Logic purchased Kwicr and Salesforce nabbed Twin Prime, a pair of startups with similar amounts of funding as Neumob.

Still, a decade since the birth of the smartphone, mobile app acceleration remains a pressing problem. In a survey by 451 Research’s VoCUL earlier this year, 47% and 44% of businesses told us it was ‘very important’ to provide their customers with mobile apps for customer service and shopping, respectively. At the same time, consumers’ gluttonous appetite for mobile apps shows no sign of abating. In a separate VoCUL study in the second quarter, 15.6% of consumers said they had downloaded six or more apps on their smartphone in the last month, a slight increase from the same survey done a year earlier.

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

Salesforce’s sleepy M&A strategy 

Scott Denne

Contact:Scott Denne

This week Salesforce opens up Dreamforce, its annual customer conference – and, as usual, it is sparing no expense to host tens of thousands of people in downtown San Francisco. The same can’t be said of its recent M&A efforts. The CRM giant’s last substantial acquisition – the $680m purchase of audience data management vendor Krux – printed as last year’s conference began. And although it’s been silent since, we’d expect Salesforce to resume the strategy it left off with when it begins buying again.

Leading up to last year’s show, Salesforce was coming toward the end of a record acquisition spree that, according to 451 Research’s M&A KnowledgeBase, spanned 12 deals and cost $4bn before the year was out. This year, like many of the partners, customers and investors Salesforce is hosting at Dreamforce, it’s got a bit more to digest than usual. So far, it has printed just two transactions and spent $20m of its cash on M&A (per its most recent quarterly report). Salesforce isn’t alone. Other major enterprise software vendors – IBM, Microsoft, Adobe and Oracle – have been uncharacteristically quiet this year.

When Salesforce and others emerge from their hiatus, they could have a slightly different take on SaaS dealmaking than in the past. In the first round of SaaS acquisitions early in this decade, buyers had the same strategy for software M&A that they deployed in the client server era. Back then, acquirers could leverage their strong connections in the IT department to funnel in more products. With SaaS transactions, the buyer is often the line of business, not IT, so those existing relationships don’t hold up as well.

Today, businesses from all corners are looking to leverage their data to help find new customers and cater to those they already have. For this reason, Salesforce’s chance to build out a sales channel is to expand its role in how businesses capture, segment and share data about their customers’ characteristics, behavior, preferences and history.

Salesforce has already embarked on this destination. With its pickup of Krux, it gained an asset that collects and augments data about anonymous prospects, a complement to Salesforce’s roots as a CRM firm. When Salesforce resumes buying, we expect it to hunt for additional acquisitions that would position its software as the lodestar of its customers’ data strategy.

With its legacy CRM offering, Krux and a host of artificial intelligence applications in tow, Salesforce should look to add apps that make it easier for companies to gather more intelligence about customers. One way it could go about this would be to acquire Janrain or another identity management application provider that helps businesses gather and manage data from user registrations on websites and apps. It could also consider customer loyalty application specialists such as CrowdTwist or SessionM that provide software for building out loyalty programs that entice consumers to share more of their personal data with the vendors they frequent.

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

Lenovo nabs another PC biz 

Scott Denne

Contact:Scott Denne

Fujitsu spun off its PC business into a separate subsidiary almost two years ago in anticipation of a sale to Lenovo. The terms don’t appear to have improved with age. With the ¥17.9bn ($157.4m) purchase of a 51% stake in Fujitsu’s PC business, the always-thrifty Lenovo hits a new low on price.

With this deal, which will also see Development Bank of Japan take a 5% stake in the spinoff, the target fetches an enterprise value of $309m, or just a hair under 0.1x trailing revenue. In its 2004 pickup of IBM’s PC business, which until today stood as the lowest valuation for a Lenovo acquisition, the Beijing-based company paid slightly more than 0.1x. According to 451 Research’s M&A KnowledgeBase, Lenovo has never spent more than 0.6x trailing 12-month revenue.

Lenovo frequently buys unwanted business units, as it did with IBM’s PC business and Google’s Motorola Mobility a decade later. Although the rationale for those deals was North American growth, at the time of each of those transactions, Lenovo’s PC and smartphone businesses, respectively, had little footprint in the US. With Fujitsu, it obtains an asset with only limited sales outside of Japan. Instead, the ability to add scale and drive down component prices motivated today’s acquisition.

Through the first half of its fiscal year, Lenovo’s profit margin dropped by one-quarter. Lenovo must increase those margins as top-line growth isn’t available. According to 451 Research’s VoCUL service, only 7% of North American consumers planned to buy a laptop in the next six months, an all-time low. Corporate business isn’t likely to make up the difference. A separate VoCUL survey of business buyers shows anticipated purchases of desktops and laptops diving to record lows.

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

Under Armour’s decline continues despite aggressive M&A 

Scott Denne

Contact:Scott Denne

As technology vendors intrude on a broad set of markets, companies from outside the tech industry are searching for assets to fend off the challenge. Under Armour was an early mover in that trend, but its continued decline this year shows that tech M&A isn’t an adequate defense.

In 2015, the athletic apparel company paid more than $500m to acquire three different health and fitness app providers – MyFitnessPal, Endomondo and Gritness. According to 451 Research’s M&A KnowledgeBase, non-tech buyers made $20.6bn in tech deals that year, an active, but not record, year that set the stage for 2016 and 2017, where companies outside of tech have spent $55.5bn and $48.1bn on tech M&A.

Under Armour said its acquisitions would enable it to find new ways to connect with customers and build brand equity. While it may have realized some of those benefits, it wasn’t enough to prevent an overall collapse of its growth rate as its wholesale channel got squeezed by retail closures and bankruptcies. The company’s third-quarter sales declined 5%, sending the stock down by one-quarter, part of a 58% retreat since the start of the year.

Its purchases haven’t helped much either. Revenue from those 2015 deals (plus a similar acquisition from 2013) generated just $65m through the first three quarters, up 5% from a year ago. That’s not to say that it shouldn’t have bought those businesses. Under Armour’s direct-to-consumer sales (roughly one-third of its revenue, encompassing its branded stores and online sales) are expanding this year and having a direct line to consumers in the form of owned-and-operated mobile apps likely played some part in that. And those apps could have a larger role in its recovery should Under Armour choose to decrease its reliance on retail partners.

It’s hard to say what the company could have done differently. Without those acquired assets, its decline may well have been steeper. And it can’t be chided for complacency, given the aggressive prices it paid – in total tech M&A it spent over $700m for assets that today, almost three years after its largest purchases, generate less than $100m in annual revenue. When it comes to retail, Under Armour’s woes suggest that tech acquisitions won’t shield a business from a transformation in consumer behavior.

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

Faster IT could have buyers chasing performance testing deals 

Scott Denne

Contact:Nancy Gohring

The pressure on IT departments to move faster could continue to stimulate M&A in the performance testing sector. IT teams are increasingly embracing DevOps practices to shorten development cycles, stay competitive and meet customer needs. We’ve observed, however, a corresponding decline in software reliability – in some cases, because teams opt not to properly test new software developments in their quest for speedy releases. And that could lead to acquirer interest in performance testing vendors that make it easier to do continuous testing and for development teams to test their products early in the process.

The top goal that IT decision-makers cited for their IT environments in the next year is to respond faster to business needs, according to our Voice of the Enterprise: Cloud Transformation, Workloads and Key Projects 2017 survey. In that study, more than one-third of all respondents told us that moving faster was their top goal for the coming year, ahead of cutting costs, which garnered fewer than one-quarter of responses.

The trend has already led to three performance testing deals since September 2016, when CA picked up BlazeMeter. Akamai’s reach for SOASTA and Tricentis’ Flood.io buy were the other two, more recent, acquisitions. One final development that we believe is influencing the performance testing market is the merger that saw HPE’s LoadRunner become part of MicroFocus. LoadRunner once dominated the performance testing landscape, and although its share has been eroded by newer entrants, it is still entrenched in many organizations that have invested heavily in using the tool. MicroFocus’ acquisition of HPE’s software business, however, casts uncertainty around the future of LoadRunner.

With those developments pressing on the performance testing market, we anticipate that both new and legacy application performance monitoring providers will explore purchases in this space. Subscribers to 451 Research’s Market Insight Service can click here to access a detailed report on performance testing M&A activity.

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

Elliott prints first take-private 

Scott Denne

Contact: Scott Denne

Often a bidder, never a buyer, Elliott Management looks set to make its first take-private of a tech company, reaching an agreement to buy network-monitoring vendor Gigamon for $1.6bn. The infamous activist investor has often agitated for sales of publicly traded tech companies and launched offers of its own, but has yet to bring one over the finish line.

Elliot’s list of unsuccessful – and typically unsolicited – bids for public tech companies goes at least as far back as its 2008 offers for Epicor and Packeteer (although it had once invested alongside Francisco Partners in a 2006 take-private). More recently, it was rebuffed by LifeLock, which negotiated with Elliott before reaching a deal to sell to Symantec. It’s worth noting, however, that Elliott was only unsuccessful in its role as buyer. As an investor, it has often made money on unsuccessful bids. For example, in the case of LifeLock, Symantec’s acquisition ultimately drove the value of Elliott’s LifeLock shares roughly 80% higher than the price it paid six months earlier.

For Gigamon, a sale to Elliott seems preferable to staying public. A downward revision of its guidance at the end of last year opened the door for Elliott to accumulate a 7% stake in the business. And today it’s announcing a sale to Elliott, rather than hopping on an investor call to explain a third-quarter miss on its revenue guidance. Despite that trajectory, Gigamon is fetching a healthy valuation, trading for 5.3x trailing revenue, two turns above the valuation that rival Ixia fetched in its sale to Keysight earlier this year.

Unlike earlier attempts, Elliott pursued Gigamon through its dedicated private equity (PE) vehicle, Evergreen Coast Capital. The combination of activism and private equity in a single investment group adds yet another strategy to a PE landscape that’s grown increasingly diverse as limited partners continue to cram cash into PE funds, leading to a record number of tech buyouts. In the official start to its PE strategy, Elliott joins an expanding list of PE investors willing to pay more than $1bn on tech transactions. So far this year, almost one in five $1bn-plus PE deals have been printed by a firm that’s never done a transaction of that size, compared with just one in 10 last year, according to 451 Research’s M&A KnowledgeBase.

*Click here for estimate
Source: 451 Research’s M&A KnowledgeBase

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

The Logi-cal move for Marlin Equity Partners’ newest asset 

Scott Denne

Contact: Krishna Roy, Scott Denne

Marlin Equity Partners extends its shopping spree in business intelligence (BI) software with the acquisition of Logi Analytics. Following its 2014 reach for Longview Solutions, a corporate performance management (CPM) stalwart, Marlin has bought two assets to bolt on to that platform – arcplan and Tidemark Systems. Although it hasn’t announced plans to combine Logi with Longview, we suspect that could be the case since Logi offers capabilities that align with Longview’s strategy to develop into a modern CPM platform.

Logi would provide Longview with vital elements to address this endgame – embeddable BI and analytics, dashboards, and reports. Logi has built itself into a go-to name for embedded analysis. Furthermore, the company has expanded its purview into visual analysis and data discovery, and moved into self-service data preparation in recent years. Longview could make use of these offerings to assemble a soup-to-nuts CPM platform.

Although terms of the deal weren’t disclosed, it’s likely a significant transaction. Logi had raised almost $50m in venture capital, and as of 2016 was generating about the same amount in annual revenue. With this deal, Marlin extends its BI portfolio beyond CPM, a roughly $1bn market, into reporting and analytics, a market that, according to 451 Research’s Total Data Market Monitor, is 20x larger and contested by 10x as many vendors.

Cisco seeking software 

Scott Denne

Contact:  Scott Denne

While both Cisco Systems and Hewlett Packard Enterprise face declining hardware businesses, the two companies have responded with opposing M&A strategies. With yesterday’s announcement that it will pay $1.7bn to acquire BroadSoft, Cisco sets up 2017 for a once-a-decade amount of M&A spending. But it’s not just a burst of activity that sets it apart from its rival. The networking giant has steadily sought software vendors as it looks to get its top line back to growth.

With its latest announcement, Cisco has now spent $6.5bn on acquisitions since the start of the year. According to 451 Research’s M&A KnowledgeBase, that’s more than it spent in the first 10 months of the year in any of the previous 15 years, except 2009. It’s reached for software assets in all eight of its deals this year, starting with the $3.7bn pickup of application performance monitor AppDynamics in January.

Over the past 12 months, Cisco’s top line dropped by 3% led by lower switch sales, while HPE’s sales through the first three quarters are down 7% year over year due to a slump in servers. HPE has responded by bolting on more hardware – its two largest transactions this year were for storage providers SimpliVity and Nimble Storage – shying away from software following the disastrous $11.7bn Autonomy buy in 2011, one of several deals it unwound last year across two multibillion-dollar divestitures.

While Cisco has made some large software purchases, it has spread those bets across multiple acquisitions and business units. So it’s not burdened with the legacy of a single software transaction that drags down the company’s results. Although it has often taken chances in its software deals – it paid 17x trailing revenue to enter a new market when it bought AppDynamics – its latest purchase, BroadSoft, brings it into familiar territory by obtaining an asset that sells primarily to internet service providers, a market Cisco has long sold to.

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

bpost’s trek through Amazon 

Scott Denne

Contact:Scott Denne

Looking for a patch of ground in a rising market, bpost picks up a declining asset as it prints its first tech deal with the $820m purchase of Radial, eBay’s former commerce services unit. The acquirer, which operates the Belgian mail service and other logistics businesses, is aiming to capitalize on the growth of e-commerce in North America. Yet its projections ignore the extent of its vulnerability to an increasingly dominant Amazon.

Radial formed with the 2016 combination of retail fulfillment services firm Innotrac and the former eBay Enterprise business, which provided fulfilment, order management and other services. The two were bought out by investor syndicates and combined in 2016 by their shared owner Sterling Partners.

Its fortunes have tracked those of its customers, many of which have filed for bankruptcy since the start of 2016, including Aeropostale, RadioShack, Toys R Us and Sports Authority. Radial’s revenue is projected to decline to about $1bn from roughly $1.25bn last year.

At 8x trailing revenue, Radial fetches the same multiple that eBay Enterprise nabbed in its 2015 sale. That’s a rich multiple considering the earlier acquisition of eBay Enterprise included e-commerce software platform Magento, which has since been spun off and likely had higher margins than the services-heavy Radial.

That multiple may turn out to be less rich than bpost’s projections that the asset can expand its top line by 6-8% annually, considering that it’s coming off a year where it lost 20% of its revenue catering to the second tier of retailers. Not only are those the retailers that are most vulnerable to Amazon’s domination of commerce, the online goliath runs a fulfillment business of its own, making Radial vulnerable on two fronts – those customers that aren’t crushed by Amazon could very well side with it.

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