Author: Scott Denne

eBay adds Braintree to payments brain trust

Scott Denne

Contact: Scott Denne

eBay’s PayPal subsidiary is paying $800m for payments software provider Braintree Payment Solutions to advance its position in serving software and e-commerce businesses. Through organic growth, Braintree became the payments technology provider of choice for many high-growth e-commerce startups. Cementing its position was an inorganic move meant to help its customers tackle the growing adoption of mobile payments.

Braintree was specifically chosen to bring more software vendors, especially mobile software firms, to eBay’s PayPal business. Braintree specializes in providing payment processing for the newest generation of consumer Internet and SaaS companies. As those companies – such as Airbnb, LivingSocial, Uber and Fab.com – have grown, Braintree has grown with them. And as those companies became more mobile-focused, so too did Braintree, by acquiring mobile-wallet provider Venmo for a reported $26m last year.

Just as it has in its last two major payments purchases – the $240m reach for Zong in 2011 and the $820m pickup of Bill Me Later in 2008 – eBay is paying a mindful price for Braintree. While Braintree’s revenue isn’t disclosed, the company is still small – it processes less than one-tenth of PayPal’s total. Braintree’s platform processed $4bn in payments in 2011, netting the vendor $10m in revenue. Now, it’s on pace to process $12bn in annual payments. Keeping the ratio constant would likely put its revenue in the $30-40m range. If our rough math is correct, the deal would value Braintree at a whopping 20x sales.

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OANDA buys Currensee in copycat forex deal

Scott Denne

Contact: Scott Denne

OANDA is picking up Currensee Global, a company that enables foreign exchange (forex) traders to mimic the trades of other traders, in the third recent deal in the forex market. Increasing regulatory burdens are driving the latest spate of sector consolidation.

Regulations in Asia, the US and Europe, such as limitations on leverage, the Dodd-Frank Act’s implementation of ‘first in, first out’ policies and the looming ban on the use of credit cards, have made it cumbersome for smaller vendors in this market to expand. That’s left a lot of them seeking a larger suitor with greater resources capable of managing stringent compliance issues. OANDA and its two main rivals have been happy to help.

Recently, FXCM and GAIN Capital also reached for new businesses. FXCM on Monday announced that it has taken a majority stake in Faros Trading to help bolster its institutional business. And yesterday, GAIN Capital closed its $108m purchase of Global Futures & Forex. The deal, announced in April, was done to expand GAIN’s international reach. Terms of OANDA’s and FXCM’s transactions were not disclosed, but we believe the Currensee acquisition to be small as the company had 25 employees.

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Rogers doubles down on Canadian datacenter market

Scott Denne

Contact: Scott Denne Michael Levy

Canadian telecommunications company Rogers Communications seems to be on a datacenter M&A roll, buying Pivot Data Centres and Granite Networks today for a combined $158m. The deals are Rogers’ second and third datacenter acquisitions of the year. However, we don’t expect a fourth by year’s end.

Rogers is spending a combined $158m (C$161.5m) on two datacenter vendors – Pivot Data Centres for $151.5m and Granite Networks for $6.1m – which is on top of the $196m it already paid for BLACKIRON Data in April.

As Rogers and its peers have looked for new services to make up for lost landline revenue, the Canadian datacenter sector has undergone significant consolidation in the past two years, leaving few available premium assets in the market. With its reach for Pivot and Granite, Rogers buys two of the last ripe assets in Canada. Most of the remaining datacenter providers in Canada have aging infrastructure or small amounts of space.

The short supply in Canada seems to have driven up prices for hosted services companies. Consequently, we understand that the sale of Pivot was a competitive process, bringing out bids from other strategic, as well as financial, acquirers. We hear the company is being valued close to BLACKIRON, which Rogers bought for 15.1x 12 month-trailing EBITDA.

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Rocket Fuel takes off on debut

Scott Denne

Contact: Scott Denne Tejas Venkatesh

Adtech company Rocket Fuel created fireworks on the public markets today, first debuting at the high end of an already upwardly revised range and doubling shortly thereafter. The offering creates $1.8bn in market value, and highlights investors’ hunger for a combination of growth and technology differentiation.

Rocket Fuel generated $160m in revenue for the year ended June 30, up roughly 135% from the same period last year, valuing the company at a handsome 11.6x trailing sales. In its filings, the company emphasized its use of artificial intelligence and complete automation of ad buying. That makes it unique from other demand-side platforms, which work more like a Bloomberg terminal for ad buying, and that seems to appeal to investors seeking an adtech business that’s based on technology, rather than an arbitrage of buying ad inventory and reselling it at a higher price.

That growth and tech combination is resulting in the superior valuation compared to recent adtech IPOs like Tremor Video, Marin Software and Millennial Media, all of which trade at less than 6x trailing sales. For instance, Millennial, which is comparable to Rocket Fuel in revenue run rate, trades at just 3x trailing sales.

Rocket Fuel’s offering is good news for larger rival Turn, which is planning its own IPO. We believe the nine-year-old startup is generating roughly $250m in revenue and is likely to file its paperwork early next year.

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Amid accounting review, Veeco buys Synos for up to $185m

Scott Denne

Contact: Scott Denne

Veeco Instruments is making a huge bet at an unusual time. The company is paying $70m in cash for atomic laser deposition systems provider Synos Technology, with earnouts potentially raising the total cost of the acquisition to $185m. Meanwhile, Veeco is undergoing an internal accounting review and hasn’t filed financial results in nearly a year.

Instead of acquiring an unproven company, Veeco should have bought itself an abacus. The company hasn’t filed financial results since the third quarter of 2012 as it reviews whether it recognized revenue on its metal organic chemical vapor deposition devices in the appropriate periods. The review could result in a shift in revenue to different periods. When it did report, it wasn’t pretty. Trailing revenue at the time fell 45% from the prior year, to $595m.

However, if Veeco can successfully integrate Synos and the target can meet its earnout milestones, the rewards would be substantial. Synos, which sells equipment that enables the manufacturing of flexible displays on cell phones, just began shipping its first product earlier this year. Nonetheless, Veeco anticipates that it will ship $80m in product next year, followed by $200m in 2015.

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Sometimes M&A begets M&A

Scott Denne

Contact: Scott Denne

TIBCO Software has acquired BI vendor Extended Results to bolster its Spotfire data visualization business, which it bought for $195m in 2007. After five years of organically growing Spotfire, Extended Results is TIBCO’s third Spotfire add-on this year. Its growing interest in the sector likely comes from both competitive M&A pressure and the market’s overall growth.

Extended Results offers BI software that enables executives to access key metrics on their mobile devices. The target provides TIBCO Spotfire with a mobile delivery mechanism for its visualization products. Terms of the deal weren’t disclosed, but we know TIBCO has so far spent a total of $85m to purchase businesses complementary to Spotfire. Extended Results had 50 employees. Cascadia Capital advised the company on its sale.

To a degree, we believe the transaction was driven by competitive M&A pressure in data visualization, as well as the sector’s growth potential. For example, QlikTech, one of TIBCO Spotfire’s biggest rivals, got into data visualization in May with the $7.6m acquisition of NComVA. Meanwhile, other tech firms have been active here this year, with Salesforce.com buying EdgeSpring, Datawatch picking up Panopticon Software and Pentaho reaching for Webdetails. And for a market check, Tableau Software, the largest stand-alone data visualization software provider, is expected to double its revenue this year, to $258m.

TIBCO’s BI and data visualization M&A

Date announced Target Deal value
September 18, 2013 Extended Results Not disclosed
June 11, 2013 StreamBase Systems $52m
March 25, 2013 Maporama Solutions $6.9m
July 8, 2008 Syndera $1m
June 19, 2008 Insightful Corp $25m
May 1, 2007 Spotfire $195m

Source: The 451 M&A KnowledgeBase

Hightail buys Adept Cloud to stay ahead of cloud security concerns

Scott Denne

Contact: Scott Denne

Hightail acquires secure file-transfer startup Adept Cloud, a unique move in an industry that has focused on usability over security. But the deal could also become a precedent as security concerns start surfacing in cloud buying decisions, forcing some companies to look to M&A to remain relevant.

So far, we’ve seen very few acquisitions of security companies by cloud file-sharing providers. In fact, of the 18 combined acquisitions in the past four years by Hightail and its many competitors, the purchase of Adept Cloud is the first that’s focused on security technology.

The dearth of deals is a result of most vendors being more concerned with usability than security. Customers aren’t using these services for top-secret corporate data, so security isn’t at the top of their priorities, either. But that’s slowly changing. While no IT managers surveyed by TheInfoPro, a service of 451 Research, in the last half of 2012 cited security as a roadblock to implementing cloud technologies, 7% of respondents changed their mood in the survey done in the first half of this year.

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IBM looks to make more from less

Scott Denne

Contact Scott Denne

IBM is selling its customer-care BPO services unit for $505m to SYNNEX in a deal that single-handedly erases revenue contributions brought by companies it has acquired this year. In other words, IBM is selling more revenue than it’s bought this year. (Specifically, the division that Big Blue just divested generated $1.2bn in sales.)

The divestiture, which is becoming increasingly popular throughout the tech industry, comes as IBM chases its stated goal of earning $20 per share by 2015. In addition to share buybacks and focusing on higher-margin businesses, another way it could get there is by shedding less profitable assets. The BPO services assets that SYNNEX is picking up were running on just about a 10% EBITDA margin. For comparison, the companies it has acquired this year were almost certainly promising much higher profitability potential.

That has resulted in a very lopsided deal flow at IBM. Since the start of 2012, Big Blue has sold off eight business units. In the entire decade before, the company did only 16 divestitures.

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Twitter gets mo’ advertising with MoPub

Scott Denne

Contact Scott Denne

In its largest acquisition, Twitter is spending about $350m in stock for mobile ad exchange MoPub. The bit of portfolio expansion into the fast-growing market comes as Twitter reportedly readies itself for an IPO, which is widely expected for next year. The deal brings Twitter instant access to two of the biggest trends in digital marketing – programmatic buying and mobile advertising.

Despite the growing popularity of those two trends, there are few companies focused on doing both. That scarcity likely contributed to the rich price Twitter is paying for a company that started selling less than two years ago. Aside from MoPub and its closet competitor, Nexage, there aren’t any notable ad exchanges dedicated to mobile. As interest in mobile advertising has grown, so has MoPub’s revenue, which we understand will be $20-25m in the current quarter.

This is the fifth mobile-related acquisition (out of nine total) by Twitter in the past 12 months. We would note that the breakdown in Twitter’s deal flow mirrors the activity of its users, 60% of which access the social network via a mobile device at least once a month.

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Western Digital keeps up its flashy spending

Scott Denne

Contact Scott Denne  Tim Stammers

Disk drive giant Western Digital is making its third – and largest – acquisition of a flash storage company this year, handing over $685m in cash for Virident Systems. The purchase brings the company’s total tab on spending in the fast-growing market to more than $1bn.

Earlier this year, Western Digital agreed to pay $340m for flash drive vendor STEC, as well as an undisclosed amount for VeloBit, an early-stage maker of software for boosting the performance of flash drives. That’s on top of the $4.25bn it spent in early 2011 on Hitachi Global Storage Technologies, a deal that was driven in part to help Western Digital get into the enterprise flash market.

Virident brings Western Digital PCIe flash cards (essentially flash drives that are used for high-performance applications) and related software. Virident is an early-stage company and Western Digital doesn’t expect it to be accretive until 2015. Subscribers to The 451 M&A KnowledgeBase can see our full record and estimates of Virident’s revenue.

The sinking cost of flash and rising demand for faster storage is leading to a growing market for enterprise flash at the expense of traditional hard disk. According to TheInfoPro, a service of 451 Research, 17% of IT departments plan to increase their spending on flash memory in servers (Virident’s specialty), up from just 8% that planned to do so in 2012.

Western Digital has been far more aggressive than its competition in the flash sector. For instance, SanDisk launched itself into the flash disk market two years ago with the $327m reach for Pliant Technology and, more recently, the $307m pickup of another flash disk provider, SMART Storage Systems. Western Digital’s main rival, Seagate, has yet to ink a deal in flash; however, it did make a $40m investment in Virident earlier this year.

Recent deals by disk drive companies

Date announced Acquirer Target Deal value
September 9, 2013 Western Digital Virident Systems $685m
July 10, 2013 Western Digital VeloBit Not disclosed
July 2, 2013 SanDisk SMART Storage Systems $307m
June 24, 2013 Western Digital STEC $340m

Source: The 451 M&A KnowledgeBase

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