Author: Scott Denne

Guidewire’s Cyence experiment 

Scott Denne

Contact:Scott Denne, Scott Crawford, Garrett Bekker

Guidewire Software has printed its most significant deal to date with the acquisition of Cyence, a provider of risk analytics. Not only does the $275m price tag ($265m net of cash) make it Guidewire’s largest transaction so far, it extends the acquirer’s ambitions as an insurance software provider in a way that none of its previous purchases have.

Cyence applies data science to the monitoring of cyber and other data relevant to understanding the nature and impact of technology risk. The company enables insurers to price policies for new lines of business around emerging risk. Cybersecurity insurance is the first application for the technology – reputational insurance and others will come later.

This isn’t Guidewire’s first foray into analytics, as it picked up EagleEye Analytics last year in a $42m deal. In that transaction, the company obtained analytics tools that directly complemented its insurance workflow suite (underwriting management, claims processing, billing). With Cyence, it plans to play a role in the creation of new insurance products, a significant expansion in the value proposition that built Guidewire over the past decade and a half – replacing legacy insurance systems with modern software and (more recently) SaaS.

Expanding a company’s value proposition doesn’t come cheap. Guidewire will pay $140m in cash and $125m in stock (a small portion of which will be reserved for an earnout). Founded in 2014, Cyence has an annual revenue run rate of about $15m, putting the multiple well beyond the 4x trailing revenue Guidewire paid in its only other $100m-plus deal, the $160m acquisition of claims management SaaS vendor ISCS in December 2016.

Guidewire isn’t the only player looking to help insurance providers price emerging risks lurking on company balance sheets. Vendors focused on third-party tech risk such as BitSight and Prevalent have targeted the cyber-insurance market as well, which also drove FICO’s acquisition of QuadMetrics in June 2016.

Union Square Advisors advised Guidewire on the deal.

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

When the chips are down 

Scott Denne

Contact: Scott Denne

After two years of record consolidation among semiconductor companies, M&A has deteriorated as fewer sizeable targets remain. The two most recent significant sales in the chip industry show that suitable buyers are just as lacking as the sellers in both deals ink uncertain transactions. In the largest chip transaction of the year, Toshiba has agreed to a $17.9bn sale of its flash memory business to an unwieldy syndicate – meanwhile, Imagination Technologies sold itself off in two separate deals (worth $800m) aimed at avoiding objections from US regulators.

Toshiba finds itself forced into the sale of its flash business to raise capital following the bankruptcy of its nuclear subsidiary – certainly not ideal conditions for a sale. Yet the winning bidder for the second-largest maker of flash memory, a syndicate led by Bain Capital, raised legal objections from Western Digital, a flash storage vendor that has a joint venture (JV) with Toshiba.

There are questions about how well the group could manage the asset, even if the buyer manages to get the transaction over the finish line – an uncertain prospect given the spat with Western Digital. The investor group (Bain, Apple, Dell, Toshiba, Seagate, SK Hynix and three others) called and abruptly cancelled a press conference on the deal. A squabble over media strategy doesn’t bode well for setting a coherent course for a business with $7bn a year in revenue.

Earlier this week, UK-based Imagination Technologies announced that it will sell most of its business to Canyon Bridge Capital Partners, a China-funded private equity firm whose proposed takeover of Lattice was recently shot down by the Trump administration. Imagination is selling its US-based MIPS business to Tallwood Venture Capital in hopes of avoiding such a fate.

If the Toshiba deal stands up to multiple legal challenges from Western Digital – the company claims Toshiba has limited rights to transfer ownership of a JV between the two companies – it will nearly double the size of semiconductor M&A this year to $44.2bn, a pace that’s less than half of last year’s, according to 451 Research’s M&A KnowledgeBase.

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

SAP breaks buying slump 

Scott Denne

Contact: Scott Denne

SAP becomes a buyer again, inking its first substantive transaction in three years with the acquisition of customer identity manager Gigya. The company sat out a flurry of M&A activity among its peers last year. Now the extensive role that identity plays in digital marketing has brought it back to the market.

Last year, Salesforce and Oracle gorged on acquisitions as the latter made the largest ever SaaS deal with the $9.5bn purchase of NetSuite and the former did the most sizeable transaction in its history with the $2.8bn reach for Demandware. In contrast, SAP printed seven deals last year, although none larger than $25m, according to 451 Research’s M&A KnowledgeBase. And, per its annual report, the company spent just $112m of its cash on those transactions. Media reports put the price of Gigya above $300m. The target has more than 300 employees and had raised in excess of $100m in venture capital.

Gigya develops software that enables enterprises to collect data that customers declare in online registration forms and social signups and to link that with CRM and other sales, marketing and commerce applications. SAP Hybris, its e-commerce and marketing software business, has expanded its personalized marketing and customer experience capabilities, a project that’s difficult to execute without a single source of customer identity information, such as that built by Gigya, a longtime Hybris partner.

The rationale for this deal resembles the reasons behind Salesforce’s 2016 purchase of Krux. Yet whereas Salesforce was looking to obtain a hub of data for customer acquisition, Gigya’s tools are designed to help marketers manage customer data to expand customer relationships and has capabilities beyond marketing and into security and privacy.

Goldman Sachs advised Gigya on its sale.

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

Google’s smartphone redial 

Scott Denne

Contact:Scott Denne

For a first marriage, it’s common to overlook a spouse’s flaws, harbor unrealistic fantasies about life together and spend unjustifiable sums on the wedding. A second marriage tends to be a more measured affair, with a conservative price tag and thoughtful evaluation of how the pairing fits into one’s broader life goals. The same applies to Google’s second purchase of a mobile phone company, as the search giant is paying $1.1bn for certain assets of HTC almost three years after unwinding its tie-up with Motorola Mobility.

While today’s deal marks a big commitment, it’s well short of the $12.5bn it spent for Motorola six years ago. Its reach for HTC differs from that earlier one – most of which it unwound in a 2014 divestiture to Lenovo – in more ways than price. With Motorola, Google envisioned itself becoming a marquee manufacturer of smartphones. This time, Google is making a more tactical move in the mobile market.

Google is obtaining the HTC team (and a license to related patents) that it used to build its Pixel phone, a collaboration that’s showing early signs of paying off. According to 451 Research’s VoCUL surveys, less than 1% of consumers with a smartphone own one made by Google, although the number planning to buy a Google phone sits near 3%. Even with those gains, Google’s phone business remains a long distance from matching Apple or Samsung.

But catching up to those companies, at least in hardware sales, isn’t likely the goal. Those same 451 surveys show that Google’s mobile OS, Android, has a larger market share than Apple’s iOS and more consumers prefer Android for future purchases. In that sense, the HTC pickup isn’t so much a break from its Motorola deal, but a continuation of the gains made from it.

Leading up to its acquisition by Google, Motorola’s sales were in a tailspin that continued after the transaction. Yet Google was able to build a broad ecosystem for Android during that time. That’s what it has in mind in nabbing the HTC team. Google is focusing its own hardware efforts on building high-end devices not mainly to sell devices but to showcase what’s possible with Android, making it easier for other hardware providers to develop functionality they’ll need in the competition against Apple, ensuring that Google’s software (and its cash-cow search engine) retains a place in the mobile market.

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

Retailers go shopping online 

Scott Denne

Contact: Scott Denne

It’s been a tough year for retail. More than a dozen retailers – the latest being Toys R Us – have filed for bankruptcy, while others – JC Penney and Macy’s, for example – have grappled with lower-than-expected sales and store closings. As they face the acute threat from online sellers, Amazon in particular, they have adjusted their acquisition strategies to be more ambitious in scale, yet narrower in scope.

According to 451 Research’s M&A KnowledgeBase, spending on tech M&A by retailers spiked this year and last, with each cresting above $4bn in spending, whereas each of the four years prior to that, total spending fell safely below $1bn. (Two deals – Walmart’s $3.3bn purchase of Jet.com and PetSmart’s $3.4bn reach for Chewy – account for most of that boost, yet even excluding those transactions, spending by retailers in 2016 and 2017 sits slightly higher than normal.)

Aside from the increase in spending, retailers have executed a shift in M&A strategy. Where they had once been inclined to pick up companies outside their core competency, buying websites, logistics or gaming companies, they’re now more likely to snag their online counterparts, as Signet Jewelers recently did – amid declining in-store sales – with its $328m acquisition of R2Net. As their customers have done more of their shopping online, retailers have done the same. This year and last, retailers printed more deals for e-commerce vendors than all other categories combined, a contrast to their earlier buying habits.

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

Container craze could spark monitoring M&A 

Scott Denne

Contact: Nancy Gohring

Even though it’s early still for the use of containers and microservices, we’ve seen a handful of startups enter the market with technology designed specifically for the monitoring needs of those environments. Established vendors also are developing techniques for this segment, yet adoption of these technologies is moving fast enough that broader application monitoring companies may decide to buy a specialist to speed time to market.

In our 2016 Voice of the Enterprise (VotE): Cloud Transformation, Budgets and Outlook survey, 26.7% of respondents said they were either in broad or initial implementations of containers in production environments. A further 11.3% said they were using containers in test and development environments, 21.4% said they were employing containers in trials, and 40.7% said they were evaluating containers.

Emerging vendors such as Sysdig, Outlyer and Instana are developing new approaches that aim to solve the particular challenges of monitoring applications built using containers and microservices, especially the challenges that emerge in dynamic environments. Most of these startups are quite small, with relatively few customers, indicating that they still have work to do to prove their worth. However, we believe both legacy and newer-breed providers looking to quickly add capabilities around this fast-growing use case could benefit from a pairing with one of the new entrants, allowing them to start serving users now.

Legacy vendors specifically, which have been eclipsed in recent years by more modern players, may have the most to gain from such an acquisition. Subscribers to 451 Research’s Market Insight Service can access a detailed report that analyzes the potential acquisitions of application monitoring companies built for container environments.

Roku’s next episode will stream on smart TV 

Scott Denne

Contact: Scott Denne

Roku has withstood an onslaught of competition from the world’s largest tech companies, yet it faces challenges on a new front as it readies its initial public offering. The maker of appliances for streaming video devices was able to flourish as Apple, Amazon and Google entered its market, but now faces a threat from smart TVs.

Amid a bevy of streaming alternatives, Roku expanded its topline by 25% in 2016 to $399m. According to 451 Research’s Voice of the Connected User Landscape survey, Roku leads the market for streaming media devices – 41% of respondents that own such a device use one from the company. It also sits ahead of the competition in daily usage and customer satisfaction rankings.

Most of Roku’s revenue comes through sales of its hardware ($294m in 2016), although most of the growth and profit margin comes via its advertising, licensing and revenue-sharing activities, which (at one-third the size) generated nearly twice the gross profit as the hardware segment. While Roku remains in the red, losses have decreased through the first half of the year, and modest increases in marketing spend – atypical of a venture-backed IPO – have fueled its gains.

Roku’s IPO heads to Wall Street as the market for streaming video accelerates. More than 21% of people in that same 451 Research survey said that they pay for three or more streaming services – double the number from two years earlier. Yet, much of that content is being consumed on smart TVs, which obviate the need for separate streaming devices, like Roku’s, and whose use ticked up by one-quarter over the last year, per our survey.

The company has begun to license its Roku OS software to TV makers, and needs to do so to continue to scale its audience reach – the lifeblood of the most profitable part of the business. While Roku showed that it can last through a heated battle with the biggest in tech, the company’s next phase will call for a subtler mix of partnership and competition with and against TV manufacturers.

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

Western Digital takes a familiar path into new markets with a pair of deals 

Scott Denne

Contact: Scott Denne, Tim Stammers

Western Digital has printed two different deals that follow the same pattern. The disk-drive giant has acquired enterprise storage vendor Tegile Systems along with Upthere, a developer of consumer cloud storage products, continuing its recent feast-then-famine M&A pace. Those targets mark the first companies it has bought since reaching for SanDisk in a $17bn transaction at the end of 2015.

In Western Digital’s last cycle, it spent $1bn across three acquisitions in the solid-state storage sector in the third quarter of 2013, followed by a 15-month hiatus from the market. Before that string of SSD deals, but after its $4.3bn purchase of HGST in 2011, it had only bought one company – a tuck-in of backup software firm Arkeia.

Like each of the last four private companies that Western Digital purchased, both of today’s targets took minority investments from Western Digital, which led the most recent venture rounds raised by Tegile and Upthere. Both transactions also push Western Digital further upmarket. Upthere sells high-performance cloud storage services designed for pictures, extending Western Digital’s consumer storage business and, since Upthere builds its own infrastructure rather than running on AWS, it brings a technical team that could bolster the acquirer’s ability to deliver enterprise offerings for other cloud services.

With Tegile, Western Digital becomes a full systems provider – a shift that’s been many years and many deals in the making. Purchases of Virident and SanDisk brought it hardware products to sell directly to enterprises, rather than OEMs, and acquisitions of Skyera and Amplidata brought it software IP that could potentially be used to build its own storage systems. If the past is any indication, Western Digital is wise to stick to its patterns – the company’s stock is up 90% in the wake of its SanDisk buy and a year-long streak of beating Wall Street’s projections.

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

Valassis sees discounts in MaxPoint acquisition 

Scott Denne

Contact: Scott Denne

Coupon distributor Valassis Communications has taken another step in its transition to digital with the $95m acquisition of location-based ad-tech vendor MaxPoint Interactive. In addition to getting Valassis another marketing product to sell to consumer goods providers, the target’s technology could plug a substantial weakness in RetailMeNot, a digital coupon firm that Valassis’ parent company, Harland Clarke Holdings, bought in April.

The sale ends a turbulent and short run as a public company for MaxPoint, which debuted in April 2016 with a stock price that’s more than 3x what it’s getting in today’s deal, which values it at a paltry 0.6x trailing revenue.

MaxPoint enables advertisers to run national campaigns for consumer goods that target prospects at the local level, based on a mix of proximity to retail locations and digital demand signals from particular neighborhoods. As one of the world’s largest distributors of coupons, Valassis hands MaxPoint’s media services business a new avenue for growth. But the larger opportunity is in integrating the underlying technology with its recently acquired online coupon business.

RetailMeNot built a business by distributing digital coupons for retail locations. The problem it’s always had is proving to its retailers that those coupons work – did the coupons drive people to the store or did the store just give discounts to people who planned to come anyway? To operate its media business, MaxPoint developed technology that predicts demand for products within the market area for a physical retail location. RetailMeNot could deploy such demand analysis to optimize when and where it launches campaigns and use it to measure the impact.

Moreover, a partnership between the two companies could enable MaxPoint to deliver coupons to RetailMeNot that are tied to a retail location but funded by product vendors and in doing so provide both retailers and consumer products companies a way to navigate a market that’s rapidly shifting to digital with a shared marketing strategy that they’ve employed for decades.

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

Cisco’s storage M&A reboot

Scott Denne

Contact: Henry Baltazar, Liam Rogers, Scott Denne

Following an impulsive and failed marriage, Cisco has opted for a long courtship for its second commitment in the storage market. The networking giant has paid $320m for Springpath, a maker of hyperconverged infrastructure (HCI) software and a longtime Cisco partner.

Cisco led Springpath’s $34m series C round in 2015 and the next year launched its HCI appliance, HyperFlex, built with Springpath’s software. A patent infringement lawsuit brought by rival SimpliVity may have delayed the consummation of this deal, as its final status is still unclear. As we wrote in an earlier report, HyperFlex sold well and demonstrated an ability to bring new customers to Cisco. In a 451 Research Voice of the Enterprise survey, 18.3% of IT professionals were using Cisco HyperFlex, behind only converged offerings from VMware and Dell-EMC.

By contrast, its last foray into storage was the $415m purchase of all-flash array vendor WHIPTAIL, which offered a product that was meant to compete with several of Cisco’s then partners and had only gained traction with about one-quarter as many enterprises as Springpath has reached on Cisco’s servers, where it is exclusively sold.

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