Category: application software

The campaigning continues, at least on Wall Street

Brenon Daly

Contact: Brenon Daly

The election may be over, but some campaigns are continuing. At least that’s what’s happening on Wall Street, where two would-be buyers are trying to sway the electorate (directors and shareholders) in order to close acquisitions of two Nasdaq-listed tech companies. Whether or not either of these unsolicited efforts actually comes to a vote, well, that remains to be seen.

In the newest case, j2 Global earlier this week put a bear hug on Carbonite, pitching a (nonbinding, preliminary) offer of $10.50 for each share of the consumer-focused backup vendor. (J2 already owns almost 10% of Carbonite, having picked up the stake for about $20m in the open market in recent weeks.) Carbonite, which has traded mostly lower since its August 2011 IPO, rejected j2’s bid.

Meanwhile, Actian is not giving up on its two-month-old effort to land Pervasive Software. Earlier this week, it added 50 cents per share, or about $10m, to its original bid for the data-integration vendor. The $9-per-share offer from the buyout-backed company that used to be known as Ingres values Pervasive at its highest level in more than a decade.

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RedPrairie makes a land grab, spends $2bn on SCM rival JDA Software

Brenon Daly

Contact: Brenon Daly

Not only did RedPrairie not make it public, but now the supply chain management vendor is erasing a fairly big name off the market. The private equity-backed consolidator, which filed for an IPO three years ago, said Thursday that it is paying roughly $2bn for rival JDA Software. It would be about the third-largest software deal of 2012, according to The 451 M&A KnowledgeBase.

RedPrairie had the misfortune to put in its IPO paperwork right as the world’s economy slid into the worst recession in a generation. That showed up in the company’s financials, with overall revenue declining 12% in the first three quarters of 2009, according to its SEC filing. On the other side, RedPrairie put up roughly $15m in ‘adjusted’ EBITDA each quarter, so it wasn’t too surprising when it got flipped from buyout shop Francisco Partners to fellow buyout shop New Mountain Capital rather than go public.

Since New Mountain picked up RedPrairie two-and-a-half years ago, it has rolled up a half-dozen other companies. JDA Software is, by far, the largest acquisition. Under terms, New Mountain will hand over $45 for each share of JDA Software. That’s the highest-ever price for the company and about five times the split-adjusted price it first sold shares to the public, back in 1996.

The transaction, which is expected to close before the end of the year, values JDA Software at nearly 3 times sales and roughly 16x trailing EBITDA. (At least according to JDA Software’s calculation of $122m in EBITDA, on an unadjusted basis for Q3 2011-Q3 2012.) For comparison, we understand that RedPrairie traded at closer to 2x sales and about 9x EBITDA back in February 2010, although terms weren’t officially released.

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Riverbed looks to extend to application management with OPNET acquisition

Brenon Daly1 Comment

Contact: Brenon Daly

Looking to extend its network performance optimization business into application management, Riverbed Technology said Monday, October 29, that it will spend $1bn in cash and stock for OPNET. Riverbed will roll OPNET into its nascent Cascade business line, offering deeper application monitoring and end-user experience to its existing network-focused product portfolio.

While there certainly is a logical extension between the network and the applications that run on it, the transaction brings a number of risks to Riverbed. For starters, it is by far Riverbed’s largest acquisition – almost ten times bigger than its second-largest deal. While Riverbed said the OPNET transaction is expected to close this year, it indicated the financial ‘synergies’ probably wouldn’t show up until 2014.

Further, the formerly debt-free company will take on debt and issue new equity to cover its purchase of OPNET. According to terms, Riverbed will pay $43 for each OPNET share, composed of $36.55 in cash, and the rest in Riverbed equity. That means Riverbed will have to issue seven million shares and take out a $500m term loan.

Beyond the financial impact, there are also questions about the business it is acquiring. Riverbed is focused on the application performance management (APM) portion of OPNET, but that business only accounts for about half of the company’s overall sales. The other half is network performance management (NPM), which is what Riverbed already sells.

Riverbed highlighted the fact that OPNET’s APM business is growing at more than 30%. However, because of the sluggish growth in the company’s legacy NPM business, OPNET’s overall revenue is only increasing in the mid-teens. (In the first two quarters of its current fiscal year, OPNET has bumped up the top line only 11%.) That’s an acute concern for Riverbed, which will only grow in the mid-teens in 2012 – half the level it expanded at in 2011.

Marketo in the market?

Brenon Daly

Contact: Brenon Daly

Although a couple of marketing automation vendors have, collectively, generated $2bn of market value in two recent richly priced IPOs, the next significant exit in the sector may be a trade sale. Marketo is rumored to be checking the market to gauge interest from buyers. High on that list of interested suitors, according to several sources, is Oracle.

A sale of Marketo, if it happens, would reverse the expected path of the six-year-old company. It doubled sales in 2011 and, we understand, will roughly double sales again this year to about $55m. That rapid growth helped push the company’s valuation in a round of funding in 2011 to about $500m, according to sources.

Obviously, a buyer would have to top that level to take home Marketo. In addition to Oracle, other companies that may have taken a look include salesforce.com and Intuit, market participants say. Some of the interest may have been spurred by ExactTarget’s recent purchase of Pardot.

Still, price may prove a snag for any acquisition of Marketo. Wall Street has given a warm embrace to two of Marketo’s rivals that have come public in the past six months or so. ExactTarget currently trades at about $1.5bn, or 5.3 times 2012 projected sales, while Eloqua garners a market capitalization of $650m, or 7.1 times this year’s sales. Of course, Marketo is growing much faster than either of its larger rivals.

Microsoft marketing tries to take flight with MarketingPilot

Ben Kolada

Contact: Ben Kolada

Microsoft’s nascent marketing business got a small boost on Wednesday when the company announced the acquisition of marketing automation veteran MarketingPilot Software for an undisclosed sum. Although we’ve been expecting Microsoft to make a marketing buy to add to its CRM business, we anticipated something more significant.

Few details were provided on the rationale for the deal, other than it seems that MarketingPilot will be slotted into Microsoft’s Dynamics CRM business. We think that Microsoft could be proactively adding traditional marketing automation to its CRM suite to better compete with salesforce.com’s feature set, which is strong in social marketing but weak in lead generation.

The transaction is an interesting competitive move, since most of Microsoft’s CRM rivals have focused on social media marketing M&A. However, buying a dated and presumably small company likely won’t considerably alter the competitive landscape for marketing software.

No terms were released on the acquisition, but given MarketingPilot’s size and age, and the language used in the press release (PR), we doubt that the price was substantial. MarketingPilot was founded in 2001 and has 30 employees (who have all joined Microsoft). Further, pure-SaaS companies are receiving the highest valuations nowadays, but in the PR announcing the deal, Microsoft notes that MarketingPilot’s software is available both in the cloud and on-premises.

The transaction is only Microsoft’s second inorganic foray into marketing and advertising software, after its 2008 purchase of Navic Networks for a price reportedly in the range of $200-300m.

Separately, Microsoft will report fiscal year 2013 first-quarter earnings after the closing bell today. Analysts are expecting the company to report revenue of $16.4bn (a nearly 6% drop from the year-ago quarter).

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A highly remunerative Workday

Brenon Daly

Contact: Brenon Daly

Apparently, the third time is the charm for second-chancers. Workday became the third significant tech IPO in 2012 headed by executives who previously ran similar companies in the Internet 1.0 era. And while each of the other ‘redo’ companies (ServiceNow and Palo Alto Networks) have created more than $4bn of market value since their IPOs last summer, Workday soared past that level. In fact, on a fully diluted basis, the human capital management vendor is valued at more than the two other earlier IPOs combined.

In its offering, Workday priced its 22.8 million shares at $28 each, raising an eye-popping $638m. That’s a mountain of money, roughly three times more than most other ‘big’ tech IPOs raise. But that was just the start for the company, which was founded in 2005 by executives from PeopleSoft after that ERP veteran was acquired by Oracle.

Once trading began on Friday, the stock continued to move higher, changing hands at $47 late in the session. With about 160 million shares outstanding (on a non-diluted basis), Workday is being valued at $7.5bn. That works out to 30 times this year’s expected sales of about $250m. For an indication of just how rich that is, consider that PeopleSoft garnered just 4x sales when it was snapped up in 2005. Or another way to look at the price: Workday is commanding three-quarters of the valuation of PeopleSoft while only putting up one-tenth the sales of the first-generation version.

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Lithium buys partner Social Dynamx for social support

Ben Kolada

Contact: Martin Schneider, Ben Kolada

Social marketing and customer support vendor Lithium Technologies announced on Tuesday the acquisition of its young partner, Social Dynamx. In January, Lithium secured a $53m series D funding round (bringing total funding to $101m) and said it planned to use the funds for product development and hiring. Apparently, this acquisition serves a bit of both of those goals.

Terms of the deal weren’t disclosed, though we suspect the consideration was a small amount of cash and stock. Austin, Texas-based Social Dynamx employs about 25 people, and all regular employees are expected to join Lithium. The companies had been tightlipped about their partnership, though we did uncover the relationship and provide more detail in a report we published in May.

Lithium is doing a couple of things here with its pickup of Social Dynamx. First, the company has been looking to move from internal, community-based support models for some time. While Lithium did partner with Social Dynamx, and the Social Dynamx offering powers the Lithium Response social support tool, owning the product outright can lead to deeper, more process-driven integrations around externally sourced support requests. For example, a deeper integration can allow the tool to identify ‘calls for help’ in social channels outside of Lithium’s communities, such as Twitter, and pull that individual (and his question or issue) into either a structured agent-assisted channel or a community-based support network. The notion is to deeply embed the ability to identify and scale cross-platform support requests into the Lithium platform.

Secondly, the move to acquire seems somewhat defensive. As competitors like Jive Software look to move from internal social collaboration into other areas like marketing and support (like Lithium has been doing over the past several quarters), this acquisition knocks out a potential agnostic partner for other social players. Lithium not only adds features, but also takes an easier route to wresting them away from other enterprise social vendors.

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Box goes for integrations, not acquisitions

Brenon Daly

Contact: Brenon Daly

Box hasn’t been a buyer. The enterprise file-sharing and collaboration startup has only inked one acquisition in its history, and that deal was done exactly three years ago. Meanwhile, the market is rapidly consolidating around it, with both big and small buyers rounding out their technology portfolios. Just this year alone, Box’s consumer market rival, Dropbox, has inked three purchases.

It’s not like Box can’t afford to go shopping. Earlier this summer, the startup pulled in $125m in fresh funding, bringing its total amount raised to $287m. But so far, it hasn’t put that toward M&A, preferring instead to partner with a wide swath of companies. Indeed, partnerships are a major theme at BoxWorks 2012, its ongoing annual customer conference. At the two-day event, Box announced partnerships with Proofpoint for data loss prevention and GoodData for analytic dashboards, along with other initiatives.

Part of what has kept Box out of the market is that it has sought to establish itself as an open, inclusive platform vendor. As part of that strategy, companies tend to favor integration ahead of acquisition.

But there comes a point for many companies when they need to own the technology outright. For cloud stalwart salesforce.com, that point came when the company hit its seventh year in business, which is where Box finds itself now. In the half-decade since then, salesforce.com has reeled off 26 deals that have taken it far beyond its core sales force automation product and helped create some $21bn of the company’s market value.

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Oracle adds social-recruiting features through acquisition of SelectMinds

Contact: Thejeswi Venkatesh

The spree of HR software M&A continued on Monday with Oracle announcing the purchase of recruitment SaaS startup SelectMinds. The tuck-in acquisition adds social recruitment features to the core platform Oracle gained via its $2bn pickup of Taleo in February.

In the past few months, the same three firms that consolidated the top end of the BI market a few years ago (SAP, Oracle and IBM) have shifted their buying to the human capital management (HCM) market. Collectively, the trio has spent roughly $7bn on HCM providers. While SAP and IBM got social recruitment tools with their acquisitions of SuccessFactors and Kenexa, respectively, Oracle-Taleo was left with a hole in its portfolio. The reach for SelectMinds is meant to close that gap.

Twelve-year-old SelectMinds provides social media-recruiting SaaS, allowing companies and employees to distribute job openings via social media. The vendor says this targeted approach increases the quality of sourced job candidates. SelectMinds, which only raised $5.5m in venture funding, has marquee customers including eBay, McGraw-Hill, Qualcomm and Visa.

We’d note that the transaction comes barely a week after rival HCM vendor iCIMS announced a similar deal, acquiring its former partner and social media-recruiting firm Jobmagic. All of this points to increasing commoditization of the HCM market, where platform providers have to offer more features to compete effectively.

A new boss and new buys at Acronis

Brenon Daly

Contact: Brenon Daly

The new CEO at Acronis has brought a new M&A strategy to the backup and disaster recovery (DR) vendor. Although the company has plenty of cash – thanks to its mid-30% EBITDA margin – it hasn’t used that to go shopping in the past. And when Acronis has looked at deals, we understand that it has historically been more focused on consolidation or geographic expansion.

That has changed dramatically under CEO Alex Pinchev, who took the top spot at Acronis in January. According to our understanding, Pinchev drove the acquisition of GroupLogic, a company that wasn’t on the M&A list under Acronis’ previous regime. A source says that although Acronis arrived late in the process, it moved quickly to land GroupLogic.

The acquisition gets 10-year-old Acronis solidly into the fast-growing enterprise file-sharing and synchronization market. Acronis eventually plans to integrate GroupLogic’s product into its flagship DR and backup offering.

Granted, the deal won’t have much impact on Acronis’ financials right now. GroupLogic – like rival Syncplicity, which sold to EMC almost four months ago – was probably only generating $2-3m of share/synch revenue. That’s nothing to Acronis, which will sell about $150m of backup and DR this year. But the move does show a change in strategy at Acronis.

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