Category: application software

Though relatively small, Thoma Bravo’s Mediware buy signals larger trends

Ben Kolada

Contact: Ben Kolada

Although Thoma Bravo’s $195m reach for Mediware Information Systems isn’t exactly a market-moving acquisition, tech dealmakers will note that the transaction underscores a pair of larger trends in tech M&A. The deal continues the consolidation in the medical-focused IT vertical, as well as hints at the reemergence of buyout shops as volume acquirers.

Thoma Bravo is handing over $22 in cash for each share of Mediware’s stock, a 40% premium to the day-prior closing price, and the highest price Mediware’s shares have ever seen. The transaction values Mediware’s equity at $195m. However, the medical management software vendor’s $40m in cash holdings, and no debt, reduces its net cost to $155m. Using that enterprise value figure, Mediware is valued at 2.4 times trailing revenue and 8.8x trailing EBITDA.

Mediware’s sale is the latest acquisition in the rapidly consolidating medical-focused IT vertical. In July, Huntsman Gay Global Capital sold Sunquest Information Systems to Roper Industries for $1.4bn, or about 10x projected EBITDA, and One Equity Partners acquired M*Modal for an enterprise value of $1.1bn, or 2.4x trailing sales. We’ve recently noted that medical speech recognition and transcription companies in particular seem to be receiving considerable buyout interest.

While the Mediware acquisition shows the health of medical-focused tech M&A, it also points at somewhat of a reemergence of private equity firms as volume acquirers. Thoma Bravo, including its portfolio companies LANDesk and PLATO Learning, has already announced five acquisitions this year. PE firms were also especially active in August, with Carlyle Group shelling out $3.3bn for Getty Images.

PE activity also comes while some strategics are sitting on the sidelines. For instance, CA Technologies, which has historically announced about four acquisitions per year, has only announced one this year – the purchase of process automation software veteran Paragon Global Technology. The deal, announced this week, is CA’s first disclosed transaction in more than a year. Also, Symantec has been out of the market since March.

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Buying your loyalty

Ben Kolada

Contact: Ben Kolada

Gannett Co announced on Thursday the acquisition of Mobestream Media, maker of the Key Ring customer loyalty application. The deal is one of only a handful of mobile rewards and loyalty purchases announced so far, but as the market matures, we expect that many startups will be acquired and tucked into larger digital marketing vendors’ portfolios.

Like its pickup of social media marketing startup BLiNQ Media last month, Gannett bought Mobestream to build out its digital marketing portfolio. Mobestream’s Key Ring app allows smartphone users to store and receive merchant loyalty card information and digital coupons. The company’s retail customers also use its platform for marketing campaigns. So far, more than five million users have downloaded the app. Horizon Partners advised Mobestream on its sale (this is Horizon’s fifth M&A deal this year, but won’t be its last).

Because the mobile loyalty sector is still so young, there have only been a few acquisitions. However, there are more than a dozen startups operating in this sector, and purchases by Gannett and Constant Contact suggest that their products are better suited as part of a larger digital marketing portfolio.

As the mobile loyalty market matures, the leading startups will likely become acquisition targets for larger tech marketing vendors and publishers such as Google, Vocus, Teradata and Advance Publications. Several startups have already secured funding to propel their growth. In May, RewardLoop announced a $1m series A round, Beintoo took $5m in its A round and Belly secured $10m in its series B. Kiip followed in July with an $11m B round.

Select mobile loyalty M&A

Date announced Acquirer Target
September 7, 2012 MasterCard Truaxis
September 6, 2012 Gannett Co Mobestream Media [dba Key Ring]
January 19, 2012 Constant Contact CardStar
December 8, 2011 Plum District Chatterfly
July 8, 2011 Google Punchd Labs
November 9, 2010 Angoss Software Hitgroup.ca (mobile solutions assets)

Source: The 451 M&A KnowledgeBase

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Co-founders set Workday IPO as ‘PeopleSoft 2.0’

Brenon Daly

Contact: Brenon Daly

Despite the initially abrupt and ultimately acrimonious end of PeopleSoft in the mid-2000s, many of the executives are back with another run at the public market. Workday put in its IPO paperwork late Thursday in what’s shaping up to be the most anticipated post-Facebook offering.

As a sign of that anticipation, Workday plans to raise $400m, nearly twice the amount of most ‘big’ tech IPOs and about four times more than the typical tech offering. To move all that paper, the human capital management (HCM) startup has enlisted no fewer than nine underwriters, led by Morgan Stanley and Goldman Sachs & Co.

Workday was founded in 2005 by Dave Duffield and Aneel Bhusri after Oracle pushed through its contentious $10.5bn deal for the first-generation ERP vendor. Perhaps conscious of how ‘their’ company got rolled into Oracle against their wishes, Workday’s two cofounders have concentrated ownership in their hands (collectively owning almost three-quarters of the company) and created two classes of stock. The structure effectively gives Duffield and Bhusri absolute control of all matters that go to a shareholder vote.

The rivalry with Oracle – and to a degree, SAP as well – also carries over into how Workday does its business. During pre-roadshow presentations, Workday executives noted that they typically pitched their on-demand product when enterprises were considering an upgrade of their current license-based ERP or HCM offering, such as Oracle’s PeopleSoft product. Workday has 325 enterprise customers.

So far, that approach has paid off in stunning growth for the company. It doubled revenue to $134m in the year ended January 31, and has more than doubled revenue in the two quarters since then: Workday recorded $120m, up from $55m in the year-earlier period. (It also has a mountain of nearly $250m in deferred revenue that it has piled up from its contracts that range from three to five years.)

The revenue growth so far in 2012 puts Workday loosely on track for revenue of about $250m. For comparison, that would make the fast-growing ‘redo’ about one-tenth the size of PeopleSoft when it was erased from the market.

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HCM: When the buyers get bought

Brenon Daly

Contact: Brenon Daly

One of the knock-on effects of IBM’s purchase of Kenexa is that a whole swath of capable buyers in the densely populated human capital management (HCM) market has now been erased. We noted that Big Blue’s reach for the HCM vendor followed similar acquisitions by SAP and Oracle over the past nine months, pushing the collective value of the three deals to nearly $7bn.

The acquisitions of Kenexa, SuccessFactors and Taleo effectively take them out of the M&A market. Certainly, they won’t be nearly as active as they had been. Over the past six years, the trio had announced more than 20 transactions with an aggregate deal value of over $1bn. On average, the companies tended to buy about a company each year, adding technology in markets adjacent to core HR functions such as learning management, workplace collaboration and compensation. (For its part, Kenexa has been the most-active acquirer of the three HCM players in recent years.)

In addition to having demonstrated the institutional appetite for acquisitions, the three companies also had the money to do them. Collectively, Kenexa, Taleo and SuccessFactors held more than $400m in their treasuries at the time of their takeout.

And while the remaining publicly traded HCM providers may, likewise, have plenty of cash to go shopping, not one of them has been anywhere near as active as their three rivals that have been snapped up. In fact, if we look at the M&A activity of the next three HCM midcap vendors we see that they have spent, collectively, less than $100m – or less than one-tenth the amount spent by the trio of now-acquired HCM firms.

Saba Software has done just one deal this year, after being out of the market entirely since 2005. Cornerstone OnDemand has only announced a single transaction (a $14m acquisition earlier this year) and Ultimate Software hasn’t printed anything since a $6m purchase in 2006. And a company executive recently indicated at the Canaccord Genuity tech conference that Ultimate didn’t expect to do any deals – certainly nothing sizeable – in the coming months.

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Another market, another wave of multibillion-dollar M&A

Brenon Daly

by Brenon Daly

A half-decade ago, tech giants SAP, Oracle and IBM went on a $15bn shopping spree that essentially consolidated the upper end of the business intelligence (BI) market. Now, the trio has done the same thing in another slice of the application software space, human capital management (HCM). On Monday, Big Blue joined the other two vendors with a billion-dollar HCM purchase of its own, paying $1.3bn for Kenexa.

Formerly a company that didn’t acquire application software providers, IBM nonetheless is set to hand over $46 for each share of Kenexa. (IBM valued the transaction at $1.3bn on a ‘net’ basis, which would exclude the roughly $50m in net cash that Kenexa held.) With its HCM acquisition, IBM follows SAP’s $3.6bn purchase of SuccessFactors last December and Oracle’s $2bn reach for Taleo last February.

IBM’s acquisition brings the trio’s total HCM spending on the deals to about $6.9bn – less than half the amount the three vendors paid in the consolidation of the BI market. However, the valuations paid for the flurry of HCM transactions have been significantly richer, ranging from 4-11.7 times trailing sales. For comparison, the BI deals went off at range of 3.7-5x trailing sales. Interestingly, in each of the consolidation waves, the last of the three transactions in the sectors garnered the lowest multiple: Kenexa at 4x sales and Hyperion Solutions at 3.7x sales.

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Accounting for M&A

Ben Kolada

Contact: Ben Kolada

As accounting software giant Intuit buys beyond its traditional roots, it is leaving the door open for competition from a new breed of accounting startups. A handful of accounting companies have popped up over the past few years in the US and abroad to target consumers and SMBs, some with freemium models. These Davids are walking in Goliath’s giant footsteps, and are announcing a number of their own expansion plays.

Over roughly the past year, accounting startups Wave Accounting (based in Toronto), Xero (based in New Zealand) and FreeAgent (based in the UK) have each announced at least one acquisition. For the most part, these companies’ purchases have been done to expand beyond their core accounting focus. Wave, for example, recently announced the pickup of small stock analysis startup Vuru.

Xero has been particularly acquisitive, announcing four acquisitions since its founding in 2006. The company, publicly traded on the New Zealand Stock Exchange, has been doing deals to both complement its products and expand geographically. Its purchase of PayCycle in July 2011 helped the company enter the nearby Australian market. Through organic and inorganic growth, Xero has grown its revenue to about $16m in its 2012 fiscal year, which ended in March.

Beyond M&A, some companies have developed new products as an offshoot to their businesses. Ruby on Rails developer LessEverything, based in Fort Lauderdale, Florida, is now offering LessAccounting. And Toronto-based invoice vendor 2ndSite now offers FreshBooks.

Meanwhile, Outright Inc was recently acquired by Go Daddy Group. Though, if you ask LessEverything, it could have very well been its LessAccounting product. The company purported on its blog that Go Daddy approached it two years ago with interest in buying its LessAccounting product.

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As shares of salesforce.com continue to grow, could its M&A follow suit?

Ben Kolada

Contact: Ben Kolada

Salesforce.com continues to satisfy investors, even after paying up for its largest-ever acquisition. Shareholders barely blinked after the company forked over $689m for Buddy Media – the highest-valued acquisition in the social media marketing segment. As long as its shares continue to appreciate, salesforce.com has received a vote of confidence to continue to announce large deals.

The company reports its fiscal third-quarter earnings after the close of business today. Equity analysts on average are expecting the company to report about $738m in revenue for its fiscal Q3, above the company’s previously reported guidance, which was already above analysts’ estimates. CRM shares have already appreciated 46% since the beginning of the year, and analysts are predicting a median price target for each salesforce.com share of $170.

As long as it keeps growing the value of its shares, investors may not mind the company doing more – and larger – acquisitions. We’d also note that they apparently don’t mind salesforce.com covering those deals with its own stock – one-third of Buddy Media’s total purchase price was covered with its own equity. The Buddy Media buy is also only the third time that salesforce.com has covered a portion of a transaction with its own equity.

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General Dynamics nabs networking cybersecurity vendor Fidelis

Ben Kolada

Contact: Ben Kolada

General Dynamics on Monday announced the acquisition of network security vendor Fidelis Security Systems. Fidelis’ customer profile and proximity to security operations at federal agencies appealed to General Dynamics as the defense giant looks to expand its cybersecurity capabilities against several competitors that have already announced inorganic moves in this market.

General Dynamics isn’t disclosing terms of the all-cash deal, but did say that Fidelis has approximately 70 employees. When we last wrote about Fidelis in February 2011, we noted that it had 52 employees and that its average deal size had steadily grown from $200,000 in 2008 to $350,000. At the time, the company had 62 customers (up from 21 in 2008).

We’ve written before about traditional military contractors moving toward cybersecurity as the government cuts back on traditional military spending. In June, Northrop Grumman printed a similar transaction, reaching for Australian network security systems integrator M5 Network Security. And in October 2011, ManTech International announced that it was acquiring network, security and systems integration and software development vendor Worldwide Information Network Systems for $90m. General Dynamics also bought Fortress Technologies, which provides wireless mesh network access points and software that enable US defense agencies to establish secure wireless LAN connections, in July 2011. We’ll have a full report on this deal in an upcoming Daily 451.

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Dell as a mobile manager?

Ben Kolada

Contact: Ben Kolada, Rachel Chalmers, Chris Hazelton

Dell hasn’t hidden its intentions of leveraging its hardware legacy to extend into the enterprise IT market, particularly in regards to software. The PC and server giant recently reinforced its goals with the $2.6bn acquisition of systems management vendor Quest Software. But, as we point out in a recent report, its next move is likely to be in mobile management.

Former CA Technologies CEO and current head of Dell’s software division, John Swainson, made our job a bit easier. Swainson hasn’t been explicit with his plans, but we read some of his recent statements as a signal that Dell may make an imminent move into mobile device management.

That makes sense. Connected devices are the primary target for new applications. They’re also fountains of data that can be gleaned and distilled into BI – which is among the four focus areas for Dell’s software group: security, systems management, business intelligence and applications. In a report detailing the possible future of Dell’s mobile management, we prognosticate about how the company may move into this sector, and with whom. Click here to read the full report.

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Vista Equity rolls up the rollups

Brenon Daly

Contact: Brenon Daly

Just a half-year after Vista Equity Partners dropped a quarter-billion dollars on bankrupt enterprise software vendor CDC Software, the buyout shop has significantly bulked up the platform with the addition of Consona. The combined entity, which is the collection of more than 30 separate acquisitions by the two companies over the years, also got a name change. It now does business as Aptean.

With the double-barreled deals, Vista Equity now has a fairly sizable ERP and CRM business. CDC was generating about $220m in sales when Vista Equity picked it up earlier this year. The addition of Consona will push Aptean’s top line to nearly $350m, according to our understanding. (Terms of the transaction weren’t officially released.)

Perhaps more important to Vista Equity, however, is the fact that Consona probably throws off as much – if not more – cash than the much larger CDC. Our understanding is that Consona ran at an EBITDA margin in the 30% range, meaning it generates about $40m of cash flow each year. And that level is almost certain to go up when Vista Equity consolidates some of the duplicate operations of CDC and Consona.

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