Category: application software

Interwoven unwound: HP Inc sells its marketing unit to OpenText

Scott Denne

Contact: Scott Denne

HP Inc unloads some of the lesser bits of its regrettable acquisition of Autonomy with the $170m sale of HP Engage to OpenText. Many of the key pieces of Autonomy – acquired in 2011 for $11.7bn and shortly thereafter written down – remain with Hewlett Packard Enterprise (the software side following HP’s breakup). HP Engage includes most of the assets from Autonomy’s 2009 purchase of Interwoven.

At the time of the split of the original HP, the company hung out a ‘for sale’ sign by housing HP Engage – its customer experience and marketing software unit – within its printer division. Despite its seeming eagerness to unload those assets, HP scored a decent price. According to 451 Research’s M&A KnowledgeBase, the sale values the business at just a hair under 2x revenue and compares quite favorably with the 1.4x median multiple for divestitures from public companies over the past 24 months.

Still, the deal marks the culmination of a steep descent for Interwoven, which fetched $775m in its 2009 sale to Autonomy. With this transaction, OpenText adds content management (HP TeamSite), digital asset management (HP MediaBin), call-center management (HP Qfiniti) and website personalization (HP Optimost), among other capabilities. Along with iManage, which HP sold to the division’s management team last summer, HP has now offloaded Interwoven.

From the other side of the table, the move follows OpenText’s template. In HP Engage, as in many of its acquisitions, OpenText obtains a fading software asset that’s generating cash from a business that’s somewhat complementary and slightly overlaps with OpenText’s existing offering. The valuation falls a bit lower than the 2.3x median multiple on OpenText’s deals this decade – the company has never cracked the 3x mark.

Will Zuora play in Peoria?

Brenon Daly

Contact: Brenon Daly

Like several of its high-profile peers, Zuora is trying to make the jump from startup to grownup. That push for corporate maturity was on full display this week at the company’s annual user conference. Sure, Zuora announced enhancements to its subscription management offering and basked in the requisite glowing customer testimonials at its Subscribed event. But both of those efforts actually served a larger purpose: landing clients outside Silicon Valley. In many ways, the success of Zuora, which has raised a quarter-billion dollars of venture money, now hinges on the question: ‘Will it play in Peoria?’

When Zuora opened its doors in 2008, many of its initial customers were fellow startups, which were already running their businesses on the new financial metrics that the company not only talked about but actually built into its products. Both in terms of business culture and basic geography, Zuora’s deals with fellow subscription-based startups represented some of the most pragmatic sales it could land. But as the company has come to recognize, there’s a bigger world out there than just Silicon Valley. (As sprawling and noisily self-promoting as it is, the tech industry actually only accounts for about 20% of the Standard & Poor’s 500, for instance.) We have previously noted Zuora’s efforts to expand internationally.

As part of its attempt to gain a foothold in the larger economy, the company is reworking its product (specifically, its Zuora 17 release that targets multinational businesses) as well as its strategy. That might mean, for instance, Zuora going after a division of a manufacturing giant that has a subscription service tied to a single product, rather than just netting another SaaS vendor. Sales to old-economy businesses tend to be slower, both in terms of closing rates as well as the volume of business that gets processed over Zuora’s system, both of which affect the company’s top line.

In terms of competition, the expansion beyond subscription-based startups also brings with it the reality that Zuora has to sit alongside the existing software systems that these multinationals are already running, rather than replace them. Further, some of the providers of those business software systems have been acquiring some of the basic functionality that Zuora itself offers. For example, in the past half-year, both Salesforce and Oracle have spent several hundred million dollars each to buy startups that help businesses price their products and rolled them into their already broad product portfolios.

Zuora has attracted more than 800 clients and built a business that it says tops $100m. As the company aims to add the next $100m in sales with bigger names from bigger markets such as media, manufacturing and retail, its new focus looks less like one of the fabled startup ‘pivots’ and more like just a solid next step. Compared with a company like Box – which started out as a rebellious, consumer-focused startup but has swung to a more button-down, enterprise-focused organization that partners with some of the companies it used to mock – Zuora is facing a transition rather than a transformation.

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

CallidusCloud’s accretive acquisitions

Brenon Daly

Contact: Brenon Daly

With the $4m purchase of assets from ViewCentral, CallidusCloud has added on to one of its first add-on businesses. The company, which started life 20 years ago selling sales compensation management software, has used a bakers’ dozen deals since 2010 to expand its portfolio into software for employee hiring, marketing automation and on-the-job training. ViewCentral brings billing and payment technology to CallidusCloud’s learning management offering, a product that has its roots in the mid-2011 acquisition of Litmos.

By themselves, the small transactions, which have cost the company an average of just $5m a pop, aren’t all that significant. But collectively, they have expanded the market for CallidusCloud and given it the opportunity to increase high-margin revenue by selling additional products. (In 2015, the company said it did more than 80 multi-product deals.) CallidusCloud’s strategy of inorganic growth also stands in sharp contrast to rival Xactly, which has stayed out of the M&A market as it has maintained its focus on selling its core sales compensation management offering. (See our recent report on Xactly’s strategy and market position.)

Obviously, the M&A activity at the two companies isn’t the sole difference between CallidusCloud and Xactly, any more than it fully accounts for the relative valuation discrepancy between them. Still, it is worth considering how the acquisition-based portfolio expansion has paid off for CallidusCloud, at least in its standing on Wall Street. CallidusCloud currently garners twice the valuation of its smaller rival. (CallidusCloud trades at about $930m, or 4.4x times 2016 projected sales of $212m, compared with Xactly, which trades at $215m, or 2.3x times this year’s projected sales of $95m.) Further, since it came public last June, Xactly has shed about one-fifth of its value, while CallidusCloud shares are slightly in the green over that period.

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

After a time on NYSE, Solera is back in private hands

Brenon Daly

Contact: Brenon Daly

In a sort of private equity (PE) ‘homecoming,’ auto insurance software provider Solera Holdings plans to sell itself for $3.7bn in cash to buyout firm Vista Equity Partners. The net price for Solera, which has been a debt-fueled acquirer since its founding a decade ago, is pegged at $6.5bn by Vista.

Although it has been listed on the NYSE since 2007, Solera has PE-backed carve-out roots. The company has had a sometimes-contentious relationship with Wall Street. Investors have taken issue with how much Solera’s executives have paid themselves, in addition to a slumping stock price that had nearly been cut in half from its early 2014 highs to recent lows.

In part because of the prolonged slide in its shares, Solera said in August that it was exploring ‘strategic alternatives.’ Vista is offering $55.85 for each Solera share, with the deal expected to close by early 2016. Shares of Solera have ranged from $70 at the start of 2014 to $36 at the start of August.

With an enterprise value of more than $6bn, the Solera take-private would be the second-largest PE transaction of 2015. However, the proposed transaction stands as the largest LBO of a vertical market software vendor, according to 451 Research’s M&A KnowledgeBase . Typically, PE shops buy software ‘platform’ companies that serve large numbers of customers across a variety of sectors. In recent years, horizontal software companies, such as Compuware, Informatica, BMC Software, TIBCO and others, have landed in PE portfolios.

The planned take-private of Solera continues a recent surge in PE spending. So far this year, buyout shops have announced transactions valued at $37.3bn, according to 451 Research’s M&A KnowledgeBase. That’s up about two-thirds from the same period in 2014, and twice the spending over the same time in 2012. It only trails the January-September level in 2013, which was skewed by the $25bn LBO of Dell.

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

App Annie buys Mobidia to improve mobile app usage intelligence

Mark Fontecchio

Contact: Mark Fontecchio

App Annie makes its second acquisition in the past year with the pickup of Mobidia. The target, with 30 employees, provides mobile app usage data for mobile carriers and application providers. Its technology will augment App Annie’s existing analytics for app stores and downloads.

The deal comes just a few months after App Annie, founded in 2010, secured a new $55m round of funding, bringing its total financing close to $100m. It has been about a year since App Annie’s last acquisition, when it bought its main competitor Distimo.

The purchase of Mobidia will give App Annie added momentum in the industry, expanding its app usage dataset and solidifying the company’s positioning beyond app store analytics as a provider of market intelligence for the global app economy. The global number of active mobile application users is projected to increase 20% this year to 2.17 billion, while mobile apps downloads will jump 35% to 185.94 billion, according to 451 Research. As more companies rely on mobile application revenue, demand for market intelligence on mobile apps will continue to rise.

tracking-mobile-apps-users

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

PTC heats up IoT business, buys ColdLight

Mark Fontecchio

Contact: Mark Fontecchio

PTC continues to build its Internet of Things platform, paying $100m for data analytics provider ColdLight Solutions. Traditionally known for CAD and PLM software, PTC has now spent nearly $400m since late 2013 on three deals to jumpstart and grow its IoT business, according to 451 Research’s M&A KnowledgeBase.

The play here will be for PTC to position the flagship ColdLight data and analytics platform (currently branded Neuron) capabilities across the majority of its current technology stack, including SLM and PLM, but most importantly within its IoT business unit. IoT investments only pay off if the data generated by these systems can be translated into valuable business insights. ColdLight will bring those capabilities to the entire PTC stack, which will further strengthen the amount of value it can create for its customers.

PTC’s IoT business went from zero to $19m in the past six months, compared with the same period last year. That contrasts to the rest of PTC’s segments – CAD, PLM and SLM – which dropped 5% to $620m in that same period. Still, IoT generates just 3% of the company’s revenue, so incorporating its growth into PTC’s core portfolio is crucial to its total topline.

ColdLight posts about $2m in revenue per quarter, so the $100m deal values the business well beyond 10x trailing revenue – a much higher multiple than the 1.8x median multiple on IoT transactions, according to the KnowledgeBase. That’s probably an unfair comparison seeing as many IoT deals are in the semiconductor and hardware space, where multiples tend to be lower. A better comp would be Hitachi’s reach for Pentaho in February. While that purchase was considerably bigger (see our estimate here), the TTM revenue multiple was about the same, and the rationale was similar – buying a data analytics software firm to provide IoT capabilities for the acquirer’s core business.

PTC’s IoT deals

Date announced Target Deal value
December 30, 2013 ThingWorx $112m
July 23, 2014 Axeda $170m
May 5, 2015 ColdLight Solutions $100m

Source: 451 Research’s M&A KnowledgeBase

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

Growth gets a premium at soon-to-be-private Informatica

Brenon Daly

Contact: Brenon Daly

A buyout group is taking Informatica private for $5.3bn, a full $1bn more than the middleware vendor’s primary rival got in its LBO just a half-year earlier. Private equity (PE) shop Permira, along with Canada Pension Plan Investment Board, says it will pay $48.75 in cash for each share of Informatica, or $5.3bn in total. That’s the highest price for the stock in two years but only a slight closing premium for Informatica, which had been under pressure from a hedge fund to sell. The deal is expected to close by Q3 2015.

At an equity value of $5.3bn, Informatica is the largest company to be erased from a US exchange by a PE firm since BMC went private in May 2013 for $6.9bn. More importantly, Informatica is getting a much richer sendoff than either comparable multibillion-dollar enterprise software LBOs or, more specifically, the take-private of rival TIBCO.

Debt-free Informatica’s cash holding of $722m lowers the enterprise value of the proposed transaction to $4.6bn. That works out to 4.4x Informatica’s trailing revenue. For comparison, other significant recent software LBOs have gone off at least a full turn lower (Compuware at 3.1x trailing sales, BMC at 3.2x), while TIBCO garnered 3.8x in its take-private by Vista Equity Partners last September. (Informatica is also getting a richer valuation than the other relevant – if a bit dated – middleware deal: Ascential Software, which was only one-quarter the size of TIBCO and Informatica, got 3.6x in its sale to IBM in 2005.)

What did Informatica do to get a premium, relative to other software hawkers, from its buyout buyers? In a word: growth. While virtually all of the other software providers that have gone private recently have struggled to bump up their top line, Informatica has posted mid-teens-percentage revenue growth over the past half-decade. (The company cracked $1bn in sales in 2014, a significant step up from the $650m it posted in 2010.) Yet even with sales increasing, Informatica still drew the attention – and agitation – of activist hedge fund Elliott Management.

Significant middleware transactions

Date announced Acquirer Target Deal value Enterprise value/trailing sales valuation
April 7, 2015 Permira, Canada Pension Plan Investment Board Informatica $5.3bn 4.4x
September 29, 2014 Vista Equity Partners TIBCO $4.2bn 3.8x
March 14, 2005 IBM Ascential Software $1.1bn 3.6x

Source: 451 Research’s M&A KnowledgeBase

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

Lexmark doubles down on software

Brenon Daly

Contact: Brenon Daly

A half-decade into a software shopping spree, Lexmark has announced its largest consolidation, dropping $1bn on Kofax. The price roughly equals the total amount the company has spent on a dozen software firms since it established a software platform with the $280m purchase of Perceptive Software in May 2010. (Lexmark still refers to its software unit, which generated slightly less than a dime of every dollar of overall sales last year, as ‘Perceptive Software.’)

The Kofax buy, which is slated to close next quarter, would essentially double Lexmark’s software business. In 2014, that division generated $313m of sales, a touch more than the amount Kofax put up. However, the vast majority of Lexmark’s growth in software has come through M&A. On an organic basis, Lexmark has indicated that software revenue increased just 3% last year. For its part, Kofax has been growing at about twice that rate, although that has also been boosted by acquisitions. (Kofax announced four deals over the past two years.) Still, both companies are lagging the roughly 10% overall growth rates in the ECM and BPM markets that they serve.

At $1bn enterprise value, Lexmark is valuing Kofax at about 3.3x trailing sales. That’s exactly the multiple it paid for Perceptive but a full turn higher than its other significant deal, the $264m pickup of ReadSoft last May. To pay for its baker’s dozen of software transactions, Lexmark has funneled off cash from its legacy printer business. It plans to cover about $700m of the purchase of Bermuda-domiciled Kofax with offshore cash and borrow the remaining $300m at slightly more than a 1% rate. Goldman Sachs & Co advised Lexmark, while Lazard banked Kofax.

Like other hardware – and specifically, printer – providers, Lexmark has looked to buy its way out of that declining and low-margin market. (Its software business runs at a gross margin in the high-60% range, a full 30 basis points higher than the rest of the company.) Lexmark has been relatively focused in its M&A, targeting two core markets, while HP, for instance, has bought across a broad swath of the enterprise software sector, including application and data management, information security and datacenter technology. However, the Kofax acquisition is much larger and broader than any business Lexmark has nabbed so far.

We’ll have a full report on this transaction in tomorrow’s 451 Market Insight.

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

In the IPOs of New Relic and Hortonworks, it’s the grownup vs. the startup

Brenon Daly

Contact: Brenon Daly

Although both New Relic and Hortonworks revealed their IPO paperwork on the same day, that’s pretty much all the similarities we could find between the two enterprise technology companies. The two candidates have wildly different delivery models, operating margins, customer counts and even maturity of business models. That’s not to say they both can’t find a home on Wall Street, but only one of them is likely to dwell in a ritzy neighborhood. (451 Research subscribers: look for our full reports on both the New Relic and Hortonworks offerings later today.)

Of the two offerings, New Relic looks to be the standout. The application performance management vendor is growing quickly, but maybe more importantly, it is starting to show some leverage in its business model. This stands in sharp contrast to some of the other unprofitable IPO candidates that talk distantly about the company hitting some magical ‘inflection point’ when the red ink turns black.

New Relic is already demonstrating greater efficiency in its model, which will undoubtedly appeal to Wall Street. Consider this: In the first six months of the company’s current fiscal year, its operating loss basically stayed the same even as revenue soared 84%. More specifically, New Relic actually lost less money in its most recent quarter, which wrapped in September, than it did in the same quarter a year earlier. It trimmed its quarterly loss even as the company added more than $10m, or 78%, to its top line.

In contrast, Hortonworks is still forming its business, without much – if any – regard to optimizing it. The three-year-old Hadoop distributor is a classic startup, with many of the concerns that come with early-stage businesses: customer concentration, heavy upfront spending and precariously thin margins. (Hortonworks’ professional services business, which actually runs at a negative gross margin, has been a serious drag on the company’s overall gross margin. Through the first three quarters of the year, Hortonworks has been running at just a 34% gross margin, less than half the 81% gross margin posted by New Relic.)

When we net out all the differences between New Relic and Hortonworks, we see a vast gulf between the two IPO candidates at the bottom line. Sure, both still run in the red, but New Relic is only a light red, while Hortonworks is hemorrhaging a blood red. To put some specific numbers on that metaphor: At its current rate, New Relic loses about 40 cents for every $1 it brings in as revenue. In contrast, Hortonworks loses a staggering $2.60 for every $1 it brings in as revenue.

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

Small ball M&A paying off for salesforce.com

Brenon Daly

Contact: Brenon Daly

When it comes to M&A at salesforce.com, starting small has yielded higher returns than going big. The SaaS giant has returned to the ‘buy and build’ strategy with its latest step into a new market with Analytics Cloud. The data visualization offering, which was unveiled this week at Dreamforce, was underpinned by the acquisition of EdgeSpring back in June 2013.

The $134m price notwithstanding, EdgeSpring stands as a small deal for salesforce.com. (We profiled EdgeSpring shortly after it emerged from stealth and a half-year before it was acquired. At the time, it claimed more than 10 paying customers and about 30 employees.)

Certainly, there were bigger targets for a move into the analytics market by salesforce.com, which will do more than $5bn in revenue this fiscal year and says it has a ‘clear line of sight’ to $10bn in sales. For instance, both Qlik Technologies and Tableau Software offer their data visualization software on salesforce.com’s AppExchange. With hundreds of millions of dollars in revenue, either of those vendors would have established salesforce.com as a significant player in the data analytics market as well as moving the company closer to its goal of doubling revenue in the coming years.

However, in that regard, a purchase of either Qlik or Tableau would be comparable with salesforce.com’s reach for ExactTarget in June 2013, which serves as the basis for its Marketing Cloud. The deal was uncharacteristically large, with salesforce.com spending more on the marketing automation provider than it has in all 32 of its other acquisitions combined. More significantly, salesforce.com has struggled a bit with ExactTarget, both operationally (platform integration and cross-selling opportunities) and financially (margin deterioration).

In contrast to that big spending, salesforce.com dropped only about one one-hundredth of the price of ExactTarget on InStranet in August 2008 ($2.5bn vs. $32m). The purchase of InStranet helped establish Service Cloud, which is now the company’s second-largest business behind its core Customer Records Management offering. And salesforce.com says the customer service segment is much larger than the market for its sales software.

Those divergent deals are something to keep in mind when salesforce.com buys its way into a new market. If we had to guess, we would expect the company to next make a play for online retailing (maybe call it Commerce Cloud?). If that’s the case, we might suggest that it look past the big oaks like Demandware and focus on the seedlings that can then grow up in the salesforce.com ecosystem.

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