Category: application software

Trust-busters push BazaarVoice to unplug PowerReviews

Brenon Daly

Contact: Brenon Daly

As industry consolidation goes, Bazaarvoice’s mid-2012 purchase of rival PowerReviews was definitely a small-scale move. The deal only added a little more than $10m – or a boost of about 10% – to the top line at Bazaarvoice, a consumer reviews site that had just gone public at the start of 2012. And while the two startups regularly beat up on each other, they were arguably facing much more formidable competition from rating-and-review offerings that were often baked into the websites of many of the largest and most-active online retailers.

In other words, there was little to suggest that the proposed $152m cash-and-equity transaction would even register any antitrust attention, much less any trustbusting. And yet, on Tuesday afternoon, Bazaarvoice bowed under the pressure of a lawsuit brought a year ago by the US Department of Justice and essentially unwound that acquisition. Bazaarvoice plans to divest PowerReviews to small Chicago-based vendor Viewpoints Network.

Viewpoints has raised just $5m in funding since its founding in 2006 and told us that it won’t need to raise more to cover the purchase of PowerReviews. That suggests Bazaarvoice is recouping only a fraction of the $152m that it paid for PowerReviews two years ago. Viewpoints currently has 20 employees and, post-acquisition, will have about three times that number. Further, it will substantially boost its revenue when it buys PowerReviews, which we estimate is running at about $10m in revenue.

Of course, that assumes the planned acquisition goes through. (Expectations are that the deal will close before the end of July.) At this point, only a letter of intent has been signed between the parties. It still needs to be finalized, and then regulators have to approve the latest purchase of PowerReviews. As we have seen, regulatory clearance is not always a given.

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Citrix takes a breather from M&A

Ben Kolada

Contact: Ben Kolada

After setting an M&A spending record in 2012, Citrix has stayed on the sidelines. The company announced six acquisitions that year, including two of its three largest deals, and spent more than $750m, the most in its history. It has been pretty quiet since then, announcing only two acquisitions in 2013 for a combined total of just $11m.

The cooldown contrasts the trend we’re seeing among the other large tech vendors, most of which have moved toward fewer and larger acquisitions. (Our recent Tech M&A Outlook webinar talks more about this trend.) Citrix participated in this activity in 2012, when it announced its all-cash acquisitions of Bytemobile for $435m and Zenprise for $327m. What’s especially noteworthy is that those two deals combined were worth more than the free cash flow Citrix generated in all of 2012 (though we note that the Zenprise buy closed in January 2013).

However, poor financial results have derailed Citrix’s dealmaking machine since then. In the 15 months since announcing the Zenprise purchase, Citrix’s quarterly results have been rocky – it has lowered guidance or posted results below analysts’ expectations a half-dozen times.

Its recently released 10-K shows that Citrix paid $5.3m for Byte Squared in September and $5.5m for Skytide in December, its only two deals of 2013. At $28.2m, the lone purchase Citrix has announced so far this year, Framehawk, already surpasses its 2013 total M&A spending, but still falls below its three-year median acquisition size of $45m, according to The 451 M&A KnowledgeBase.

Citrix’s recent acquisitions

Year announced* Target Target abstract Deal value
2014 Framehawk Application mobilization software provider $28.2m
2013 Skytide CDN and streaming video analytics $5.5m
2013 Byte Squared Mobile file-editing software $5.3m
2012 Zenprise Mobile device management software $327m
2012 Beetil Service Management Helpdesk management SaaS Not disclosed
2012 Bytemobile Mobile traffic management software $435m
2012 Virtual Computer Desktop virtualization software provider Not disclosed
2012 Apere Single-sign-on security vendor $25.2m
2012 Podio Team collaboration SaaS provider $45.3m

Source: The 451 M&A KnowledgeBase *In 2012, Citrix also acquired two unnamed companies

 

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‘Cloudy’ outlook for performance management M&A

Scott Denne

Contact: Dennis Callaghan

The emergence of the cloud as a deployment option for IT performance monitoring tools is spurring a wave of M&A activity in this space as a new group of vendors emerges as consolidators. After a slow start last year, the market picked up with the take-privates of BMC Software in May and Keynote Systems in June. Those were followed by several smaller deals, including two by Idera (Precise Software and CopperEgg), which hadn’t done a deal since 2010, and Splunk’s first acquisitions (BugSense and Cloudmeter).

We don’t expect it to end there: IT performance management is a target-rich environment flush with venture-backed startups, such as Catchpoint Systems and several others that could likely end up as part of a larger organization. Also, some of the vendors involved in 2013’s deals figure to be acquisitive this year. BMC, for example, was a consolidator as a public company, and we expect to see more of the same from it under its PE consortium. Thoma Bravo companies almost always become acquirers, and we expect Keynote to explore expanding its performance monitoring capabilities from the last mile in, as opposed to the inside-out pattern we normally see in this space.

Subscribers to 451 Research can access our longer report, including analysis of additional likely acquirers and targets, by clicking here.

Select performance management M&A, 2013

Date announced Acquirer Target Deal value
May 6 PE consortium BMC Software $6.9bn
June 24 Thoma Bravo Keynote Systems $395m
July 2 Idera Precise Software Solutions Not disclosed
July 9 Idera CopperEgg Not disclosed
July 9 Kaseya Zyrion $50m*
September 16 Splunk BugSense $9m
September 19 AppDynamics Nodetime Not disclosed
October 8 SolarWinds Confio Software $103m
November 5 SolarWinds AppNeta Undisclosed investment
December 9 SmartBear Software Lucierna Not disclosed
December 10 Splunk Cloudmeter $21m

Source: The 451 M&A KnowledgeBase *451 Research estimate

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Verint’s $514m purchase of KANA opens lines beyond the call center

Scott Denne

Contact: Scott Denne

In its biggest deal in almost seven years, Verint has expanded its ability to analyze customer interactions beyond the call center, spending $514m for KANA Software. While the deal is strategically sound – and a bit of a bargain – it will add to an already heavy debt load.

With the purchase, Verint adds KANA’s messaging, social, and email analytics to its own speech and text analytics, in the hope that customers will be drawn to its ability to integrate customer sentiment data across multiple channels, such as traditional call centers, social media and online chats. It’s an area that’s been neglected by its rivals, so the deal gives Verint’s product suite a leg up. Also, the two companies have already integrated their technologies at the request of some common customers, so some of the technical risk is gone from the deal.

KANA, which started in the call center and spent the last few years buying up companies to bring it new capabilities, expects to bring in $140-150m in revenue and more than $40m in EBITDA during 2014, up from $53m trailing revenue and negative EBITDA leading up to its take-private deal in late 2009. That means Verint gets the company for about 3.5x projected revenue, which is about standard for software acquisitions, but still about a full point above Verint’s own projected-sales valuation.

The deal makes strategic sense for Verint by giving it exposure to an area its rivals have neglected; however, it’s not without risks. It’s paying $100m of its own cash, or about three quarters worth of free cash flow and more than one-third of what’s on its balance sheet. Already a bit debt-heavy, the $414m in loans Verint will use to finance the remainder of the deal will raise its debt/equity ratio from 1.08x last quarter to 1.69x.

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Intuit’s ledger needs larger deals

Scott Denne

Contact: Scott Denne

Intuit has carved out an incumbent position for itself around its accounting software, and that’s a position it needs to leverage now while the competition is limited. The company is in an enviable position as a provider of software to small businesses, a market that has taken off in recent years as lower-recurring-cost SaaS products are easier to sell to cash-flow-conscious small businesses.

Most of Intuit’s recent acquisitions have been small. If it were to look to make bigger deals, it could, for example, use its payroll software businesses to help it get deeper into human resources with an add-on such as PeopleMatter, which provides software for managing hourly employees, or iCIMS, which offers a suite of cloud HR software for smaller businesses. Intuit has willingly spent heavily on M&A in the past, including its $423.5m purchase of marketing software vendor Demandforce in 2012.

Intuit has used the popularity of QuickBooks to spring into other corners of small business software, including payments, payroll and marketing. All of those have become solid businesses and are growing nicely, each in excess of 10% annually; however, competition has been limited in the small business sector. Now other firms – including Web hosting giant Go Daddy, marketing software company HubSpot and collaboration vendor Zoho – are making headway into the market. Today’s successful startups scale quickly, making internal innovation at Intuit an untimely choice. If the company doesn’t scoop up promising young companies soon, it could find itself with much more competition for deals and customers in the small business segment.

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High ground for Hyland? Rumors swirl about billion-dollar exit

Brenon Daly

Contact: Brenon Daly

A half-dozen years after acquiring a majority stake in Hyland Software, Thoma Bravo is rumored to be looking at selling its chunk of the enterprise content management (ECM) vendor. And the deal – if there is one – won’t be cheap: the asking price for Hyland is thought to be about $1.2bn.

According to our understanding, that would value Hyland at more than 4x trailing sales and about 15x EBITDA. Those multiples are slightly richer than the current trading valuation of ECM giant Open Text. Although we should note that Open Text shares are currently trading at an all-time high, up some 50% since the beginning of the year.

The bull market for shares of rival Open Text has prompted speculation that Hyland, which is being advised by Goldman Sachs, is dual-tracking. After all, Hyland has already been down at least some of the road to the public market. The 22-year-old maker of the OnBase product put in its IPO paperwork back in May 2004, but pulled it a half-year later. (Currently, Hyland has roughly five times the revenue and number of employees it did when it put in its prospectus almost a decade ago.)

While Hyland could certainly opt for a trade-sale, an IPO might just prove more lucrative in the long run. Some software investors might pass on putting money into a license-based company, but Hyland certainly has characteristics that would nonetheless find some buyers on Wall Street. The pure-play ECM company puts up about 20% growth, primarily by focusing on specific vertical markets, most notably healthcare, higher education and financial services.

That position tends to be more defensible than broad, horizontal ECM offerings, which have come under threat from old rivals (SharePoint) as well as startups (Box). (My colleague Alan Pelz-Sharpe has noted that Hyland most often bumps into vendors that were consolidated during the previous round of ECM match-making, such as FileNet and Documentum.)

Cleveland, Ohio-based Hyland also benefits from strong customer support, and it has a reputation as a solid company with ‘Midwestern’ values, and a culture of an ‘honest day’s wage for an honest day’s work.’) The company boasts a 98% maintenance renewal rate among its nearly 12,000 customers.

Hyland’s approach stands out starkly to the approach taken by the much larger – and more mature – Open Text, which has dropped more than $2bn on a dozen deals over the past three years. It gobbled up a number of ECM vendors before expanding into adjacent markets such as business process management and data integration. Still, Open Text’s consolidation strategy hasn’t hurt it on Wall Street, which values the company at $5bn.

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Software’s haves and have-nots

Scott Denne

Contact: Scott Denne

Advent International said Monday that it will hand over $1.6bn for software provider UNIT4. The announcement, however, was almost lost in the hoopla surrounding the opening of Dreamforce, salesforce.com’s annual customer and developer lovefest. The two events – along with the buzz they generated, respectively – go a long way toward explaining the chasm between valuations for traditional enterprise software vendors and their SaaS counterparts.

Advent’s proposed take-private values the Dutch ERP vendor at 2.7x its trailing 12-month revenue. That’s a far cry from the rich 10.3x valuation that salesforce.com fetches on the public market. We’re not picking on UNIT4. In fact, it secured a slight premium to the median price-to-sales multiple of 2.1x in comparable purchases of software firms by PE shops. (On another – perhaps more relevant – measure, Advent is paying basically 14x EBITDA for UNIT4, right in line with precedent transactions.)

Like many other traditional software firms, 33-year-old UNIT4 hopes to transition its business to include more SaaS revenue – part of the motivation for going private. From 2011 to 2012, its (still small) SaaS business increased 25% and accounted for 10% of its sales. The reason for the messy and complicated transition to SaaS? Growth.

A recent survey by ChangeWave Research, a service of 451 Research, found that 32% of respondents plan to increase their SaaS spending over the next six months – that’s about twice as high as the percentage who forecast an increase in overall software spending. That trend is what has boosted shares of salesforce.com to roughly their all-time high, some 1,300% higher than where they came public in mid-2004. Salesforce.com is expected to report fiscal third-quarter sales growth of about 33% after the closing bell on Monday.

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Who has designs on Planview?

Brenon Daly

by Brenon Daly

Old-line project and portfolio management (PPM) vendor Planview may be getting new owners soon. The 24-year-old company is rumored to be close to wrapping up a sale process, which has been led by Lazard. The buyer is likely to be a private equity (PE) shop, although one tech company is also apparently taking a long look. No final price has been struck, but Planview will likely trade in the neighborhood of $200m, according to our understanding.

The rumored price would value Planview at roughly 3x trailing sales. That’s exactly the valuation of the last significant transaction in the PPM market. In August 2012, Thoma Bravo paid $990m, or about 3x trailing sales, for Deltek, a government-focused PPM provider. PE firms have been fairly active in the PPM sector, with Parallax Capital Partners and Vista Equity Partners, among others, having inked acquisitions.

In terms of strategic acquirers, Planview probably has the closest relationship with SAP, primarily through a long-standing association with Business Objects. And don’t forget, too, that rival Oracle has already snapped up a large privately held PPM vendor, adding Primavera Software five years ago. Although terms weren’t disclosed in that deal, we estimate that Oracle handed over roughly $350m for PE-backed Primavera.

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Pegasystems tunes into mobile apps with Antenna buy

Scott Denne

Contact: Scott Denne Carl Lehmann

Pegasystems has scooped up Antenna Software, a mobile application development vendor that has struggled to compete with the plethora of free and cheap tools for building mobile apps. Launched 15 years ago, Antenna provides software for building, running and managing mobile apps. The business model was to sell the development tools and provide runtime services for free. As the mobile app economy exploded, the company found it increasingly difficult to sell proprietary tools to developers. We estimate that Antenna had less than $40m in sales last year, slightly down from a year earlier.

The deal provides Pegasystems with native mobile development capabilities and several new features, including an enterprise app store and device management. That enables Pegasystems to expand its market to mobile-first customers and gives it a better framework to expand its existing customers into mobile. We view this as an opportunistic acquisition by Pegasystems, which has now only done three deals in the past decade even as its core BPM sector has seen a lot of M&A – both for consolidation and into adjacent markets.

Morgan Stanley advised Antenna and Bridge Street Advisors banked Pegasystems. Incidentally, those same banks played the same roles in Pegasystems’ last deal, its $162m acquisition of CRM vendor Chordiant in March 2010. In that purchase, Pegasystems paid slightly more than 2x trailing sales. (That’s based on equity value for Chordiant, which had slightly more than $50m of net cash.) Although Pegasystems didn’t release terms of its Antenna buy, we would estimate the multiple in the same sort of range as Chordiant’s valuation.

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A round trip for Active Network shares

Ben Kolada

Contact: Ben Kolada

After a little more than two years of trading on the NYSE, registration and events management software vendor Active Network is leaving the public eye in a $1bn take-private by Vista Equity Partners. The deal carries a fairly paltry valuation, and only returns the company’s share price to basically the same level where it sold them in the IPO. And that was when Active Network’s revenue was roughly one-quarter smaller than it is today.

Vista is paying $14.50 per share in cash for Active Network, valuing the company’s equity at $1.05bn. Including the assumption of cash and capital lease obligations, the deal values Active Network at 2.1x trailing sales. For comparison, the company’s much smaller competitor Cvent is currently valued much higher at $1.4bn, or 14.5x trailing revenue. Citi Capital Markets advised Active Network, while Bank of America Merrill Lynch advised Vista Equity Partners.

We’d argue that the subpar valuation is the combination of meager growth and an inability to meet financial expectations. Wall Street expects Active Network to grow revenue 8.5% this year, to about $455m. Although that’s from a much larger base, it’s still a fraction of the 30% growth analysts expect Cvent to record. Further, financial expectations for Active Network are far from certain, given that the company has repeatedly issued results below its own estimates.

In a roundabout way of acknowledging the company’s public troubles, Vista took a charitable view of the per-share premium, noting that its offer is 111% above the average year-to-date closing price for Active Network. A more grounded view, however, shows the offer only matches Active Network’s $15 IPO price in May 2011, and represents a more common 27% premium to its closing share price Friday.

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