Category: application software

Adobe back in the market for marketing, drops $600m on Neolane

Brenon Daly

Contact: Brenon Daly

In its second-largest acquisition for its Marketing Cloud, Adobe Systems says it will hand over $600m in cash for marketing automation (MA) vendor Neolane. The purchase of Neolane, which is expected to close in Q3, trails only Adobe’s pickup of Omniture for $1.8bn in 2009 in terms of spending on deals to build out its Marketing Cloud. Collectively, these transactions have cost Adobe more than $3bn.

Although Adobe declined to discuss Neolane’s financials, the Paris-based startup has said it generated 2012 revenue of $58m, which would put it at roughly the same size as rivals Marketo and HubSpot. In terms of valuation, however, Neolane is a good bit off of Marketo’s market cap of some $870m.

We would chalk up the disparity in valuation to two main reasons. First, Neolane’s on-premises business is about as large as its subscription business, while Marketo is a pure SaaS company. Further, we understand that Neolane grew about 40% last year, which is a solid rate but just half the pace of the free-spending – and deeply unprofitable – Marketo. Through midyear, we would pencil out that Neolane generated roughly $70m in trailing 12-month revenue.

Adobe’s MA move comes after many other tech giants have already snapped up MA vendors, including salesforce.com paying a record $2.5bn for ExactTarget earlier this month. Other tech giants that have made significant MA acquisitions include IBM (Unica), Teradata (Aprimo), Oracle (Eloqua) and Intuit (Demandforce). Valuations for those transactions have ranged from 4.4x trailing sales to 11x trailing sales.

Select marketing automation transactions

Date announced Acquirer Target Deal value Price-to-sales valuation
June 27, 2013 Adobe Neolane $600m 8.6x*
June 4, 2013 salesforce.com ExactTarget $2.5bn 7.6x
December 20, 2012 Oracle Eloqua $956m 9.7x
April 27, 2012 Intuit Demandforce $424m 11.4x*
December 22, 2010 Teradata Aprimo $525m 6.3x
August 13, 2010 IBM Unica $523m 4.4x

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

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IPO candidates feel the tremor

Contact: Tejas Venkatesh

Over the past few weeks, it appears sentiment on Wall Street has soured significantly. With the US Federal Reserve planning to wrap up bond purchases, the broader stock market volatility as represented by the CBOE volatility index hit its highest level all year earlier this week. As a result, unknown and unproven IPO candidates are bearing the brunt of that market uncertainty. That was evident today when both IT retailer CDW and video advertising network company Tremor Video priced below their indicated range. In CDW’s case, that came after the company had already cut the number of shares on offer by 16%.

For its part, Tremor Video sold 7.5 million shares for $10 each, below its indicated range of $11-13. In the process, the company raised $75m and debuted at an (undiluted) market cap of $485m. By midmorning, the stock headed further south and was changing hands on the NYSE at $9.50.

Tremor Video analyzes in-stream video content, detects user attributes and uses that information to optimize video ad campaigns for marquee brands like Procter & Gamble, Ford Motor and Walt Disney. The eight-year-old company, which raised about $120m in total funding, generated $113m in revenue for the year ended March 2013.

The sudden souring of sentiment is leading to a difference in expectations between investors and issuing companies. Tremor Video is the first advertising technology (adtech) IPO to price below its expected range. In its case, the performance of recent adtech IPOs didn’t help. Both Millennial Media and Marin Software are trading about 30% below their IPO price.

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Thoma Bravo hopes to unlock value from Keynote in LBO

Brenon Daly

Contact: Brenon Daly

After focusing its recent M&A activity on rounding out existing portfolio companies, buyout shop Thoma Bravo made another ‘platform play’ on Monday, offering $395m for Keynote Systems. Under terms, the private equity firm will pay $20 per share, or a total of $395m, for the 18-year-old testing and measurement vendor.

The deal, which is expected to close by September, comes at a time when Keynote is struggling to put up growth. Business across its two operating units – the core Internet measurement products as well as the newer mobile testing offerings – have both been flat so far this fiscal year. Further, the company has seen its operating and net income drop this year as some customers have recently narrowed Keynote projects or put them off.

The price Thoma Bravo is paying reflects the operating challenges at Keynote, which traded above the $20 bid for much of 2011. The dividend-paying company holds nearly $60m in cash and short-term investments. Backing out that amount from the $395m equity value for Keynote gives an enterprise value of $335m, or about 2.7 times the $125m in trailing sales the company has put up.

Keynote’s valuation of 2.7x sales is almost exactly the midpoint of Thoma Bravo’s two previous take-privates, the $195m buyout of Mediware Information Systems last September and the $1bn acquisition of Deltek in August. Since those LBOs, the buyout shop has been busy doing deals to bulk up its portfolio companies, including two follow-on acquisitions for Mediware as well as recent bolt-on deals for Blue Coat Systems, LANDesk Software and Tripwire.

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Marketing automation overshadows Web content management

Contact: Alan Pelz-Sharpe

The marketing automation industry is upending the Web content management (WCM) space. Our research tells us that pure-play WCM technology is unlikely to continue to grow as a market in any substantial way. We believe that going forward, the technology is likely to be bundled along with marketing automation platforms, rather than sold as stand-alone WCM systems. That prognosis is reflected in the pattern of M&A activity in the two sectors.

The critical fact missed by the WCM market was that the central content repository was not the be-all and end-all that it was claimed to be – certainly not for all organizations. While having marketing collateral in a single ordered, managed system is important, it is only when that content is connected to a chain of events that it results in a transaction of any value.

The last WCM acquisition of note was that of Day Software by Adobe in July 2010 for $243m. In sharp contrast, the marketing automation sector has been a hotbed of M&A and IPO activity. In the first week of June, salesforce.com announced the purchase of marketing automation provider ExactTarget for $2.5bn. A few weeks prior, rival Marketo came public in a well-received IPO and currently garners a market cap of $750m. Subscribers can click here for a full report on the WCM industry and prospects for existing players.

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Datawatch acquires Panopticon for its visualization software

Contact: Tejas Venkatesh

Datawatch is buying Swedish data visualization software vendor Panopticon Software for $31.4m in stock (Datawatch ended March 2013 with just $10m in its treasury). The deal fills an important product gap in Datawatch’s portfolio, adding real-time data visualization software to its back-end-oriented portfolio and furthering its positioning around ‘big data’ visual discovery. On the announcement of the acquisition, Datawatch traded up more than 15% on the Nasdaq.

Panopticon adds a presentation layer to Datawatch’s back-end capture and transformation wares for semi-structured and unstructured information. The startup’s technology includes an internally developed StreamCube in-memory OLAP data model and visualization layer, which includes heat maps and tree maps.

Three-fourths of Panopticon’s business comes from partner-driven deals in the financial services industry, due to its applicability for visual analysis with sub-second latency for trading and risk applications, for example. SAP and Thomson Reuters are reportedly Panopticon’s two largest partners. We’ll have a full report on this transaction in our next Daily 451.

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A market-moving marketing move

Brenon Daly

Contact: Brenon Daly

In the largest-ever transaction in the rapidly emerging marketing automation industry, salesforce.com said on June 4 it will hand over $2.5bn in cash for ExactTarget. The deal represents a significant bet by the SaaS kingpin, which has talked about cross-channel marketing becoming a $1bn business in the coming years. Salesforce.com will nearly clean out its coffers to cover its purchase of ExactTarget, which is three times the size of salesforce.com’s second-largest deal.

Under terms, salesforce.com will hand over $33.75 for each share of ExactTarget. That represents the highest-ever price for the 13-year-old marketing automation vendor, which went public in March 2012 at $19. (J.P. Morgan Securities led ExactTarget’s IPO and advised the company on its sale. Bank of America Merrill Lynch worked the other side.) The deal is expected to close by mid-July.

At an enterprise value of $2.4bn, ExactTarget’s valuation of roughly 7.6 times trailing sales splits the difference between the two previous largest transactions in the marketing automation space. In December 2012, Oracle paid an uncharacteristically rich 9.7 times trailing sales for Eloqua, and Teradata paid 6.5 times trailing sales for Aprimo in December 2010, according to the 451 Research M&A KnowledgeBase. (For its part, rival Marketo, which salesforce.com and others were rumored to have looked at last fall, trades at nearly twice ExactTarget’s multiple.)

With the purchase of ExactTarget, the three largest deals salesforce.com has done have all been aimed at expanding the company’s marketing offering. It picked up Buddy Media in mid-2012 for $689m for its agency relationships after spending $326m on social media monitoring startup Radian6 in March 2011. But don’t look for any more deals in that space or any other from salesforce.com soon. During a call discussing the ExactTarget purchase, CEO Marc Benioff said salesforce.com will be on ‘vacation’ from M&A for the next 12-18 months.

‘Nuanced’ talk with Tweddle Connect acquisition

Ben Kolada

Contact: Ben Kolada

Speech recognition vendor Nuance Communications is no stranger to M&A, having announced 13 deals worth more than $1bn in just the past two years. However, while the company eventually provides some details on most of its transactions, it rarely gives as granular of information as it did in today’s $80m acquisition of Tweddle Connect from Tweddle Group. The need to satiate an activist shareholder may explain the company’s unusual information disclosure.

Nuance often discloses deal values for its acquisitions, more often in SEC filings than in press releases, but it rarely holds conference calls to explain its M&A decisions, much less one that concerns an asset purchase. The company broke the practice in its reach for Tweddle Connect.

Nuance not only provided detailed financial numbers in the press release – the acquired assets are expected to generate $25m in revenue and $13m in cash flow from operations in fiscal 2014 – but also held a conference call to further explain its move. Neither the acquisitions of JATA or QuadraMed’s Quantim division, worth $265m and $230m, respectively, received this level of attention.

Disclosures continued on the call. Before admitting that Nuance doesn’t usually provide this level of granularity, CFO Tom Beaudoin disclosed that Nuance’s automobile group, which Tweddle will fit into, grew 30% on a CAGR over the past four years, and is expected to generate $130m in sales in fiscal 2013.

One possible explanation for the new level of candor and transparency at Nuance could be the rising role of activist investor Carl Icahn. Last month, an SEC filing showed Icahn increased his stake in the company from about 9.3% to 10.7%.

The gadfly investor has used a company’s M&A track record as part of his stirrings in the past. For now, Icahn hasn’t publicly indicated what steps – if any – he’ll push for at Nuance. But as tech companies including Motorola, Lawson Software, BEA Systems, Mentor Graphics and others can attest, Icahn doesn’t necessarily stay silent for long.

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Dassault continues to acquire for growth

Ben Kolada

Contact: Ben Kolada

Continuing its search for external growth opportunities, 3-D modeling software vendor Dassault Systèmes says it is paying $205m for manufacturing software provider Apriso. The deal pushes Dassault into the manufacturing operations management software industry and provides cross-sell opportunities for both companies.

The all-cash transaction values Apriso at 4.1x last year’s sales. An Apriso press release earlier this year noted that sales growth over the past seven years exceeded 20% on a compound annual growth rate (CAGR); software revenue specifically grew at a CAGR of 31% over the same period. Last year, software represented 65% of total revenue, with services accounting for the remaining 35%. Jefferies & Company advised Apriso on its sale.

The deal is primarily a product expansion for Dassault, making manufacturing operations software available to customers that are currently using its DELMIA manufacturing and production modeling software. With Apriso, Dassault also expands its presence in a variety of industries, such as consumer goods, packaged goods, high tech, life sciences, transportation and mobility, aerospace and defense, and industrial equipment.

Beyond the sales rationale, Dassault also appears to be seeking more outlets to further its growth. We previously wrote that, although the greater European economy continues to struggle, Dassault was able to announce a pair of acquisitions in April due in part to the fact that the company is still growing total revenue. With this purchase, its fourth this year, Dassault has already tied the number of M&A moves it made in its most acquisitive year, 2011. And with a large war chest – nearly $2bn (€1.5bn) in cash and short-term investments at the end of March – Dassault has enough firepower to keep announcing expansion acquisitions.

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High water in the channel

Brenon Daly

Contact: Brenon Daly

In an unexpectedly strong debut, ChannelAdvisor created nearly $400m in market value in its IPO earlier this week. The 12-year-old company, which trades on the NYSE under the ticker ECOM, priced at the high end of its range and then shot up some 30% in its first session.

At the risk of bearishly mauling this bullish debut, ChannelAdvisor appears richly priced. With some 20.5 million (undiluted) shares outstanding, investors are saying the e-commerce channel advisory vendor is worth about $380m. That’s a steep valuation for a relatively small company (2012 revenue of just $54m) that’s only growing in the low-20% range and still has a negative ‘adjusted’ EBITDA figure, not to mention a net loss.

The roughly 7x valuation that ChannelAdvisor got in its IPO also looks pricey when compared with the value that a smaller rival got in its exit earlier this year. Back in February, channel intelligence sold to Google for $125m, which we understand worked out to about 4.5x trailing sales. Channel intelligence was roughly the same vintage as ChannelAdvisor, but only about half the size of the now-public company.

Still, it’s unusual for an IPO to trade at such a sharp premium to an M&A valuation, which should, theoretically, be higher because it reflects the full life value of a company. The gulf could indicate that either Google got a steal in its deal or that Wall Street may be paying too much for ChannelAdvisor.

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A big ‘DATA’ debut for Tableau

Brenon Daly

Contact: Brenon Daly

Big ‘DATA’, indeed. Tableau Software, which debuted Friday on the NYSE under the ticker DATA, created nearly $3bn of market value in its hotly anticipated IPO. The data discovery and analytics vendor becomes the latest enterprise-focused software company to command a platinum valuation on Wall Street.

Tableau priced its 8.2 million shares at $31 each, raising some $254m in the offering. Not that the company particularly needed the outside cash: It has been running in the black since 2010 and has an accumulated deficit of just $5.8m. And Tableau has been printing black numbers while doubling revenue, a rare combination that clearly resonated with investors.

After pricing at $31, shares changed hands at about $48 each in the early aftermarket. Based on the (non-diluted) share count of 58 million shares from the prospectus, the market is valuing Tableau at $2.8bn.

That’s 14x a loose projection of roughly $200m in sales for 2013. We penciled out that number based on the (probably conservative) assumption of nearly 60% growth in revenue from the $128m recorded in 2012. Whatever the exact numbers, it’s safe to say that Tableau has secured a double-digit multiple of this year’s sales.

The rarified valuation is all the more noteworthy because of Tableau’s throwback business model: It sells on-premises licenses, rather than subscriptions, which typically command higher multiples. Of course, when license sales are doubling – as they have at Tableau in each of the past two years – Wall Street can get comfortable with the model.

As a final thought, we would note that the license model certainly hasn’t hurt Splunk, which went public a year ago. While that company doesn’t compete with Tableau, the fellow self-described ‘big data’ play lines up rather closely with Tableau.

As mentioned, both fast-growing companies sell their software through licenses rather than subscriptions, and both get about 30% of total sales through maintenance and services on that software. Further, the similarities extend to what the market says the companies are worth: Splunk is valued at $4.6bn, or 23x last year’s revenue, compared with Tableau debuting at $2.8bn, or 22x last year’s sales.

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