Category: cloud computing

Equinix increasing inorganic growth, nabs ancotel

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

In its latest geographic consolidation move, colocation giant Equinix announced on Wednesday the acquisition of Frankfurt-based ancotel. Although previously an atypical acquirer, the ancotel buy is Equinix’s second purchase this month, following the pickup of certain assets from Hong Kong-based Asia Tone for $230m. Equinix recently said its dealmaking isn’t done yet. At the Deutsche Bank Securities Media & Telecommunications Conference in February, the company said it plans to place more emphasis on M&A.

Equinix didn’t disclose the price of the acquisition, but did say the valuation is in line with its projected 2012 adjusted EBITDA trading multiple. With a current enterprise value of $9.7bn, Equinix itself is valued at 11 times this year’s projected adjusted EBITDA. Assuming ancotel’s cost structure is similar to Equinix’s, we’d loosely estimate the deal value at $100-110m. Ancotel generated $21.4m in revenue in 2011, with a three-year CAGR north of 20%. The transaction adds a datacenter with 2,100 meters of capacity, 400 network customers, 200 new networks and 6,000 cross connects. Ancotel also has a presence in both London and Hong Kong.

In a departure from its usual practice of making just one acquisition per year, Equinix recently indicated that it intends to use more M&A to fuel growth. The company already dominates the American colocation market, so future M&A activity will likely continue to be overseas. Equinix has a lofty goal of being in 50 markets in the long term, with immediate priorities being India and China. The company has also expressed interest in growing its presence in South Korea and Australia.

Equinix’s international M&A, past five years

Date announced Target Deal value Target headquarters
May 16, 2012 ancotel Not disclosed Frankfurt
May 1, 2012 Asia Tone (certain assets) $230m Hong Kong
February 15, 2011 ALOG Data Centers* $127m Rio de Janeiro
February 6, 2008 Virtu Secure Webservices $22.9m Enschede, Netherlands
June 28, 2007 IXEurope $555m London
January 10, 2007 VSNL International (Tokyo datacenter) $7.5m Tokyo

Source: The 451 M&A KnowledgeBase *90% stake

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TriNet expands with ExpenseCloud

Brenon Daly

Contact: Brenon Daly

Throughout its history, TriNet Group has been a slow but steady consolidator. Perhaps the best-known play by the outsourced HR provider came three years ago, when it gobbled up publicly traded rival Gevity HR for $99m. In its most recent deal, however, the private equity-backed buyer has shifted gears a bit.

Rather than simply add more accounts through an acquisition, TriNet has added a nifty offering to its portfolio. The company recently picked up three-year-old startup ExpenseCloud, which helps automate the process around creating and reimbursing employee expenses. TriNet says the expense management offering will be available on its platform later this year.

Although, candidly, employee expense management sounds like a ho-hum market, the big player in this space – publicly traded Concur Technologies – has shown it can be a wildly valued one. The company’s shares currently change hands at their highest-ever level, putting its market valuation at a whopping $3.4bn. Concur recently projected that sales for its current fiscal year, which ends in September, would be in the neighborhood of $440m, meaning investors are valuing the company at 7.6 times this year’s projected sales.

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Buying into the social side of HR

Brenon Daly

Contact: Brenon Daly

After three consolidation plays in the fragmented human capital management (HCM) market, private equity-backed rollup Peoplefluent has expanded into enterprise collaboration with the acquisition of Socialtext. Although 10-year-old Socialtext was one of the pioneers of collaboration software (or ‘wikis,’ as they were known in the early days) and did attract some 6,500 users, it struggled to actually put up revenue.

According to our understanding, Socialtext was only generating about $5m in revenue. Peoplefluent – backed by Bedford Funding, whose principals served as executives at ERP rollup Geac – isn’t renowned for paying high multiples. It paid less than 2 times sales for both of its main consolidation acquisitions, 2008’s platform purchase of Authoria and 2010’s reach for Peopleclick. (Earlier this year, it also added a learning management vendor, Strategia Communications.)

Peoplefluent’s move to add collaboration to its HR platform comes almost exactly two years after HCM giant SuccessFactors paid $50m for social enterprise software provider CubeTree. Additionally, we’ve seen salesforce.com combine elements of its acquisition of collaboration software startup Manymoon with its step into the HCM market through its high-multiple purchase of Rypple. And salesforce.com just added another small part to its collaboration offering, tucking in tiny startup Stypi

Spirent secures its testing platform with Mu

Brenon Daly

Contact: Brenon Daly, Eric Hanselman

A relatively infrequent shopper, Spirent Communications has picked up Mu Dynamics, adding security testing for applications to the company’s performance-testing portfolio. The deal, which is only the British company’s second acquisition in the past half-decade, was announced last week and closed Monday. Spirent paid $40m in cash for Mu, which is projected to contribute about $18m in sales next year. (We understand that talks got going only in December, with Duff & Phelps’ Pagemill Partners unit advising Mu.)

The purchase of Mu Dynamics should also help Spirent expand its market, both in terms of customers and products. Traditionally, Spirent has sold its performance analysis offering as a hardware-based platform to network equipment manufacturers that use it to test the performance of products before they launch them. (It primarily competes in this market with Ixia, although Spirent is much larger and more profitable than its rival.) With Mu, Spirent will get a software product that can be more quickly and easily deployed, even within corporate IT departments.

As more and more applications are run on virtualized infrastructure, the process of testing is adapting. Where hardware-based systems have traditionally been used in test environments, it’s much more difficult to connect them to the virtual and ‘cloudy’ application deployments that are predominating. Spirent’s move will give it tools to address these environments. Ixia has also developed product capabilities in this area. Software versions of testing products can also scale well to match the increased scaling demands placed on applications.

Additionally, Spirent obtains Mu Dynamic’s small – but potentially disruptive – cloud-based testing division called Blitz.io, which bumps up against startups such as SOASTA, Apica, AppDynamics, LoadStorm and other SaaS testing providers. Blitz.io already has some 15,000 users.

While both the performance and security of applications is important to increased cloud application adoption, security is turning out to be a far more significant factor. In a survey earlier this year, ChangeWave Research, a service of 451 Research, found that companies gave higher marks to the reliability of cloud apps than they did to the security of them. Further, of the companies that are not currently running cloud applications, one-third of them cited ‘security concerns’ as the reason they have passed so far. That was twice as high as any other concern voiced by the more than 1,500 respondents to our survey.

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Marketo buys into social marketing with Crowd Factory

Brenon Daly1 Comment

Contact: Brenon Daly

Announcing its first-ever acquisition, Marketo said Wednesday that it is picking up Crowd Factory. The deal adds Crowd Factory’s social campaign management technology to Marketo’s marketing automation platform, expanding the distribution of marketing pitches to social channels such as Facebook pages and Twitter.

Although terms weren’t disclosed, we imagine that this was a small technology tuck-in. As we understand it, Crowd Factory was planning on raising a new round of financing of about $10m, but instead took the offer from Marketo. (Crowd Factory had already raised money from Storm Ventures, Hummer Winblad Venture Partners and Peninsula Ventures.) Our understanding is that Crowd Factory generated a little more than $1m in 2011 (with just two sales people) and was planning on tripling revenue this year.

For Marketo, this purchase rounds out its platform, adding cross-channel capabilities as well as bringing analytics to measure returns on the sharing of social campaigns, such as sweepstakes pages. The technology additions should help the company compete in the red-hot marketing automation space, which has seen significant moves by rivals recently. ExactTarget went public last month, creating some $1.6bn in market capitalization, while Eloqua has been on file since last summer. We could certainly envision Marketo following with an IPO of its own, but probably not until it tops $50m in revenue next year.

Software AG feels the need for speed in latest acquistion

Brenon Daly

by Brenon Daly

Moving to bolster its middleware messaging technology, Software AG said Monday that it would pick up London-based my-Channels. The acquisition of 13-year-old my-Channels, which is probably best known for its Nirvana product used in foreign currency trading, will provide technology to the German BPM giant that will allow customers to stream data to a variety of sources. Software AG plans to release the first product integrated with the newly acquired Nirvana technology before the end of the year, although the technology will be interoperable with its webMethods suite shortly.

The purchase by Software AG, which is its first deal in almost a year, has a few echoes with an acquisition Informatica did almost two years ago. Like my-Channels, 29West focused on high-volume, low-latency messaging for financial services firms. Informatica indicated that it paid about $40m for 29West, which we suspect is more than Software AG paid for my-Channels. However, according to our understanding, 29West had almost three times the revenue of the UK-based startup

Citrix consolidates collaboration

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

In its third collaboration deal in the past 18 months, Citrix Systems said Wednesday that it will acquire small Copenhagen-based startup Podio. The target provides team collaboration SaaS for SMBs, apparently mostly through a ‘freemium’ model. Its product is used for project management, social information sharing, sales lead management and employee recruitment management. It also provides related Apple iPhone and Google Android applications. But Citrix isn’t the only company consolidating in the collaboration market – its Podio buy comes at a time of record interest in this sector.

While there are many collaboration vendors in the market, Podio has a different approach – it enables users to create their own applications to carry out specific tasks. This allows teams to tweak the platform to cater to their specific needs. Citrix will integrate Podio into its GoTo cloud services suite, making it easy for existing customers to adopt the platform. Podio already integrates with Dropbox, Google Docs and Box.

Citrix isn’t disclosing terms of the acquisition, but we suspect that the three-year-old firm probably generated less than $5m in revenue. Podio claims tens of thousands of customers in 170 different countries, but the majority of them are likely only using its free product. If our revenue assumption is correct, then this deal should be considered more of ‘tech and talent’ play than anything else. Citrix traditionally pays above-average valuations, but we doubt that it paid more for Podio than the $54.2m it forked over in its last collaboration acquisition – ShareFile. The 27-employee firm had raised a total of $4.6m from Sunstone Capital, CEO Tommy Ahlers and private investors Thomas Madsen-Mygdal and Ulrik Jensen.

Beyond Citrix’s recent consolidation, the collaboration market is seeing increasing interest overall. The 451 M&A KnowledgeBase shows 79 collaboration acquisitions in 2011 – nearly double the volume in 2010 and an all-time record. Throughout the collaboration sector, some of the most notable transactions since the beginning of 2011 include Yammer buying oneDrum (announced just today), salesforce.com reaching for Manymoon and Dimdim, Citrix competitor VMware acquiring Socialcast and SlideRocket, and Jive Software picking up OffiSync (click on the links for disclosed and estimated valuations). Jive itself made its own splash in social collaboration when it went public in December. The company hit the Nasdaq at $850m and has since seen its market cap balloon to nearly $1.6bn, or 14 times projected 2012 revenue.

Citrix’s collaboration acquisitions

Date announced Target Collaboration sector Deal value
April 11, 2012 Podio Team collaboration Not disclosed
October 13, 2011 Novel Labs (aka ShareFile) File sharing & team collaboration $54.2m
December 17, 2010 Netviewer AG Web conferencing $115m

Source: 451 Research M&A KnowledgeBase; Click on the links for disclosed and estimated valuations

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A barb-less Benioff? salesforce.com grows up

Brenon Daly

Contact: Brenon Daly

In just a half-year, it sounds like salesforce.com has done a fair amount of growing up. We were thinking that Thursday as the San Francisco-based company once again hosted an event in its hometown. But the tone was markedly different from the event it put together here last fall. Most notably, salesforce.com stopped throwing punches and started throwing hugs to other enterprise software vendors.

Rather than blasting Oracle as a ‘false cloud’ provider or taking swipes at SAP as a dinosaur, CEO Marc Benioff extended olive branches to those rivals. In his keynote, he talked about ‘coexisting’ with those companies, stressing the need for ‘deep integration’ between salesforce.com’s products and the widely deployed software. (But Benioff wouldn’t be Benioff if he didn’t put his own marketing spin on the relationship: he positions salesforce.com as the ‘social front office’ for rival existing back-office systems, such as general ledger apps.)

It was a rather dramatic change in tone, suggesting that salesforce.com is staking its claim as a full-fledged member of the fraternity of enterprise software vendors. The company certainly has the numbers to back up that claim: in its previous quarter, salesforce.com announced its first-ever nine-digit contract and is on track to generate close to $3bn in revenue this year. (And don’t forget that salesforce.com also sports a major-league market cap of $20.7bn.)

For their part, Benioff and other people at the company say that détente is in response to customers’ need for software vendors to work together. That’s certainly understandable as most companies run a mishmash of software from a variety of providers. But we might suggest that the tone also reflects a new reality that has only emerged on a grand scale since last fall: the division between the old-line license model and the emerging on-demand model is not as irreconcilable as once thought.

Just since salesforce.com’s last event in San Francisco, SAP and Oracle have done landmark acquisitions of high-profile SaaS vendors, ones that were often mentioned in the same breath as salesforce.com. (The spending spree cost the old-line companies more than $7bn.) So if the old software guard – and even more importantly, their customers – figure they can work with SaaS providers, maybe it’s not too farfetched to imagine SAP and Oracle perhaps taking a run at salesforce.com in the future.

For Vocus, a costly step into a new market

Brenon Daly

Contact: Brenon Daly

Even though Vocus got pummeled on Wall Street Wednesday after it announced the largest acquisition in the company’s history, the rationale for the purchase of iContact is fairly sound. (As it announced its Q4 results, Vocus also said it would basically be cleaning out its treasury to cover the iContact purchase. The deal helped to push shares of the PR management software vendor down 40% to their lowest level since early 2009.)

But adding iContact to the Vocus portfolio at least gets the company into the faster-growing market of email marketing. Consider the relative growth rates on the two sides of the deal: Vocus increased revenue 19% to $115m in 2011, while iContact’s sales grew 25%. Granted, iContact is growing off a smaller base, but a quick look around the rest of the industry also shows that email marketing is outstripping Vocus’ core business.

For instance, Emailvision, which is only slightly smaller than Vocus, grew 55% to $90m in sales last year. (The European email marketing vendor went private in mid-2010.) Meanwhile, ExactTarget and Constant Contact outgrew Vocus in 2011, even though they are nearly twice as big. In fact, ExactTarget posted a stunning 54% growth rate last year, which pushed sales to $207m. We understand that snappy rate is likely to come up next week as ExactTarget gets ready to hit the public market. ExactTarget filed its IPO paperwork only late last November.

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Shakeout looming in MDM sector?

Ben Kolada

Contact: Ben Kolada

The crowded mobile device management (MDM) sector is likely to see a shakeout in the near future. By one account, there are already more than 80 firms vying for space in the growing MDM market. As the sector’s more notable vendors increasingly advance ahead of the competition, we expect laggard firms will either shutter their doors or be picked off one by one in small bolt-on technology acquisitions. But as the sector narrows, the future may shine brighter for firms that are making names for themselves.

As the smartphone and tablet take more overall computing share from laptops and desktops, the need for MDM will accelerate. Increasing adoption of tablets, in particular, is driving MDM demand. According to a report by ChangeWave Research, the survey arm of 451 Research, 23% of respondents said they plan on purchasing tablets for their employees in the first quarter of 2012, up from just 5% in the fourth quarter of 2010.

As the largest acquirers continue to consolidate the software stack, we expect to see them move into the MDM market. IBM has already announced a couple such acquisitions, picking up BigFix in July 2010 for an estimated $400m and Worklight in January for an estimated $70m. Dell and BMC are also expected to be eyeing this market, and would likely look at the frontrunners – firms like AirWatch, BoxTone, Good Technology, MobileIron and Zenprise, to name a few – as their top acquisition choices. But these firms aren’t likely to be had for cheap. We’ve already heard rumors that one of them is looking for a $400m-plus exit, and that another was previously in the sights of a $250m deal. Meanwhile, valuations will likely rise as these vendors continue growing. In 2011, Zenprise tripled its headcount, while MobileIron doubled its employee base. AirWatch’s headcount hit 400 last year, and it expects to double that this year.