Category: divestitures

Nuance’s not-so-nuanced response to Icahn

Brenon Daly

Contact: Brenon Daly

Even though Nuance Communications is a company that does a lot of buying, the serial shopper has made it clear that it doesn’t want to be on the other side of a transaction. The speech recognition vendor, which has spent more than $1bn on a dozen deals over the past two years, announced earlier this week that it would be putting a ‘shareholder rights plan’ in place by the end of the month. The defensive measure (also known as a ‘poison pill’) effectively scotches any unwanted M&A approaches.

In other words, exactly the type of unwanted approach the company is likely to get from its largest shareholder, who has a history of making unwanted M&A approaches to tech companies. Carl Ichan has steadily snapped up Nuance stock. His stake, according to the most recent SEC filing, is now a mountainous 51 million shares, or 16% of the company.

With Icahn unlikely to play the role of spoiler in the planned Dell LBO, we suspect that he’ll have more time to spend on his other activist investments very soon. Probably on the top of his hit list is Nuance, as the company has already put up subpar numbers in two quarters this year. Nuance stock is down about 15% in 2013.

Unlike Ichan’s earlier stirrings against BEA Systems or Lawson Software, however, there isn’t an obvious single acquirer for Nuance. The reason stems largely from the fact that the Burlington, Massachusetts-based company has four separate business units. (Collectively, those divisions should produce about $1.7bn in annual sales when Nuance wraps its fiscal year at the end of next month.)

Instead, we could imagine that Icahn might push for a breakup of Nuance, arguing that the value of the individual units – on their own – is higher than the current $7.4bn enterprise value of the company. After all, Icahn has experience in that sort of agitation too, having helped spur a breakup of tech giant Motorola at the beginning of 2011.

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Two strikes and counting for acquirers of Zimbra

Brenon Daly1 Comment

Contact: Brenon Daly

Having already bounced around inside two tech giants before bouncing out of them altogether, Zimbra is now on its third owner in the past seven years. Telligent Systems, a relatively small VC-backed startup, has picked up the back-end email technology provider from VMware, which – in turn – had picked up the castoff business from Yahoo. Although terms weren’t released, we would guess Telligent spent a fraction of the $450m that the two previous buyers handed over for Zimbra.

With two tech giants having already whiffed on their ownership of Zimbra, however, we can’t help but wonder if Telligent’s purchase will be strike three for the once-promising company. The reason we ask is because in each of the deals, Zimbra was acquired in order to be something that it’s not.

For Yahoo, its mid-2007 purchase of Zimbra represented a way to counter Google Apps, which, at the time, was just starting to make its way into universities, small businesses and the service-provider market. Yahoo hosted hundreds of millions of unpaid consumer email accounts, but hadn’t been able to expand into businesses.

Yahoo’s efforts with Zimbra didn’t have any more success than the next owner, VMware. In early 2010, the infrastructure software giant made an ill-advised move into the application layer with Zimbra’s messaging and collaboration products. It has largely retreated from those efforts, divesting both Zimbra and SlideRocket as part of a larger corporate restructuring announced earlier this year.

And now it’s Telligent’s turn to see what it can do with Zimbra. From the outset, we would note that the stakes are much higher for Telligent than for either of the two previous acquirers. Both Yahoo and VMware, which do close to $5bn in annual sales, could absorb the financial impact of a questionable deal that didn’t work out. Privately held Telligent, which we estimate might generate $20m this year, doesn’t have that cushion. (Further, it may not have the brand equity to survive because Telligent is taking the unusual step of using the name of the acquired business for the surviving company.)

Telligent will have to stretch to blend its enterprise social networking products – hyped as real-time, collaborative and far more interactive than plain old email – with Zimbra. Simply put, the approaches come from different eras. Even a company as well-versed in software as Microsoft has recognized that and has adapted its M&A program accordingly. Although Microsoft dropped $1.2bn on social networking startup Yammer a year ago, the software giant only recently started integrating the Web 2.0 company with a select few stalwart programs such as SharePoint and Office, despite the connection between the applications.

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‘Progress-ing’ in a restructuring

Ben Kolada

Contact: Ben Kolada

Continuing its yearlong restructuring, Progress Software is selling its Apama complex event processing (CEP) assets to Software AG, effectively unwinding its 2005 acquisition of the startup. Although asset sales have become particularly popular and Progress has certainly been on a corporate diet lately, this move wasn’t widely expected in part because Progress had seemed to indicate that Apama was part of its core business.

In April 2012, Progress announced a restructuring plan that, among other moves, would refocus on its core OpenEdge, DataDirect and Apama products. However, the company has since had a change of heart regarding Apama. In announcing the divestiture, Progress said Apama’s target market of Wall Street and big telcos, as well as its deployment and sales model, differ significantly from Progress’ application development platform, which targets the midmarket. (We note that Progress is retaining Apama’s core decision analytics capability.)

The deal follows Progress’ sale of 10 product lines during the two previous quarters. Terms weren’t disclosed. (For the record, Progress paid $25m for Apama in April 2005.) According to our understanding, Software AG is paying less for Apama – both on an absolute and relative basis – than TIBCO paid in a directly comparable CEP deal earlier this week, when it reached for StreamBase Systems. We’ll have a longer report on this acquisition in an upcoming Daily 451.

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‘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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Will Sprint side with strategy?

Ben Kolada

Contact: Ben Kolada

DISH Network’s $25.5bn offer for Sprint Nextel represents a 13% premium to SoftBank’s October bid, but its lack of mobile experience may ultimately cause the company to lose the deal. Stock plays a major component of both transactions (32% for DISH versus 30% for SoftBank), meaning the future value of either deal will be dependent on which company – SoftBank or DISH – will be able to better execute in the mobile market. Arguably, the answer is SoftBank.

Without a doubt, SoftBank understands the mobile market, and therefore would understand Sprint’s business more than DISH. Mobile is an entirely new arena for DISH. SoftBank, on the other hand, generated some $22bn in mobile revenue alone last year. To put that in perspective, that’s nearly double the total revenue DISH generated over the same period.

Meanwhile, we’d also point out that DISH’s investors already have doubts about the deal. Following the announcement, the company’s shares fell more than 5% throughout the day, though they did recoup some of the losses by midday.

Although Sprint hasn’t yet provided an official response to the DISH bid, we expect that it will staunchly defend itself against DISH, much like it is defending Clearwire against a DISH takeover.

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An ‘affinity acquisition,’ as LANDesk picks up divested Shavlik division

Brenon Daly

Contact: Brenon Daly

As a company that has been cast off twice from its larger corporate owners, LANDesk Software might have a special affinity for its latest transaction: the acquisition of Shavlik Technologies, which is being cast off by VMware. The deal adds Shavlik’s technology for managing and securing physical and virtual environments to the systems management vendor’s portfolio. Inside VMware, Shavlik was known as VMware Protect; under LANDesk, the business is called Shavlik Protect.

LANDesk’s purchase effectively unwinds VMware’s acquisition of the security company in mid-2011. At the time, we estimated that the virtualization giant paid about 3x sales for Shavlik. We understand that today’s deal went off at a more representative multiple for divestitures. That said, Shavlik, which never took any outside funding, is known to generate healthy cash flow. (Subscribers to The 451 M&A KnowledgeBase can click on the following links to see our estimated revenue and price for both the original VMware-Shavlik transaction as well as today’s LANDesk-Shavlik pairing.)

The purchase of the carved-out business represents the third deal LANDesk has done since private equity (PE) firm Thoma Bravo carved the company itself out of Emerson Electric in August 2010. (That transaction came almost exactly eight years after another PE shop, Vector Capital, carved LANDesk out of Intel.) On the other side, VMware’s sale of Shavlik is its second divestiture announced in 2013, as the virtualization giant works through a previously announced restructuring.

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Ripe time for spoiled fruit

Ben Kolada

Contact: Ben Kolada

While we’re in a season of slim pickings for tech M&A, one market that’s ripening is the sale of spoiled fruit. Major tech companies such as Microsoft and VMware are now selling flagging businesses at an unusually quick clip.

There are a variety of reasons why companies would sell assets during every part of the economic cycle. But right now, as growth slows across much of the established tech markets, companies are increasingly focusing on the relatively few areas that are recording sales increases. (To continue our gardening metaphor, it’s similar to a person cutting off a dying bulb so that the rest of a plant can flourish.)

Microsoft, for example, announced its second asset sale in as many months, selling its Mediaroom IPTV distribution platform to Ericsson. (Last month, Microsoft sold its Atlas Advertiser Suite assets to Facebook.) Mediaroom was part of Microsoft’s Entertainment and Devices Division (EDD), which includes Xbox, Skype and Windows Phone assets. EDD revenue rose in FY 2012 primarily due to Skype and Windows Phone revenue, but has declined 8% in the two quarters since as Xbox sales sank.

And in the case of VMware, the sizzling growth of its core virtualization software in previous years allowed it to expand into new markets. But as the company’s top-line expansion dipped to 22% in 2012 from 32% in 2011, it announced a refocus of its business. VMware sold its SlideRocket assets in March, and may consider selling other noncore businesses.

Select asset sales in 2013

Date announced Target – asset Acquirer Deal value
April 8 Microsoft – Mediaroom assets Ericsson Not disclosed
April 3 Google – 3LM BoxTone Not disclosed
April 1 IBM – ShowCase software division Help/Systems Not disclosed
March 14 TeleNav – enterprise mobile business FleetCor Technologies $10m
March 5 VMware – SlideRocket business ClearSlide Not disclosed
February 25 HP – webOS assets LG Electronics Not disclosed
February 19 Oracle – Lustre assets Xyratex Not disclosed
February 5 United Business Media – data services businesses Electra Partners $251m
February 4 News Corp – IGN Entertainment j2 Global/Ziff Davis $50m
January 28 Sierra Wireless – AirCard business NETGEAR $138m
January 24 WebTech Wireless – NextBus business Cubic $20.9m

Source: The 451 M&A KnowledgeBase

 

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IntraLinks finally gets to use its deal room

Brenon Daly

Contact: Brenon Daly

Although IntraLinks is well-known for its ‘virtual deal rooms,’ the company itself hasn’t spent much time in them. That changed on Thursday. After being out of the market for more than a decade, IntraLinks announced a double-barreled deal, picking up two online deal-sourcing platforms, MergerID and PE-Nexus. (And yes, the company did use its own deal room to run the process.)

The addition of the two sourcing platforms makes sense as a way to increase the number of transactions that get executed in IntraLinks’ core deal room. In fact, the company had added sourcing and networking features around the end of 2011, but had only attracted a few hundred users. MergerID and PE-Nexus dramatically increase the number of potential participants, with the two firms having attracted, collectively, some 5,000 firms representing about 7,200 total users.

Further, the two platforms serve very different markets. MergerID – divested by the FT Group’s Mergermarket division – focuses on midmarket deals, primarily in Europe and Asia. Meanwhile, PE-Nexus (as its name implies) largely targets US private equity shops from its Florida headquarters. IntraLinks has indicated that it will pick up 11 employees from the two firms, and we understand that very little revenue will be added from the two subscription-based services.

More broadly, IntraLinks’ move fits with the strategy and recent performance of its business. The M&A unit, which represented 42% of total revenue in 2012, was the only one of the company’s three divisions to post growth last year. The 9% increase in its M&A-related revenue in 2012 helped bump up the overall top line at IntraLinks during what was – by design – a year of stabilization and investment.

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Checkpoint’s deeply discounted divestiture

Brenon Daly

Contact: Brenon Daly

In one of the more financially lopsided divestitures we’ve seen in some time, Checkpoint Systems says it will be pocketing just $5.4m for its North American CheckView business, which is being picked up by buyout shop Platinum Equity. The electronic security unit generated roughly $77m of revenue in 2012, although it did run slightly in the red.

Following a review of its businesses last year, Checkpoint set aside CheckView as a discontinued operation and broke out some of the division’s financials. (We confirmed that Platinum will be acquiring the whole CheckView unit.) At the time of the sale, CheckView employed some 225 people.

Checkpoint’s divestiture comes as the latest bit of portfolio pruning by tech companies so far this year. Similar moves include Oracle shedding the Lustre business it obtained with its acquisition of Sun Microsystems to Xyratex in mid-February and Microsoft, which had already written down much of its aQuantive acquisition, flipping the Atlas Advertiser Suite to Facebook a month ago.

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Making sense of j2’s Ziff Davis acquisition

Ben Kolada

Contact: Ben Kolada

At first glance, j2 Global’s acquisition of Ziff Davis Media seemed to be a stretch. However, upon further review of j2’s M&A strategy and recently released financial statements for Ziff Davis, the company actually meets many of j2’s requirements for its diversification acquisitions: Ziff Davis has a strong management team, operates in a fragmented market and, perhaps most importantly, is increasing revenue.

Technology content provider Ziff Davis Media was a powerhouse in its time, but it struggled as consumers moved from print to digital media. Total revenue at the company declined from $300m in 2001 to $76m in 2007, when more than half of its revenue was still coming from print advertising.

Ziff Davis filed for bankruptcy in 2008, and was subsequently carved up in four transactions. The Ziff Davis chunk being acquired by j2 is owned by CEO Vivek Shah and Great Hill Partners. Shah, a digital publishing veteran with experience at Time Inc and the Fortune/Money Group, and his team helped turn around ailing Ziff Davis, bump up revenue and return it to profitability.

J2 released financial statements this week for Ziff Davis that show the company is in growth mode. Unaudited results for the nine months ended September 30 show revenue increased 70% over the prior year to $32m. In the 12 months ended September 30, the company generated almost $45m in revenue, with nearly $8m in EBITDA.

For anyone interested in what goes on in The 451 M&A KnowledgeBase, we’ve updated our merger record for j2’s acquisition of Ziff Davis and made it available for free. Click here to view the record.

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