Category: Human Capital Management

LinkedIn looks to keep users more linked with SlideShare acquisition

Brenon Daly

Contact: Brenon Daly

In its largest-ever acquisition, LinkedIn said Thursday afternoon that it will pay $119m for SlideShare in an effort to draw more people to the professional network and keep them there longer. SlideShare has some 29 million unique monthly visitors, and the combination should allow LinkedIn members to expand their professional development and identity. It also significantly increases the amount of content on LinkedIn’s network, which is crucial for the company to grow beyond a site that the 160 million registered users only access when they are looking for a job.

The purchase, which continues the company’s practice to cover its M&A bill with a mix of cash and stock, represents a significant inorganic move to bump up engagement on top of LinkedIn’s earlier in-house efforts such as forming professional groups and a dedicated news page. To date, LinkedIn has had success with its strategy.

As it announced the SlideShare acquisition, LinkedIn also reported financial results for its first quarter. Sales for the January-March period doubled to $189m, with the business running at a solid 20% ‘adjusted EBITDA’ margin. Perhaps more importantly, revenue from all three segments of its business (hiring, marketing, subscriptions) posted strong growth. It’s fairly rare that a fast-growth business (LinkedIn has at least doubled revenue for seven straight quarters now) can put up consistent results across completely different business units without a misstep.

Wall Street has certainly noticed that performance. Shares hit their highest level since last May’s IPO, changing hands at about $120 each in Friday afternoon trading. That values the company at $12.3bn, or more than 13 times the forecasted revenue of roughly $900m for 2012. In comparison, old-line job board Monster Worldwide is valued at only $950m, despite being on track to generate slightly higher revenue this year.

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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

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.

More of the same at SuccessFactors under SAP

Brenon Daly

Contact: Brenon Daly

With the official closing today of SAP’s $3.6bn acquisition of SuccessFactors, it’ll be business as usual for the human capital management (HCM) vendor – starting at the top. Certainly the new ownership hasn’t throttled CEO Lars Dalgaard in the least. During his Wednesday luncheon keynote at the Pacific Crest Securities Emerging Technology Summit, Dalgaard was jarringly blunt, colorfully profane and wickedly insightful. In other words, same old Lars.

For instance, during his keynote he gave the flick to the more than 70 venture capitalists that he said passed on SuccessFactors when he was raising money back in the early part of last decade, and then rubbed that in by pointing out that the VC firms that did invest got a return of more than 4,000%. Similarly, in a video clip he played during his speech, Dalgaard noted that one of the more gratifying parts of the sale to SAP – the largest-ever SaaS deal, which valued SuccessFactors at its highest-ever price – was the fact that the acquisition ‘fried’ investors who had shorted SuccessFactors’ stock.

Dalgaard also indicated that even though his company is now owned by SAP, it will continue to be active in M&A. (On its own, SuccessFactors announced six acquisitions, after looking at some 140 companies, according to Dalgaard.) In fact, we understand that SuccessFactors will actually have an expanded corporate development role, taking on responsibility for cloud deals that would go beyond the HCM sector it focused on as a stand-alone company. That mirrors SAP’s decision to tap Dalgaard to run its overall cloud business

Putting a premium on growth

Brenon Daly

Contact: Brenon Daly

Over just the past two months, the two largest stand-alone human capital management (HCM) providers have been gobbled up by two of the largest software vendors. Back in December, it was SAP reaching across the Atlantic for SuccessFactors, while just yesterday Oracle announced its plan to take home Taleo. Both of the software giants paid the highest-ever stock price for their HCM targets, which will serve as key components of their cloud strategies.

But the valuations – both on an absolute and a relative basis – are strikingly different, with SAP valuing its HCM property almost twice as richly as Oracle. The specifics: SAP is paying $3.6bn for SuccessFactors, which works out to more than 11 times trailing sales, while Oracle is handing over $2bn, or slightly more than 6x trailing sales, for Taleo.

Why the disparity in the pricing of the two comparable deals? Well, for all of their similarities, there is one crucial difference between SuccessFactors and Taleo. Last year, SuccessFactors increased revenue by about 60%, twice the rate of growth at Taleo in 2011.

SaaS, SaaS and more SaaS

Ben Kolada

Contact: Ben Kolada

Oracle today announced the $2bn acquisition of Taleo, and SAP is getting closer to completing its $3.6bn purchase of SuccessFactors. Both announcements come less than a month after Oracle closed its $1.5bn RightNow Technologies buy. These transactions are the largest we’ve seen in the SaaS sector. However, we doubt they represent the end of the acquisition spree of these companies, with their highly disruptive business models. Although SaaS M&A has been playing out for some time now – and even set new records in 2011 – dealmaking in this sector is far from over.

If the growing use of SaaS and public cloud is any indication of deal flow, we expect volume to continue to rise. According to a report by ChangeWave Research, 22% of respondents currently use applications that run on public cloud services, up from 17% a year earlier. We’ve been beating the drums on cloud and SaaS M&A for a while now. The reason is simple: customer demand is pushing IT vendors to change the way IT services are delivered.

As businesses increasingly adopt cloud services, as opposed to packaged software maintained on-premises, the largest IT firms are increasingly looking to break into this industry. Oracle’s RightNow and Taleo acquisitions alone represent a total of $3.5bn invested in cloud services in less than a half-year. SAP spent that much on SuccessFactors alone. And there’s undoubtedly more to come. We’ll take a deeper look at the Taleo buy, as well as provide information on SaaS valuations, in a longer report in tonight’s Daily 451.

Source: Corporate Cloud Computing Trends, January 2012. ChangeWave Research, a service of 451 Research

Sizing the SaaS M&A market

Ben Kolada

Contact: Ben Kolada

Traditional IT service providers, accustomed to an on-premises model of delivering products and services, have been rapidly buying into the SaaS sector to fulfill enterprises’ demand for SaaS offerings. The result has been a rapid increase in both the volume and value of SaaS deals announced. The most notable are Oracle’s RightNow Technologies purchase, which just closed, and SAP’s highly valued SuccessFactors buy, which is expected to close very soon.

As businesses increasingly adopt cloud services, as opposed to packaged software maintained on-premises, the largest IT firms are increasingly looking to break into this industry. We’ve seen a record number of acquisitions of private cloud providers, but now public firms are attracting additional attention as well. In 2011, we recorded 200 announced SaaS transactions in The 451 M&A KnowledgeBase – just a baker’s dozen shy of the all-time record set in 2007. However, total spending on SaaS targets came in at a record $9.7bn, shattering the previous record set in 2008. True, the RightNow and SuccessFactors deals accounted for more than half of total SaaS M&A spending in 2011, but the overall volume of large acquisitions is on the rise as well. For example, last year we saw a dozen SaaS transactions announced valued at least at $100m – a steady uptick in big-ticket deal volume since 2008.

Driving these acquisitions, in addition to customer demand, is the SaaS sector’s enviable revenue growth rates. While IBM, for example, grew total revenue just 7% in 2011, our 451 Market Monitor colleagues projected that the global SaaS sector grew 22%. And according to ChangeWave Research, a service of 451 Research, SaaS remains the most popular cloud service. In a ChangeWave report, a whopping 61% of respondents said they were using some SaaS product. The report also noted that 28% of respondents expect to increase their SaaS spending over the next six months, more than any other cloud service ChangeWave covered in the report.

Acquisitions of SaaS vendors, 2005-2011

Year announced SaaS deal volume SaaS deal value
2011 200 $9.7bn
2010 152 $6.1bn
2009 138 $8.1bn
2008 125 $3.5bn
2007 213 $6.7bn
2006 93 $3bn
2005 49 $712m

The 451 M&A KnowledgeBase

And the Golden Tombstone goes to …

Brenon Daly

Contact: Brenon Daly

It’s time to once again hand out our annual award for Tech Deal of the Year, as voted by corporate development executives in our recent survey. For the second straight year, the voting came down to a tight race between two transactions. For 2011, Google’s planned purchase of Motorola Mobility just edged SAP’s reach for SuccessFactors. (Last year, Intel’s rather unexpected acquisition of McAfee slightly topped Hewlett-Packard’s takeout of 3PAR following a drawn-out bidding war.)

Both of the deals in the running for the 2011 prize certainly would have been worthy recipients of the Golden Tombstone. Google’s all-cash $12.5bn purchase of Motorola Mobility is more than the search engine has spent on its more than 100 other acquisitions and, beyond that, stands as the largest tech transaction (excluding telecommunications) since mid-2008. (Specifically, it is the largest deal since HP’s $13.9bn pickup of services giant EDS, which was voted the most significant transaction of 2008.) Meanwhile, SAP is paying an eye-popping 11 times trailing sales for SuccessFactors. With a price tag of $3.5bn, the deal is the largest-ever SaaS acquisition, more than twice the size of the second-place transaction.

The Houses of Morgan are in demand for on-demand work

Brenon Daly

Contact: Brenon Daly

It turns out that the advisers for the largest-ever SaaS acquisition are also the busiest in terms of restocking the ranks of publicly traded subscription-based software companies. J.P. Morgan Securities, which banked SAP, and Morgan Stanley, which advised SuccessFactors, are upper left on the prospectuses of no fewer than five SaaS vendors currently in registration. Between them, the ‘Houses of Morgan’ have a fairly tight grip on the sector, leading the proposed IPOs of on-demand software shops including Eloqua, ExactTarget, Bazaarvoice, Jive Software and Brightcove.

As lead underwriters, the banks stand to pocket tens of millions of dollars in fees from the upcoming offerings. Additionally, they are likely to build on that initial relationship through other advisory services for the companies. For instance, J.P. Morgan co-led Taleo’s IPO in 2005 and, more recently, advised it on its $125m purchase of Learn.com. On an even bigger scale, Morgan Stanley led the IPOs of both RightNow and SuccessFactors and then advised them on their sales, a pair of deals that totaled a whopping $5bn.

SuccessFactors works the other side of the deal

Brenon Daly

Contact: Brenon Daly

In one of the quickest M&A turnarounds, SuccessFactors has gone from a seller to a buyer in just a matter of days. The human capital management (HCM) vendor announced over the weekend that it would be selling itself to SAP for $3.4bn in cash, the largest-ever SaaS deal. The ink was hardly dry on that transaction when SuccessFactors said on Tuesday that it will hand over $110m for Jobs2Web, a recruiting marketing platform with about 150 customers. (For the record, the mammoth SAP-SuccessFactors pairing is expected to close in the first quarter of 2012, while SuccessFactors’ purchase of the Minnesota-based startup should be done by the end of the year.)

The addition of Jobs2Web makes a great deal of sense for SuccessFactors, and in some ways, it shares some similarities to another deal earlier this year – salesforce.com’s $326m pickup of Radian6. In both cases, the startups added technology around mining social media sources and powerful analytics to expand the acquirer’s existing product portfolio.

There are even more similarities between Jobs2Web and Radian6, besides simply having numerals in their names. Both startups were founded far from any of the typical launch pads for tech companies. Jobs2Web has its headquarters in Minnetonka, Minnesota, while Radian6 was in the even more remote location of Fredericton, Canada.

But more importantly, both targets were incredibly capital efficient, each raising about $5m in VC on their way to a solidly valued exit. (Updata Partners was the sole institutional backer for Jobs2Web, which was advised in its sale by Raymond James & Associates.) According to our understanding, Jobs2Web garnered a valuation of roughly 6 times sales in its sale, while Radian6 was valued north of that.