Category: infrastructure software

Symantec-Veritas without the strings

Brenon Daly

Where Symantec purchased, McAfee will partner. Having watched its major security competitor get bogged down with a storage acquisition, McAfee has opted for a low-risk partnership to tie its security products with storage. The largest stand-alone security vendor said Tuesday that it has struck an alliance with data management software provider CommVault. The initial integrated product, which will put CommVault’s storage resource management tool into McAfee’s ePolicy Orchestrator console, will be available next year.

With modest integration and no bundled products planned, we would characterize McAfee’s loose partnership with CommVault as ‘Symantec-Veritas lite.’ And the two sides have reason to be cautious, given the struggles Symantec has had with its $13.5bn purchase of Veritas. (Although he continues to back the deal, Symantec CEO John Thompson has said the market considers the combination a ‘purple elephant’ and is uncertain of how to value it.) Since the transaction was announced in December 2004, Symantec shares have lost about half of their value, compared to a 20% decline in the Nasdaq and a slight 5% dip in McAfee stock.

Epicor: Thanks, but no thanks

Brenon Daly

Epicor has shot down an unsolicited offer from a hedge fund, confirming a move that the market had been expecting in the wake of the credit market collapse. The ERP vendor, which is being advised by UBS, told Elliott Associates that it wasn’t interested in the two-week-old bid of $9.50 for each share of Epicor. Although shares initially approached the $9 level on the news, the stock bottomed out at $6 last week. The gigantic spread reflects widespread doubt that Elliott and Epicor would strike a deal. With about 59 million shares outstanding, Elliott’s offer values Epicor’s equity at about $566m. In addition, Epicor holds $132m in cash and $380m in debt, giving the proposed deal an enterprise value of $814m. Elliott owns 12% of Epicor. We noted even before the credit bubble burst that Elliott might have a tough sell with Epicor.

Unsecured M&A

Brenon Daly

In the past month alone, we’ve seen a number of landmark IT security transactions. Symantec inked the largest-ever software-as-a-service security deal, paying $695m for MessageLabs. The largest pure security vendor, McAfee, announced its biggest deal, doubling down on network security with its $497m purchase of Secure Computing. And the formerly somnolent Sophos shook off its sleepiness to go shopping. It recently closed its $341m purchase of Utimaco, the largest acquisition of a publicly held security company by a private company.

So with all of these big-ticket transactions, overall deal flow in security should be strong, right? Actually, year-to-date totals are running at less than half the level of either of the previous two years. The reason: large consolidation plays have been knocked off the table this year. So far, just one security transaction worth more than $500m has been announced, down from five during the same period last year and four in 2006.

Security M&A totals

Period Deal volume Deal value Selected transactions
January 1-October 13, 2006 96 $6bn EMC-RSA, IBM-Internet Security Systems
January 1-October 13, 2007 70 $7.2bn Cisco-IronPort, SafeNet LBO, Google-Postini
January 1-October 13, 2008 68 $2.7bn Symantec-MessageLabs, McAfee-Secure Computing

Source: The 451 M&A KnowledgeBase

SAP’s next big deal?

Brenon Daly1 Comment

Earlier this week, SAP marked the first anniversary of its largest deal ever, the $6.8bn purchase of Business Objects. Now, some folks in the market are already lining up the next multibillion-dollar acquisition for the German giant. JMP Securities analyst Pat Walravens has floated the idea that SAP may be planning to buy data-warehouse titan Teradata. (Incidentally, Teradata celebrated its own first anniversary this week, having started trading on the NYSE on October 9, 2007.)

The pairing would make a fair amount of sense. We noted a year ago that SAP and Teradata have a deep partnership, sharing more than 200 customers. And SAP clearly needs more technological heft if it wants to sell a stand-alone data warehouse. (It currently offers its data warehouse as part of the NetWeaver BI integration stack.) But we have a hard time seeing SAP reaching for Teradata, which sports a $2.9bn market capitalization.

Typically, SAP doesn’t make consolidation plays like Teradata. (That’s the role of Oracle, which is likely to be less interested in Teradata since recently rolling out its high-end data-warehouse offering, HP Oracle Database Machine, which is its answer to the massively parallel-based warehouses offered by Teradata and others.) Instead, SAP generally favors small technology purchases, and one startup that we think would fit SAP pretty well is Greenplum. SAP thought well enough of Greenplum to put some money into its series C earlier this year.

However, SAP might find itself in competition for Greenplum with the startup’s other strategic investor, Sun. Greenplum has a data warehouse appliance for Sun servers. There’s also the alumni connection: Greenplum CEO Bill Cook worked for 19 years at Sun before running the startup. That said, Greenplum is not the only data-warehouse vendor Sun has invested in, having taken a minority investment in Infobright’s series C last month.

Take the next exit

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In addition to clobbering existing stocks, the recent financial crisis has thinned the ranks of companies that we had expected to offer up stock in the coming months. In the past week alone, two companies that we had short-listed as IPO candidates (back when there was an IPO market) both got swallowed in trade sales.

On Wednesday, MessageLabs took a $695m offer from Symantec to help establish Big Yellow’s on-demand security offering. We understand MessageLabs had put together its underwriting ticket, and was planning to hit the market once the IPO window opened again. The IPO track was a distinct change from the path rumored for MessageLabs for more than two years. Several sources have indicated that MessageLabs had been shopped widely, with Trend Micro considered the most serious suitor at times.

And last week, we had to take LeftHand Networks out of the ‘shadow IPO pipeline’ when Hewlett-Packard came calling with a $360m offer. For more than a year we have noted that, pending the return of the market for new offerings, LeftHand appeared set to join the IPO parade of storage vendors (a half-dozen storage companies have gone public in the past two years). Instead, LeftHand sold, in a deal banked by Merrill Lynch. Incidentally, Merrill Lynch also banked the sale of another company that had its eye on the public market: Postini, a direct rival to MessageLabs, went to Google for $625m in July 2007.

Happy Anniversary, baby

Brenon Daly

With SAP shares changing hands at their lowest level in four years, it seems a bit out place to think about Champagne being uncorked in Walldorf. Yet, we would note that it is the first anniversary of SAP’s landmark $6.8bn purchase of Business Objects. Fortunately for Business Objects shareholders, SAP used cash — rather than equity — to cover the price of its largest acquisition. (If Business Objects had taken SAP stock, their company would be worth just $4.4bn, rather than $6.8bn, based on SAP’s current valuation.) For the record, SAP didn’t cite any specific problems with Business Objects, but instead pointed to a ‘very sudden drop’ in overall business as it warned that third-quarter results will be weaker than expected.

Still hot for Sourcefire?

Brenon Daly

My security colleagues, writing on their Plausible Deniability blog, recently took a look at widening spread between Barracuda Networks’ unsolicited bid and Sourcefire’s current stock price. They noted that although Sourcefire shares briefly nosed above the $8.25 bid floated by privately held Barracuda, the shares have basically retreated back to the level they were before Dean Drako came calling in late May. Well, the spread turned into a gulf Monday, as Sourcefire stock dropped a buck to just $5.97, the lowest level since the unsolicited bid surfaced. For any arb out there, we would note that’s a 27% discount to Barracuda’s bid.

JDA: No really, we can pay for it

Brenon Daly

In a sign of how rocky the credit market has become, JDA Software Group took the highly unusual step Tuesday afternoon of issuing a press release to confirm that it has the financing to pull off its planned $461m acquisition of supply chain management vendor i2 Technologies. Among other moves, JDA added Wells Fargo to the loan syndicate. According to terms of the early August deal, JDA was planning to borrow up to $450m from Credit Suisse and Wachovia. As Wachovia reeled due to its own risky loan portfolio, market participants began questioning Wachovia’s ability to help finance JDA’s purchase. That uncertainty knocked i2 shares, which were trading near JDA’s bid of $14.86 earlier this month, to as low as $11.50 on Wednesday. The stock snapped back after JDA’s release hit the wire, rebounding to about $13.50 on Tuesday afternoon. (As an aside, we wonder how many arbs got crushed in that swing.) i2 shareholders are slated to vote on JDA proposed deal on Nov. 6.

Another security buy for VMware?

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Although the knickknacks have long since been packed up from VMworld earlier this month, one rumor continues to make the rounds. Several sources have indicated that VMware, the host of VMworld in Las Vegas, has acquired startup Blue Lane Technologies for about $15m. The two companies have been technology partners for more than a year, with Blue Lane’s VirtualShield integrated with VMware’s VirtualCenter.

Security and virtualization in general have been major concerns for VMware. To help shore up the hypervisor and broader virtual environment, VMware in March introduced VMsafe, a set of APIs that third-party security vendors can use to write interoperable programs. Blue Lane was one of about 20 initial partners in VMsafe, as were the security industry’s heavyweights.

If indeed Blue Lane has been acquired (as one industry source and two financial sources reveal is the case), then it marks the end of a company that got its start more than six years ago. When we initially checked in with the vendor shortly after it rolled out its first product three years ago, the Cupertino, California-based company was shipping a patch management appliance. Along the way, it received some $18.4m in two rounds of funding. Remaining startups that are focusing on securing virtual networks include Catbird Networks and Reflex Security.

Selected VMware acquisitions

Date Target Price Rationale
June 2006 Akimbi $47.3m Testing and configuration
August 2007 Determina $15m* Hypervisor security
September 2007 Dunes Technologies $45* Workflow and orchestration
January 2008 Thinstall Not disclosed Application virtualization

Source: The 451 M&A KnowledgeBase *Estimated deal value

Microsoft’s ‘paper’ trail leads to Citrix?

Brenon Daly

Shares of Citrix jumped 5% Wednesday on reheated rumors that Microsoft may be bidding for its longtime partner. Volume in Citrix shares was about 50% heavier than average. One source indicated that Microsoft would be paying $36 for each Citrix share, which is essentially where Citrix started the year.

This rumor, of course, has made the rounds before. We noted in April that although both IBM and Cisco were rumored suitors for Citrix, our top pick for the acquirer would be Microsoft. (The two companies have been close for years, with Citrix being one of just two companies with access to the Windows source code.) All that said, however, we don’t see Microsoft buying Citrix. (How would Microsoft handle the fact that XenSource, which is arguably Citrix’s most-coveted asset, is built on open source software?)

As to why the rumor resurfaced Wednesday, we might trace that back to a misread of Microsoft’s announcement the day before that it was planning to sell some $2bn of commercial paper. The thinking is that Redmond might be prepping an even larger offering. But looking at Microsoft’s current balance sheet, it could buy Citrix four times over with the cash and short-term investments it already holds.