Category: infrastructure software

What is Charles Darwin doing at this year’s RSA Conference?

Brenon Daly

Contact: Brenon Daly

In addition to the Pollyanna marketers and go-getter executives that make up most of the attendees at the RSA Conference, there will also be a slightly more unsettling figure looming around the security industry’s marquee event: Charles Darwin. No, the long-dead scientist won’t be actually docking his ship, HMS Beagle, on the San Francisco waterfront to attend next week’s confab. But Darwin’s seminal theory about ‘natural selection’ is going to be one of the more visible – if unacknowledged – themes at this year’s RSA Conference. Bluntly put, some of the 500 companies and sponsors that help put on this year’s event won’t be around when RSA opens the doors on future conferences. (451 Research subscribers, see our full preview of this year’s RSA Conference.)

This isn’t to say that the RSA show floor is somehow going to turn into a killing ground. Rather than viewing it cinematographically, we view it clinically. The RSA Conference is nothing more than a petri dish of organisms that, until now, have had ideal conditions to evolve and reproduce. In the months leading up to this year’s gathering, however, those life-sustaining conditions have deteriorated to the point where some of the organisms will not survive. The weak will be ‘selected out’ – a process that in some ways is overdue in the crowded information security market.

We’re already seeing some of that pressure come through in infosec M&A. Consider the contrast between the two largest acquisitions by FireEye, which has served as a convenient bellwether for the next-generation infosec vendors. Two years ago, it spent almost $1bn, more than 10x trailing sales, for incident response firm Mandiant. Last month, it handed over just $200m upfront for iSIGHT Partners, valuing the threat intelligence specialist at half the multiple it paid for Mandiant. Further, according to our understanding, iSIGHT garnered only a slight uptick in valuation in its sale compared with its valuation in a funding round announced a year earlier. The return can still be boosted, provided iSIGHT hits the targets of a $75m earnout. But even including the additional kicker, it’s still a relatively modest exit for a company that as recently as last year had positioned itself in the IPO pipeline.

That bearishness might not come through on the RSA Conference show floor or even in the afterhours cocktail parties next week. But long after the booths are packed up and the drinks have stopped flowing, infosec startups will have to get back to business. And what they are likely to find is that business for the rest of the year is going to get a whole lot tougher as buyers and backers hold much more tightly onto their life-sustaining purchases and investments, respectively. To help adapt to that new environment, startups might be well served to tuck a copy of Darwin’s On the Origin of Species into their RSA Conference swag bag and look for some pointers on how to make it through the upcoming selection cycle in the infosec industry. See our full report.

CW infosec spend 2016

New insight on rapidly emerging IoT M&A activity

Brenon Daly

Contact: Brenon Daly

With the number of Internet of Things (IoT) acquisitions in 2015 already topping the total from the past two years combined, 451 Research has launched a dedicated channel for our qualitative and quantitative research in this rapidly emerging market. The IoT channel is the first addition to our 14-sector research dashboard, which we unveiled last summer.

The new channel covers the full scope of IoT, focusing on 10 primary ‘building block’ technologies that are increasingly enabling the digitalization and virtualization of huge swaths of the physical world. These trends – spanning from edge technology to core technology – have also sparked unprecedented M&A activity in the IoT sector, not only in terms of number of prints and spending on them but also the variety of buyers.

Essentially, any company that has a ‘thing’ and wants to create actionable business intelligence from it can be viewed as a potential IoT acquirer. According to 451 Research’s M&A KnowledgeBase , we have already seen companies as diverse as Google, adidas, Cisco and even farm machinery maker Deere & Company all ink IoT acquisitions. Even as those buyers have helped push spending on IoT deals up a staggering 100-fold in the past four years, the sense is that shopping in this market has only just begun.

For insight and forecasts on both activity and valuations around M&A in the IoT market, be sure to check out our new IoT channel.

IoT M&A

Year Deal volume Deal value
YTD 2015 81 $21.3bn
2014 61 $14.4bn
2013 21 $454m
2012 15 $767m
2011 18 $201m

Source: 451 Research’s M&A KnowledgeBase

Buyout barons pay up in big tech prints

Brenon Daly

Contact: Brenon Daly

Once again, the buyout barons are paying up in their big bets. The latest example of private equity (PE) largess came in the proposed SolarWinds take-private, with Silver Lake Partners and Thoma Bravo teaming up on a $4.5bn offer. That’s a fairly steep price for a company growing sales in the high teens to about $500m this year. On a cash-flow basis, SolarWinds is getting a vertigo-inducing valuation of 27x EBITDA.

While SolarWinds’ valuation is certainly richer than other significant PE deals, this year has nonetheless seen financial buyers ready to pay above-market prices. For instance, Informatica, which put up about $1bn in sales, went private earlier this year for more than $5bn. On a smaller scale, we understand that’s exactly the same valuation Thoma Bravo paid in its purchase of privately held healthcare analytics vendor MedeAnalytics.

Altogether, the PE shops involved in the 10 largest transactions in 2015 have paid an average of 3.4x trailing sales, according to 451 Research’s M&A KnowledgeBase . (To be clear, that’s based on the enterprise value of the targets.) For comparison, that’s a full turn higher than the average valuation for big PE prints over the previous three years. Of course, buyers in the previous years didn’t necessarily have to worry about an imminent raise of interest rates, which might be spurring some of the activity now.

Significant PE deal valuations, 2012-15*

Year Average enterprise value/sales ratio Select transactions
YTD 2015 3.4x SolarWinds LBO, Informatica LBO, Solera Holdings LBO
2014 2.9x TIBCO LBO, Riverbed LBO, Compuware LBO
2013 2x Dell LBO, BMC LBO, Active Network LBO
2012 2.4x Getty Images, Misys LBO, Ancestry.com LBO

Source: 451 Research’s M&A KnowledgeBase *Average enterprise value-to-sales ratio of the 10 largest transactions in each of the years

Can Dell safeguard the VMware ‘crown jewels’ in EMC acquisition?

Brenon Daly

Contact: Brenon Daly

In announcing the largest-ever tech transaction, both Dell and EMC repeatedly assured the market that VMware, which has consistently accounted for an outsized chunk of EMC’s overall valuation, would retain its status as ‘first among equals’ in the EMC federation. Roughly speaking, VMware generates only about one-quarter of EMC sales, but accounted for three-quarters of the EMC’s overall value before the acquisition. VMware was rightfully termed the ‘crown jewel’ of the landmark transaction.

However, despite those intentions, VMware has nonetheless lost some of its luster due to the pending acquisition, at least in two key constituencies. Both IT buyers and Wall Street investors are more than a little bearish on Dell owning the virtualization kingpin. Since the acquisition was announced, VMware’s market value has fallen by as much as $5bn. (That decline is also pulling down the overall value of the transaction because part of the consideration is in the form of tracking stock.) VMware shares have slumped to their lowest level since mid-2013.

To understand why Wall Street is selling the Dell-EMC deal, we have to look to the ultimate arbiters of value for any company: customers. And based on 451 Research’s survey of nearly 450 IT decision-makers, Dell has a lot of work to do to ease the concerns that it will mishandle EMC and its ‘crown jewel.’ In our survey, four of 10 IT pros who currently buy EMC products, but do not buy Dell products, gave the proposed acquisition a ‘thumbs down.’ That was almost three times higher than the percentage of pessimistic Dell-only customers. The main reason cited by EMC-only customers for their bearishness? They still view Dell as dealing in commodity technology. Obviously, with that perception, it’s going to be extremely challenging for Dell to hit its target of $1bn ‘revenue synergies’ through its EMC acquisition.

VMW rev 2010-15

Are customers buying the Dell-EMC deal?

Brenon Daly1 Comment

Contact: Brenon Daly

Michael Dell has had his say. Same with Joe Tucci. But are the customers of the Dell and EMC chief executives actually buying what the two companies are saying about the tech industry’s largest acquisition? Only one way to find out: ask them.

With the ink barely dry on the announcement of Dell’s record-breaking $63.1bn purchase of EMC, 451 Research’s Voice of the Enterprise surveyed almost 450 IT decision-makers to get their sense of what they liked about the transaction, what worried them and, most importantly, how the proposed combination would affect their IT spending. (See the executive summary of the survey results.)

Ultimately, the sentiment and intention voiced by customers – such as those we surveyed – will determine whether Dell-EMC builds itself into a true IT infrastructure and services powerhouse or, like so many other multibillion-dollar tech pairings, devolves into an unhappy, underperforming union. So what does the ‘buyside’ think about the deal?

  • Overall, three out of 10 respondents gave the mega-transaction a thumbs-up, compared with two out of 10 who voted it down. However, within that broad assessment, there was a clear division between the Dell and EMC camps. Dell-only customers (those that currently buy no products from EMC but do buy from Dell) were almost three times more likely to have a favorable view of the deal than EMC-only customers (40% vs. 15%).
  • Why are a plurality of EMC customers bearish about the company’s prospects inside Dell? For the most part, they still view Dell as dealing in commodity technology. More than four out of 10 EMC-only customers consider Dell primarily a PC supplier, and another 20% identify it as mainly a low-cost IT supplier.

As we look at the results of the survey, particularly the perception of Dell as a ‘box maker,’ we can’t help but think that some of the sharp divergence between the views of the two customer bases is attributable to the sharp divergence between the M&A programs at the two companies. To be blunt, Dell was late to the game, with a long-held institutional preference for organic development rather than inorganic expansion. In contrast, EMC liked to shop, spending more than $20bn on 100+ acquisitions over the past 15 years, according to 451 Research’s M&A KnowledgeBase.

In fact, by the time Dell (belatedly) got its M&A machine revving in mid-2007, EMC had already purchased many of the key components of its ‘federation’ business: Documentum, RSA and, of course, the crown jewel of VMware. One existential question – which, for the record, we didn’t ask our panel of IT buyers – was whether Dell would have even needed to buy EMC outright if it had picked up some of the other companies that were nabbed by EMC. Again, to see the responses to questions we did ask on the Dell-EMC combination, check out the executive summary.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA .

Dell looks to become ‘indelible’ IT vendor with EMC

Brenon Daly

Contact: Brenon Daly Simon Robinson

Announcing the largest tech deal since the Internet bubble burst, Dell plans to pay approximately $63.1bn for EMC. The debt-laden combination would create a sprawling IT giant with multibillion-dollar businesses in many of the primary enterprise technology markets, including storage, information security, IT services, servers and PCs. (For context, the combined Dell-EMC entity would be larger than Hewlett-Packard Enterprise (post-split), NetApp, Juniper Networks and Symantec combined.) Dell’s bold transformational transaction is not coming cheap, however. The company is valuing EMC significantly more richly than it valued itself when it went private two and a half years ago.

Further, Dell’s relatively pricey bulking up comes at a time when a number of rival enterprise IT vendors are slimming down. More to the point, several of these competitors are unwinding earlier blockbuster acquisitions they made in hopes of staying more relevant in a shifting IT market. The arrival of the public cloud has siphoned off billions of dollars that once flowed unimpeded to Dell, EMC and other first-generation technology firms. However, IT customers increasingly lack the appetite to buy, install and manage dozens of ‘piece parts’ and mold them into a cohesive whole. As a result, we can look at the combination of Dell and EMC as essential if the traditional IT model is to survive the onslaught from public cloud providers, most notably Amazon Web Services.

Though Dell has been on a path to build a ‘better together’ story for almost a decade, it clearly hasn’t been enough. In its effort to buy its way out of the commodity PC business, the company stitched together a patchwork of properties. However, the resulting ‘big picture’ has still not materialized. Dell has lacked a core focus point, as well as the heft and scale in any one market to dominate. Further, it has so far not sufficiently penetrated the large enterprise segment, or moved beyond its two longtime key verticals of healthcare and the public sector. Against this backdrop, it’s easy to see the attraction of EMC, which brings large enterprise credibility in storage, perhaps the industry’s most focused and effective sales operation and, in VMware, still one of the most strategic entities on the market.

EMC’s attractiveness also shows through in the valuation that Dell is paying, if not when viewed against the broader tech M&A market than certainly when put against Dell’s own worth. According to terms, Dell is paying 2.5x trailing sales and 11.5x trailing EBITDA for EMC. For comparison, in orchestrating the take-private of his namesake company, Michael Dell and his consortium paid just one-quarter the price-to-sales multiple of EMC and half the cash-flow multiple. Dell’s LBO, which stands as the third-largest private equity tech transaction in history, valued the company at just 0.5x trailing sales and 5.2x trailing EBITDA.

Look for a full report on the proposed Dell-EMC pairing later today on our website and in tomorrow’s 451 Market Insight.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Barracuda bite off bigger chunk of MSP market with Intronis

Brenon Daly

Contact: Dave Simpson Brenon Daly

In its largest acquisition to date, Barracuda Networks nabs Boston-based Intronis for $65m in cash, primarily to improve its position in the MSP space. Intronis, a hybrid cloud backup/recovery vendor with 100 employees, is not well-known as about 75% of its MSP customers white-label its services. But it has almost 2,000 MSP partners, compared with only 200 MSP partners (and 5,000 VARS) for Barracuda alone.

Barracuda has averaged about a deal per year over the past decade, most recently focusing its M&A on its storage business. However, the company has noted some recent weakness in the overall storage space, which is a smaller portion of Barracuda’s overall sales than its security business. Although Barracuda was already in the upper echelon of hybrid-cloud backup/recovery vendors, the Intronis buy should strengthen its position versus key competitors in the storage arena. Also, there is little overlap between the two vendors’ channel partners. Only 37 of Intronis’ top 200 partners are also Barracuda partners, and 90% of Intronis’ partners are not Barracuda partners.

We have for some time been predicting – even advocating – consolidation in the crowded market for online (cloud-based) backup and recovery. Barracuda’s purchase of Intronis is the first shoe to drop, and we anticipate further consolidation in this sector over the next year.

The deal is expected to close by the end of this calendar year. Needham & Company advised Intronis on its sale. Click here for a full report on this transaction.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Family drama at VMworld

Brenon Daly

Contact: Brenon Daly

Even before he talked products or markets, VMware CEO Pat Gelsinger kicked off his comments to Wall Streeters at his company’s annual conference with a moment of ‘family time.’ In this case, it was to defend the current corporate parentage, with EMC owning a super majority of VMware as part of a larger ‘EMC Federation.’

Gelsinger essentially said that the way things are now in the EMC family is the way they should be. He went on to knock down rumors that he was planning – or even considering – any changes in the current corporate structure, specifically singling out recent reports about a kind of fratricide by VMware in which his company would take over EMC. ‘Better together’ is the family motto.

Not everyone agrees, however. Some critics, such as the kind that buy small chunks of stock in a company and then try to tell it what to do, counter that the current structure actually inhibits growth in the family.

The activist hedge funds have a point, given that VMware stock has basically flatlined over the past five years while the S&P 500 Index has nearly doubled. (The underperformance stands out even more when we consider that a half-decade ago, VMware was running at less than $1bn in quarterly revenue. It now puts up more than $1.5bn in sales each quarter. There aren’t too many S&P 500 companies that are two-thirds bigger now than they were in 2011. Most, including EMC, have only slightly grown.)

Given that Elliott Associates, an activist hedge fund that has already successfully pushed to reshuffle EMC’s board of directors, effectively crashed the VMworld party, it’s not unreasonable to expect even more changes in the EMC Federation. (Remember, too, that the ‘standstill’ agreement between Elliott and EMC expires this month.) There may well be some family drama before the year is out.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

LANDesk lands a new dashboard with Xtraction acquisition

Brenon Daly

Contact: Brenon Daly

In its first acquisition in almost a year, LANDesk picks up existing partner Xtraction Solutions in an effort to make data more visible for the systems management vendor’s clients. The two companies have been partners for more than a year, with a handful of joint customers using Xtraction’s dashboards. Although terms weren’t disclosed, we understand that LANDesk paid in the low tens of millions of dollars for Xtraction, which had only a dozen or so employees and no outside funding.

In addition to data visualization (think, ‘BI for IT operations’), the deal is also important because it expands the sources of data that can be represented. Most IT environments are a hodgepodge of technology from various vendors and vintages. Xtraction has 50 connectors built for many of the larger IT management providers, including HP, Microsoft, BMC and ServiceNow. Another area where LANDesk might look to expand Xtraction’s reporting technology is IT security, where dashboards are increasingly being used to help make sense of the streams of reports about the ever-expanding number of vulnerabilities faced by businesses.

Xtraction is the sixth purchase LANDesk has made since private equity firm Thoma Bravo carved out the systems management vendor from Emerson Electric five years ago. Since then, according to our understanding, LANDesk has added about $100m to its top line while nearly tripling its cash flow. The company says it has plenty of cash in treasury – not to mention a deep-pocketed owner in Thoma Bravo – to continue to add pieces to its IT management platform.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Avast scores virtual mobile infrastructure deal

Mark Fontecchio

Contact: Mark Fontecchio

Virtual mobile infrastructure (VMI) sees some M&A activity, with Avast Software picking up Remotium. One of the top IT security concerns for mobility is securing corporate data on individually owned devices, according to 451 Research’s survey of IT decision-makers in June. Remotium’s VMI SaaS alleviates that by providing employees access to corporate applications and data without them residing on mobile devices. The move helps Avast’s push into enterprise mobility security and opens up the potential for more M&A in the sector.

Remotium is one of a handful of startups – along with a couple big players – that is providing VMI, as we noted in April. The technology includes a virtual machine on a remote server that provides users access to mobile apps on their devices, giving employees a way to work with enterprise apps without having any corporate data on the end device. While VMI M&A has been virtually nonexistent up to now, some money has started to flow into the space – Remotium rival Hypori, for example, has raised almost $14m in the past year for its VMI software.

Other potential targets in the sector include Israel-based Nubo Software and California-based Sierraware. They and Hypori were about the same size as Remotium when we last checked, with 20-30 employees.