Category: infrastructure software

Packet Design picked up by PE shop with networking know-how

Brenon Daly

Contact: Brenon Daly, Peter Christy

Adding a second company to its portfolio, private equity (PE) firm Lone Rock Technology Group has picked up network analytics firm Packet Design. The acquisition of Packet Design brings the Austin, Texas-based PE shop much closer to its roots in networking than its other investment, business process automation vendor iGrafx.

Lone Rock was cofounded by Joel Trammel, who spent a decade as head of network flow monitor NetQoS before selling that business to CA Technologies for $200m in September 2009. A number of former NetQoS executives are now working at Packet Design, including the company’s newly appointed CEO Scott Sherwood, who ran sales at NetQoS. Packet Design was advised in the process by Mooreland Partners, while Northside Advisors worked the buyside. (Subscribers to The 451 M&A KnowledgeBase can click here for the full record on the transaction, including our proprietary estimate on the terms of the deal.)

In its decade in business, Packet Design pulled in about $65m in equity and debt backing. Like many other startups, however, it was heavy on technical expertise but light on business acumen. Packet Design sold elegant technical tools to a few of the most complex network operators but never truly expanded into much larger markets. The company has about 200 customers and, according to our understanding, roughly $10m in sales.

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Informatica’s shy M&A

Ben Kolada

Contact: Ben Kolada

Those merely glancing at the headlines of Informatica’s press releases would see that on Wednesday the company unveiled the latest version of its cloud-integration PaaS product, Cloud Spring 2013. However, only by reading further would an interested party see that the company has also quietly acquired cloud process automation vendor Active Endpoints. This isn’t the first time Informatica has been shy with its M&A announcements, but recent financial results could give the company the confidence to be much louder with its future acquisitions.

Informatica’s previous small tuck-in of Data Scout only came to light with the launch of Informatica Cloud MDM in September 2012 and the subsequent release of Informatica Cloud Winter 2013. Perhaps that deal didn’t deserve significant attention, as it cost Informatica just $6m.

In fact, with the exception of Heiler Software, Informatica’s dealmaking since 2011 has involved mostly small, sub-$10m tuck-ins. Its median deal size from the beginning of 2011 to today (including Heiler Software) is just $7m. That compares with a median deal size of $55m for the 11 transactions it announced before then.

The turn toward smaller acquisitions, and hiding some of them in product announcements, could be explained to a degree by the unfolding economy in Europe. Europe’s struggling economy eventually hit home and weighed heavily on Informatica’s Q3 2012 profit.

Although Europe is still experiencing economic turmoil, Informatica seems to have been able to cushion the continent’s effect on its top line. After a downturn in profit in the third quarter, the company recently released results that showed better-than-expected revenue in the fourth quarter. (However, net income still came in below the year-ago period.) If future results continue to play to Informatica’s favor, we could see the company becoming more boisterous with its M&A announcements in the future. We’ll have a longer report on Informatica’s acquisition of Active Endpoints in our next Daily 451.

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Silver Lake’s two very different elephants

Brenon Daly

Contact: Brenon Daly

Silver Lake has placed its bet, and it’s a big one. As noted, the planned $24.4bn take-private of Dell is the largest tech leveraged buyout (LBO) since the end of the recession. It’s also twice the price of Silver Lake’s previous mega-LBO, the $11.3bn club deal for SunGard Data Systems.

As we look at the two mammoth transactions, they don’t line up very closely at all. For starters, they belong to different eras: SunGard was an early, prelapsarian private equity (PE) transaction, while Dell comes as the credit markets have only recently returned to health after the worst economic recession in several generations.

Further, the two companies find themselves exiting the public market with very different outlooks for their business. SunGard has been riding the steady trend of business services, while Dell has been taking steps to catch emerging trends but still relies on PC sales for more than half its revenue.

The separation between the pair of companies is clear when we look at their financials: Unlike Dell, SunGard was growing at the time of its LBO, not to mention the fact that it ran at a 28% EBITDA margin compared with about 8% at Dell. (SunGard also got valued at twice the price-to-EBITDA multiple that terms give to Dell.)

Finally, we would note that since the Silver Lake-led LBO, SunGard has acquired some 45 companies. The steady M&A, along with organic growth, has seen SunGard bump its top line from about $3bn when it went private eight years ago to about $4.5bn now. We highly doubt that Dell will put up that kind of performance, at least not right away. There’s a lot of work to do at Dell.

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Once indelibly on the market, Dell looks to go private

Brenon Daly

Contact: Brenon Daly

In the third-largest tech leveraged buyout (LBO), Dell will end a quarter century as a public company in a $24bn take-private led by Silver Lake Partners. The private equity firm will be joined by Michael Dell, who is maintaining a significant minority stake in the company that he will continue to lead once it goes private. The LBO comes after Dell has struggled for much of the past half-decade to recast its business away from the rapidly diminishing PC market.

As part of that shift, Michael Dell returned as CEO to his namesake firm in early 2007 and (somewhat belatedly) began an M&A spree that eventually totaled some 20 transactions with a tab of $10bn. The acquisitions got Dell into virtually every part of the tech landscape, including IT services (Perot Systems), security (SecureWorks, SonicWALL), networking (Force10 Networks), storage (Compellent, AppAssure) and infrastructure software (Quest Software).

However, the acquisitions and other strategic shifts that Dell has made have yet to show up in the company’s financials. Dell, which just wrapped its fiscal year, is likely to post revenue that’s nearly 10% lower than the previous year. The company’s operating income has dropped by about one-third.

Since Michael Dell returned to the corner office six years ago, shares of the company have lost about half their value. Rightly or wrongly, Wall Street still views Dell – which gets half its revenue from PC sales – as a low-value ‘box maker’ rather than a strategic supplier of IT products and services. In the end, Dell is exiting the market at just one-quarter the value it once commanded.

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Violin does a bit of portfolio roundout ahead of expected IPO

Brenon Daly

Contact: Simon Robinson, Brenon Daly

Violin Memory has made a technology-and-talent play, adding GridIron Systems in what’s likely to be the last bit of portfolio roundout before the flash-based storage specialist goes public. The purchase of GridIron is part of Violin’s strategy to maximize its addressable market in the emerging solid-state storage space, and specifically allows it to accelerate the performance of applications residing on existing SAN storage systems at large enterprises and service providers.

Violin didn’t disclose how much it paid for GridIron but we have heard from market sources that it wasn’t much money. As we understand it, GridIron was heading toward a wind-down and Violin is merely picking up some key IP and personnel from the company. The target’s website has only a skeletal list of executives, without a CEO or CFO. A year ago, GridIron indicated that it had some 50 employees, but Violin is expected to take on less than half that number. We’ll have a full report on the transaction in our next Daily 451.

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A deal-maker departs Dell

Brenon Daly

Contact: Brenon Daly

The top dealmaker at Dell, David Johnson, has left the computer maker for buyout shop Blackstone Group. Johnson joined Dell in mid-2009 as SVP for Corporate Strategy after an acrimonious split from IBM, where he had worked for 27 years. In mid-2010, Johnson was also named head of Business Development, overseeing acquisitions and investments at the company that has been trying to expand beyond simply being a ‘box seller.’

Johnson’s arrival at Dell came at a time when the company, which was a late-comer to the tech market consolidation, had just started shopping. In his time at the Round Rock, Texas-based giant, Dell announced some 20 transactions with a tab of $10bn. The acquisitions got Dell into virtually every part of the tech landscape, including IT services (Perot Systems), security (SecureWorks, SonicWALL), networking (Force10 Networks), storage (Compellent, AppAssure) and infrastructure software (Quest Software).

However, the return on that spending has yet to show up. Dell is still shrinking. It will likely end fiscal 2013, which wraps at the end of this month, with sales of about $57bn. That’s some $5bn, or 8%, lower than the company’s revenue in its previous fiscal year. Again, that decline comes despite a not-insignificant addition of aggregate revenue from its M&A spree. (For instance, Quest, which Dell closed in late September, was generating almost $900m in annual sales when it was acquired.)

The lack of growth at Dell is the reason the stock is out of favor on Wall Street. Since mid-2009, when Johnson joined Dell, the company has lost almost 20% of its value while the Nasdaq has tacked on 75%. The market values Dell at slightly less than $20bn.

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The top tech deal of 2012: VMware-Nicira

Brenon Daly

Contact: Brenon Daly

With 2012 winding down, it’s time to look back over the year to see what stood out in what’s shaping up to be a tough year for tech M&A. As we always do in our annual survey, we asked corporate development executives to cast their vote for the most significant transaction of the year. For 2012, they overwhelmingly tapped VMware’s acquisition of Nicira as the Tech Deal of the Year.

Certainly, the $1.3bn transaction had a number of intriguing aspects. It’s a big price – $1.3bn is about the same amount that VMware has spent on its entire M&A program since being partially spun off from EMC. And it’s a bold move, even at the cost of picking a fight with longtime friend and networking ally Cisco Systems. But if VMware can have even part of the success in virtualizing networking with Nicira that it has already had by virtualizing computing, the acquisition will pay for itself many times over.

All of those elements figured into the corporate dealmakers handing the Golden Tombstone for 2012 to VMware. And, we should note that after two consecutive years of tight races, the voting in 2012 wasn’t even close. Twice as many survey respondents picked VMware-Nicira ahead of this year’s second-place transaction, Facebook’s reach for Instagram.

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EMC lays out a ‘Pivotal’ plan

Brenon Daly

Contact: Simon Robinson, Brenon Daly

Those wondering what ex-VMware chief Paul Maritz would end up doing as head of EMC strategy now have part of an answer: he’s going to run the Pivotal Initiative, what looks like a pending spinoff that brings together a number of ‘big data’ and cloud assets that EMC and VMware have developed and acquired in recent years. This new, 1,400-person organization (600 from VMware and 800 from EMC) will be ‘formally united’ by mid-2013, though the operational structure has yet to be determined.

At the core of the move is a desire to help EMC and VMware better capitalize on the effects that cloud computing is having on the application development and big data markets, with ‘new levels of focused investment.’ The initiative is centered on EMC’s Greenplum and Pivotal Labs, VMware’s vFabric (including Spring and GemFire), Cloud Foundry and Cetas, as well as other unspecified groups. Moving these assets into a single division also will allow both EMC and VMware to focus on their core businesses.

The planned joint venture continues the ongoing shuffle of assets between the parent company and its subsidiary. Since EMC sold a minority stake of VMware to the public in mid-2007, the company has sold at least two businesses to VMware. In early 2010, EMC divested its Ionix unit, with the service management unit finding a home in vCenter. A little more than a year later, the enterprise storage giant (quietly) sold its consumer online backup business, Mozy, to VMware.

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Dell’s down, but still dealing

Brenon Daly

Contact: Brenon Daly

Undeterred by a sharp slump in business, Dell continues to shop. Just a day after reporting an 11% decline in fiscal Q3 revenue, the tech giant on Friday reached for infrastructure automation startup Gale Technologies. Gale should help bolster Dell’s recently launched Active System Manager (ASM) by adding an automation layer above the hypervisor, extending ASM beyond on-premises enterprise systems to support hybrid clouds.

The addition of Gale makes sense for Dell both operationally and competitively. The acquisition furthers Dell’s push toward ‘convergence,’ pretty much the only area of the company’s business that is expanding. (Through the first three quarters of this fiscal year, the servers and networking business unit has increased revenue 9%, compared with a 9% decline in total revenue at Dell.) The transaction also matches a similar purchase by Cisco of Cloupia just one day earlier.

However, beyond the Gale acquisition, there are growing questions about the broader M&A program at Dell. Although the company has been spending steadily to buy into markets beyond its historic PC business, the results have yet to show up in its top line.

Granted, the purchases are part of a multiyear transition and it may be too soon to expect full returns on them. But, with Dell shares bumping along at their lowest level since the end of the recession, Wall Street is getting impatient with the company’s turnaround. The stock has dropped 40% over the past year.

Over the past two years, Dell has spent more than $7bn on M&A, expanding into areas such as storage, security, services and software. And yet, despite that not-insignificant financial outlay, Dell is shrinking. The company is likely to put up about $57bn in sales in this fiscal year, which wraps at the end of January. That would be roughly $5bn, or 8%, less than it generated in the previous fiscal year.

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The campaigning continues, at least on Wall Street

Brenon Daly

Contact: Brenon Daly

The election may be over, but some campaigns are continuing. At least that’s what’s happening on Wall Street, where two would-be buyers are trying to sway the electorate (directors and shareholders) in order to close acquisitions of two Nasdaq-listed tech companies. Whether or not either of these unsolicited efforts actually comes to a vote, well, that remains to be seen.

In the newest case, j2 Global earlier this week put a bear hug on Carbonite, pitching a (nonbinding, preliminary) offer of $10.50 for each share of the consumer-focused backup vendor. (J2 already owns almost 10% of Carbonite, having picked up the stake for about $20m in the open market in recent weeks.) Carbonite, which has traded mostly lower since its August 2011 IPO, rejected j2’s bid.

Meanwhile, Actian is not giving up on its two-month-old effort to land Pervasive Software. Earlier this week, it added 50 cents per share, or about $10m, to its original bid for the data-integration vendor. The $9-per-share offer from the buyout-backed company that used to be known as Ingres values Pervasive at its highest level in more than a decade.

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