Category: IPO

Lots of tech deals, but few dollars, to start 2017

Brenon Daly

Contact: Brenon Daly

After slumping sharply in the two months following the unexpected results of the US election, the number of tech acquisitions picked back up in January. M&A spending, however, didn’t follow suit. In the just-completed month, tech buyers around the globe announced 330 deals, with the aggregate value of those transactions totaling just $18bn, according to 451 Research’s M&A KnowledgeBase. January spending represents the lowest monthly level in two years, and just half the average monthly amount in 2016.

At the top end of the market, the M&A KnowledgeBase tallied just five deals valued at more than $1bn. That’s down from last year’s average of eight big-ticket transactions each month. Further, with one notable exception, the ‘three-comma deals’ so far this year have all gone off at below-market multiples. For instance, Keysight Technologies is paying just 3.2 times trailing sales for application testing vendor Ixia, which had been posting declining revenue. Clearlake Capital Group is paying an even lower multiple for LANDESK, owned by fellow buyout firm Thoma Bravo, according to our understanding.

A discount didn’t apply to last month’s largest transaction, Cisco’s reach for AppDynamics. The networking giant, which has been busily buying software vendors, paid an astounding 17.4x trailing sales for the application performance monitoring provider. (The $3.7bn deal marks the largest sale of a VC-backed company in three years.) Part of that rich valuation can be attributed to the fact that Cisco had to outbid the public market for AppDynamics, which was just a day away from setting the price of its planned IPO when Cisco announced the acquisition. Still, AppDynamics’ valuation is the highest multiple ever paid for a software firm with more than $50m in revenue, according to the M&A KnowledgeBase.

January’s deal volume, on the other hand, reversed two months of sharp declines to close 2016. The number of tech transactions in both November and December dropped to three-year lows, according to the M&A KnowledgeBase. Buyers last month included ServiceNow, Amazon Web Services and Oracle. Meanwhile, companies that double-dipped in the M&A market to start 2017 included Microsoft, Hewlett Packard Enterprise and the recently public Everbridge.

Recent tech M&A activity, monthly

Period Deal volume Deal value
January 2017 330 $18bn
December 2016 268 $39.5bn
November 2016 284 $39.6bn
October 2016 334 $83.2bn
September 2016 312 $30.1bn
August 2016 306 $31.5bn
July 2016 345 $94.1bn
June 2016 384 $67bn
May 2016 329 $23.8bn
April 2016 349 $20.7bn
March 2016 343 $23.9bn
February 2016 323 $28.3bn
January 2016 384 $21bn

Source: 451 Research’s M&A KnowledgeBase

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

The tech IPO window: open but unused

Brenon Daly

Contact: Brenon Daly

With AppDynamics stepping into Cisco’s ever-expanding software portfolio rather than continuing its march toward Wall Street, tech startups have once again been shut out of the public markets in the opening month of a year. Last January also didn’t see a single enterprise tech IPO, starting a drought that lasted until late April. Q1 2016 was the first quarter since the recent recession not to have a tech company come to market – and the current quarter is in danger of repeating that, despite some of the most-welcoming conditions on Wall Street.

Unlike this year, last year’s Q1 shutout was sparked by a double-digit percentage slide in US equity indexes in the opening six weeks of 2016. The Dow Jones Industrial Average, which is currently above the symbolically significant 20,000 level, bottomed out below 15,600 last February. (From trough to top, that represents almost a 30% gain in the Dow, adding more than a trillion dollars of market value.) Last winter’s bear market was even worse for highly valued tech names, which is what most of the tech IPO candidates aspire to be.

With investors selling their existing tech holdings, it was hard to find buyers for any new tech listings. In the imbalanced market at the start of last year, the financially prudent decision for startups tracking to an IPO was simply to wait until summer, when tech came back in favor among investors. By our count, seven of the nine enterprise-focused tech vendors that went public in 2016 debuted in the second half of the year. The debuts were actually even more concentrated than that, as two-thirds of tech IPOs last year came in just the six-week period leading up to the US elections in early November. Not a single tech provider has gone public in the three months since the election.

Part of the scarcity is due to seasonality. (Companies tend to prefer to finish Q4, which is almost inevitably their biggest quarter, and then go to market with full-year financials and a valuation that’s based on the coming year’s projected sales.) And yet, while IPO-minded startups have been focused on closing business and getting their financial paperwork in order, companies already public have been enjoying an extended, and somewhat unexpected, ‘Trump rally’ on Wall Street.

Indexes have posted a roughly 10% surge since the election, as investors bet that having a businessman as US president – who’s working with a Republican-controlled Congress – will be able to stimulate more economic growth. Perhaps more important to the relatively fragile IPO market, the instability and uncertainty from broader political and economic events has receded sharply. (For instance, the CBOE’s Volatility Index is currently just half the level it was during the run-up to the election.) The shift in sentiment is even more dramatic in our own surveys of individual investors.

In the two monthly surveys by 451 Research’s Voice of the Connected User Landscape (VoCUL) since Trump was elected, more than four out of 10 investors have said they are ‘more confident’ about the direction of the stock market now than they were 90 days earlier. That’s roughly twice the percentage that said they were ‘less confident’. Those are the most-encouraging assessments of Wall Street in a 451 Research survey since the end of the recession. And yet in the most bullish of recent bull markets, not a single tech startup has made it public in 2017.

The IPO window may be as open right now as it’s been in years, but investors would never know it. With two months remaining in the first quarter – and current stock market indexes more than 20% higher than they were in Q1 2016 – the net result for new enterprise tech offerings from last Q1 and the current quarter could well be the same: an IPO shutout.

How to get your tech M&A playbook for 2017

Brenon Daly

451 Research’s annual look back on the year that was and look ahead to the year that’s coming in technology M&A has been moved in front of our paywall. (Click here to access the report.) The broad-market overview highlights many of the trends that drove acquisition spending to a surprisingly strong $500bn in 2016, and predicts how those will play out in 2017. The 5,500-word introductory report – which includes nearly 20 graphics, many of them drawing on 451 Research’s M&A KnowledgeBase – opens our full M&A Outlook, an 80+-page analysis of M&A drivers and predictions on M&A and IPO trends and activity in specific sectors of the IT market.

The full report, which serves as an ‘M&A playbook’ for many of the tech industry’s main acquirers, offers an in-depth forecast of trends that will likely shape dealmaking in eight segments of enterprise information technology, including information security, mobility and software. The full M&A Outlook report will be available at no additional cost for subscribers to 451 Research’s M&A KnowledgeBase Professional and M&A KnowledgeBase Premium, and will be available for purchase for 451 Research clients and others that don’t subscribe to our premium KnowledgeBase products. 451 Research will publish our full M&A Outlook – including the Introduction, which is available now, and the eight individual sector reports – in early February.

Now available: 451 Research’s 2017 M&A Outlook

Brenon Daly

Contact: Brenon Daly

Each year, 451 Research looks ahead to the coming year in M&A, highlighting the trends that will shape deal flow and the markets that are expected to see much of the activity. The report, which serves as an ‘M&A playbook’ for 2017, is now available to 451 Research subscribers.

Topics covered in the latest edition of the M&A Outlook include:

  • Besides the ‘usual suspects,’ which other tech acquirers stepped up their shopping in 2016 and are likely to accelerate that pace this year? If companies including Dell, Twitter and Dropbox aren’t buying any longer, where is the demand going to come from?
  • Specifically, which tech markets are expected to see the biggest flow of M&A dollars in the coming year? Enterprise security and mobility lead the forecast, but what about emerging cross-sector themes such as the Internet of Things and big data?
  • What’s shifted in the exit environment for VC-backed companies to open the way for some of the startups to realize ‘unicorn’ prices in the real world? And will 2017 (finally) see a rebound in the tech IPO market?
  • With president-elect Donald Trump set to officially take over as CEO of the US next week, why are corporate acquirers expecting a ‘Trump rally’ in the tech M&A market? What about buyers coming from China, who spent more acquiring US tech firms in 2016 than the previous five years combined?

The 5,500-word report – which includes nearly 20 graphics, many of them drawing on 451 Research’s M&A KnowledgeBase – thoroughly and insightfully covers last year’s activity as well as this year’s forecast. Get your copy of the M&A Outlook now.

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

The where and how of tech M&A in 2017

Brenon Daly

Contact: Brenon Daly

After a surprisingly strong year for tech M&A spending in 2016, it’s natural to look ahead to this year and wonder how – and where – dealmaking will play out. To get a sense of that, we asked the primary players in the market for their specific forecasts on acquisition activity, valuations and even IPOs. 451 Research subscribers can see the full report on our tenth-annual 451 Research Tech Corporate Development Outlook Survey, as well as our twelfth-annual 451 Research Tech Banking Outlook Survey.

In addition to both survey groups offering their broad forecasts for tech M&A, we also asked specific questions about topics that will undoubtedly shape the market in the coming year. A quick highlight from each of the surveys:

  • A plurality of corporate acquirers are anticipating a ‘Trump rally’ in the tech M&A market in 2017. Half of the respondents (49%) expect the political and economic changes from the president-elect’s policies to ‘stimulate’ M&A activity – three times the percentage (16%) that said the policies will ‘inhibit’ dealmaking in the coming year.
  • Tech bankers expect even more M&A spending on enterprise security in the coming year. They also picked that as the top sector for 2016, and they were on to something: Spending on enterprise security soared to a record $16.7bn, more than the two previous years combined, according to 451 Research’s M&A KnowledgeBase.

Again, to see our full report on the M&A outlook from many of the most-active corporate acquirers, click here; and to see our full report on the views and predictions from senior tech investment bankers, click here.

Despite favorable winds, few tech startups set sail to Wall Street

Brenon Daly

Contact: Brenon Daly

Calm seas and favorable winds usually encourage ships to launch onto the open ocean, but that hasn’t been the case for tech startups. The number of enterprise-focused companies that have set sail to Wall Street this year is once again mired in the single digits. That’s a disappointment given the abundant IPO-ready tech vendors and a bullish investor base that has pushed the broader US equity market to record levels in 2016.

By our count, just eight enterprise tech firms have made it public on the two major US exchanges so far this year, matching the total from 2015. The flatlining IPO total comes as US equity markets this year have vastly outperformed last year, while overall volatility has remained relatively muted. The lackluster tone for 2016 started early, with not a single tech company making it public in Q1. That marked the first quarterly shutout for tech IPOs since the end of the recent recession.

After a mini-bear market on Wall Street in the first quarter, both the Dow Jones Industrial Average and the S&P 500 moved into the green and haven’t slipped back since. (The Nasdaq took another quarter to get above water, but has been solidly positive since last summer on its way to posting what looks set to be a gain of just under 10% this year.) These advances have come as market uncertainty – as measured by the CBOE Volatility Index, or VIX – has stayed at historically low levels, spiking only in short-term reaction to the unexpected outcomes of June’s Brexit vote and the US presidential election in November.

Against this relatively welcoming backdrop, tech startups nonetheless passed on going public, and instead opted for M&A. We saw that this year from companies that had formally revealed their IPO plans (Blue Coat and Optiv were both acquired out of registration) as well as vendors that we had assumed were at some stage of IPO preparation (ServiceMax and Jasper Technologies).

As to where that leaves the IPO market for 2017, we’re currently surveying senior investment bankers and, separately, corporate development executives to get their outlook for new offerings next year. If you would like to participate in our annual survey, please email us and we will send you the correct survey for your thoughts on the IPO market as well as the M&A outlook for the coming year.

2016 enterprise tech IPOs*

Company Date of offering
SecureWorks April 22, 2016
Twilio June 23, 2016
Talend July 29, 2016
Apptio September 23, 2016
Nutanix September 30, 2016
Everbridge October 10, 2016
BlackLine Systems October 28, 2016
Quantenna Communications October 28, 2016

Source: 451 Research’s M&A KnowledgeBase *Includes Nasdaq and NYSE listings only

Where is the tech M&A market heading?

Brenon Daly

Contact: Brenon Daly

With an astonishing $450bn of deal value announced so far this year, 2016 has already hit the second-highest annual spending level for tech M&A since the internet bubble burst in 2000. And while this year probably won’t eclipse last year’s record, we would note that 2016 activity is coming against a backdrop of political and economic change that’s almost unprecedented in developed countries. Acquirers are continuing to buy, despite the uncertainty introduced by events such as Brexit or even the recent election cycle in the US.

But will the current M&A boom continue? Is 2017 going to see just a continuation of the strong deal flow? Or will the uncertainty give buyers pause as they head into next year?

To get a sense of where the tech M&A market is heading, join 451 Research and Morrison & Foerster next Tuesday at 1pm EST for a webinar on what senior M&A executives and advisers are forecasting for the market in 2017 and beyond. (To register, click here.) Topics we’ll cover in the complimentary hour-long webinar include:

  • Recent activity and trends in the tech M&A market.
  • What bankers, corporate execs and others expect to see in tech M&A next year – and beyond.
  • What impact the divisive US presidential election will have on dealmaking.
  • How significant are the expected regulatory changes in the wake of the just-completed election cycle?
  • On the all-important question of valuation, what do tech buyers forecast they will have to pay for startups in the coming months?

We hope you can join 451 Research and Morrison & Foerster next Tuesday as we make sense of what’s driving tech M&A activity right now and how that will play out next year and beyond. To register, click here.

mofo-ma-forecast-oct-2016

Life in the public eye

Brenon Daly

Contact: Brenon Daly

Just as we’ve hit the home stretch for the current US election cycle, we’ve also entered crunch time for the otherwise sluggish tech IPO market. Any company that still plans to debut in 2017 will need to sprint to beat the holidays, which tend to stall offerings ahead of the turn of the calendar. Whether any startups actually make it to Wall Street depends at least in part on the events in Washington DC. (We have already noted that a recent survey from 451 Research’s ChangeWave service showed the Clinton vs. Trump circus has slowed consumers’ discretionary spending plans.)

In that way, political elections and tech offerings are somewhat intertwined. Further, there are some distinct similarities between the two events. Both involve candidates going out and seeing how popular they are with the public. Both also involve time-consuming and expensive journeys that wind toward a goal of serving the public at some level. And finally, both can bring long, rewarding stays in the public eye – alternatively, they can result in embarrassingly revealing and disconcertingly short stays. It all depends on how they serve their constituencies, whether voters or investors.

Not wishing to drag out the metaphor any longer – and certainly not wishing to spend any more attention on this dismal and depressing election cycle – we’ll shift our focus solely to the tech IPO market. We’ve already seen a half-dozen enterprise tech vendors make it public this year, and while one or two startups may add to that total, most are likely to look to join the ‘Class of 2017.’ Heading into next year, the outlook for tech IPOs appears strong. Slightly more than half of the respondents to the most recent M&A Leaders’ Survey from 451 Research and Morrison & Foerster predicted an increase in the number of tech offerings from now through next spring. That was the survey’s most bullish forecast for IPOs in two years.

mofo-ipo-outlook-oct-2016

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

Survey: Back to normal for tech M&A

Brenon Daly

Contact: Brenon Daly

After two straight forecasts of substantial deterioration in the tech M&A market, the outlook for activity has picked back up, according to the latest edition of the semiannual M&A Leaders’ Survey from 451 Research and Morrison & Foerster. Nearly half of the respondents (47%) indicated they would be increasing their activity in 2017 compared to 2016. On the other hand, 20% of respondents said they would be slowing down on acquisitions next year, with the remaining one-third (33%) forecasting no change in their rate.

Broadly, the latest top-level results of the M&A Leaders’ Survey represent a more ‘normalized’ forecast for activity, following the most bearish outlook we’ve ever recorded. In our previous survey last April, the number of respondents forecasting an uptick in acquisition activity only slightly exceeded the number indicating they would be cutting back on their shopping. For comparison, in the just-completed survey, more than twice as many respondents said they would be accelerating acquisition activity than said they would be slowing down.

The shift in sentiment comes as tech M&A spending accelerated dramatically through the summer, with the value of transactions announced in Q3 hitting the third-highest quarterly level since the end of the recent recession, according to 451 Research’s M&A KnowledgeBase.

Now in its tenth edition, the M&A Leaders’ Survey from 451 Research and Morrison & Foerster drew responses from 150 senior M&A professional on a variety of topics, including forecasts for types and structure of transactions, as well as the impact of recent events on their deal-making plans. Some of the highlights:

  • Private equity buyers are expected to play an increasingly significant role in the market. Nearly half of survey respondents (45%) forecast buyout shops would spend more in 2017 than they have in 2016, compared to just one-quarter (28%) who forecast lower spending.
  • Respondents indicated the White House clash between Donald Trump and Hillary Clinton is slowing deal flow far more than any disruption caused by the UK effectively severing economic and political ties with the European Union, following June’s Brexit vote.
  • Concerns about potential liability due to cybersecurity (think Verizon-Yahoo) are making buyers take a much closer look at the companies they plan to acquire.
  • Buoyed by a handful of strong recent tech offerings, the IPO market is expected to accelerate even more next year, according to a majority of survey respondents.

Respondents to the M&A Leaders’ Survey will get aggregate results, as well as selected comments and insight, emailed to them tomorrow. 451 Research subscribers should look for a full report on the survey later this week.

mofo-ma-forecast-oct-2016

Growth amid stagnation keeps the IPO demand high

Scott Denne

Contact: Scott Denne

In what’s becoming a recurring story in the back half of 2016, another high-growth enterprise tech company has gone public with a big first-day pop and a double-digit multiple. Today it’s Coupa that’s reaping Wall Street’s generosity. The spend management software vendor debuted at $35 per share, just shy of double the offering price, and was up past $40 in early trading. Like other recent debuts, Coupa is coveted by investors because it’s been able to carve out pockets of growth in an otherwise stagnating IT market.

At the end of last month, Nutanix (valued at 10x trailing revenue) had a similar pop on its first day, backed up by 85% topline growth. Twilio now sits at 24x trailing revenue following a tripling of its stock price since its June IPO. For its part, Coupa currently sports a $1.8bn market cap and a 6x multiple on the strength of 66% revenue growth last year.

According to 451 Research’s Voice of the Connected User Landscape, 21% of respondents in an August survey anticipated their company’s IT spending would decrease in the next quarter, compared with 15% projecting an increase. A six-point distinction in a single survey isn’t particularly telling on its own. However, the long-term trend of that quarterly survey indicates a market that’s been flat for a while. Over the past six years, respondents forecasting an increase have outnumbered those expecting a decrease in only one out of every eight surveys. And the percentage expecting an increase has only topped 20% twice. Compare that with the three years leading into the last recession, when the number never dropped below 24%.

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