July fireworks in tech M&A

Contact: Brenon Daly

The largest-ever SaaS deal, a trio of billion-dollar blockbuster chip transactions and big-spending buyout shops all helped push tech M&A spending in July to its highest monthly total since last fall. Across the globe, acquirers spent $91bn on tech deals in the just-completed month, including a dozen transactions valued at more than $1bn, according to 451 Research’s M&A KnowledgeBase. That’s about twice as many ‘three-comma’ deals as we would typically see in even a banner year for tech M&A.

And, until this summer, no one would have characterized 2016 as a banner year. The relatively paltry amount spent on transactions announced in the first five months of the year had put 2016 on track for less than half last year’s amount. However, spending surged in June to $67bn, roughly triple the average from the previous five months, and then soared another $24bn higher in July.

July’s M&A fireworks came in a number of tech markets:

  • SoftBank’s unexpected $32.4bn purchase of ARM Holdings stands as the second-largest semiconductor deal in history, trailing only Avago’s $37bn reach for Broadcom last year.
  • Oracle paid $9.3bn, or 11x trailing sales, for NetSuite, making it the largest acquisition of a subscription software vendor ever.
  • Verizon announced its biggest non-telecom transaction, spending $4.8bn for most of the (faded) Internet properties of Yahoo.
  • Relative newcomer Siris Capital bought videoconference equipment maker Polycom for $2bn, which is more than the buyout shop had spent on its previous four deals combined.

The summer surge in M&A comes as US equity markets also moved higher, with some indexes hitting record levels. (The Nasdaq, for instance, soared 7% in July.) Overall, this summer’s dramatic acceleration in M&A spending has put 2016 back on track for a strong year. With seven months now complete, the value of acquisitions announced so far this year tops $272bn – already putting 2016 ahead of the full-year totals for five of the seven years since the recent recession ended.

Jan to July MA totals

The booming buyout business in tech M&A

Contact: Brenon Daly

Amid a record pace of private equity (PE) transactions, buyout shop Apax Partners has announced not one but two billion-dollar deals already this month. The London-based firm sold both ERP vendor Epicor Software and a website for automobile classified ads, TRADER, to fellow PE shops. Thoma Bravo will pick up TRADER for $1.2bn, which marks its fifth transaction of the year, while KKR will acquire Epicor. (Terms of the Epicor acquisition weren’t released, but the software provider generated over $1bn in sales, and the rumored pricing was at least three times that amount.)

Apax’s pair of 10-digit deals brings the number of PE acquisitions valued at more than $1bn so far this year to 10, according to 451 Research’s M&A KnowledgeBase. The transactions have run the gamut of possible structures, including secondaries like TRADER and Epicor, a carve-out (Dell’s software business) and take-privates such as Qlik and Marketo. Altogether, the string of blockbuster deals by buyout firms has put PE spending so far this year higher than the comparable period in any other post-recession year except one. (We would note that 2013’s totals were skewed by a single transaction, Dell’s LBO, which accounted for nearly 60% of the spending during that period.)

More importantly, the pace of both big-ticket deals and overall transactions has accelerated dramatically in the past three months. All but one of the 10 deals valued at more than $1bn has come since April, with 85% of total disclosed YTD spending of $21.9bn coming in just the second quarter, according to the M&A KnowledgeBase. Additionally, buyout firms announced a record number of quarterly transactions in the April-June period, with 72 PE prints. See more on recent PE deals and valuations in our full report on the tech M&A activity in Q2.

PE activity

Period Deal volume Deal value
January-June 2016 137 $21.9bn
January-June 2015 116 $19.5bn
January-June 2014 106 $16.3bn
January-June 2013 90 $42.6bn (includes $24.8bn Dell LBO)
January-June 2012 75 $9.9bn
January-June 2011 97 $12.5bn

Source: 451 Research’s M&A KnowledgeBase

PE shops: filling in the middle

Contact: Brenon Daly

After buying both small small and big companies, private equity (PE) firms have recently been filling in the middle, too. Since the start of May, buyout shops have been averaging a rapid-fire pace of one midmarket transaction every week, according to disclosed and estimated prices in 451 Research’s M&A KnowledgeBase. Further, the five recent deals, which collectively total $3bn in spending, span a wide range of PE transactions: take-privates, secondaries and cleaning out VC investors.

The activity in the midmarket, which we loosely define as deals valued at $200m-800m, comes amid a thawing in the credit market. As debt has become cheaper and more readily available, buyout shops have accelerated their big-ticket purchases. (All five of this year’s largest PE transactions have been announced in just the past two months. In many cases, these financial buyers have outbid strategic acquirers, a reversal of typical M&A roles.)

Now, the PE deal flow appears to be moving to involve targets valued in the hundreds of millions of dollars, not just 10-digit acquisitions. In recent weeks, we’ve seen Vista Equity Partners, Clearlake Capital Group and Accel-KKR all announce midmarket transactions. (Accel-KKR is particularly noteworthy because its $509m leveraged buyout of SciQuest marks the firm’s first take-private since the recession.)

One reason the financial buyers have lowered their sights is that they have been paying smaller multiples for smaller companies. With the exception of Vista’s purchase of Ping Identity, all of the midmarket deals have gone off at lower valuations than the significant billion-dollar transactions. For instance, buyout shops paid an uncharacteristically rich 8x trailing sales to acquire both Cvent and Marketo in recent weeks.

The surge in PE shopping at the top end of the market coupled with the more recent midmarket uptick has already put buyout spending in 2016 ahead of the January-June levels in any post-recession year except 2013. (That year’s total was skewed by the massive $25bn LBO of Dell.) Already in 2016, PE firms have announced 125 deals totaling $19.7bn in spending. That eclipses the half-year activity in 2015 and 2014, even though overall tech M&A spending this year is only about half the level of the two previous years.

Select recent midmarket PE transactions

Date Acquirer Target Deal value
June 1, 2016 Vista Equity Partners Ping Identity See 451 Research estimate
May 31, 2016 Accel-KKR SciQuest $509m
May 12, 2016 Clearlake Capital Group Vision Solutions See 451 Research estimate
May 31, 2016 Platinum Equity Electro Rent $323m

451 Research’s M&A KnowledgeBase

The software buyout boom

Contact: Brenon Daly

After playing small ball for the first few months of the year, buyout shops have begun taking bigger swings in the M&A market. That’s nowhere more evident than in the bustling enterprise software sector, where private equity (PE) firms have displaced their strategic rivals as the main buyers at the top end of the market.

According to 451 Research’s M&A KnowledgeBase, PE shops have been the acquirers in four of five enterprise software transactions announced so far this year valued at more than $1bn. (The big-ticket shopping list: the $3bn take-private of Qlik, the $1.8bn take-private of Marketo and the $1.7bn take-private of Cvent, as well as the $1.1bn purchase of Sitecore.) Set against this recent string of 10-digit deals by financial buyers, the only corporate acquirer to ink a similarly sized transaction is Salesforce with its $2.8bn reach for Demandware.

The fact that buyout barons are leading the current software shopping spree is a direct reversal of recent years. At this point last year, for instance, there were four software deals valued at more than $1bn, with corporate acquirers announcing three of them, according to the M&A KnowledgeBase. More broadly, PE firms typically account for only about 10-20% of overall M&A spending in any given year. So far this year in the software sector, however, PE shops have accounted for just less than half of announced spending.

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

Tech buyout shops play small ball

Contact: Brenon Daly

The pinched debt market so far this year has buyout shops scaling back their purchases, but doing more of them. Already this year, private equity (PE) acquirers have announced 68 transactions, with several larger firms such as The Carlyle Group and Vista Equity Partners having already put up two or three prints. The pace of PE activity is almost 20% higher than the start of the two previous years, according to 451 Research’s M&A KnowledgeBase.

However, spending on those deals has dropped dramatically, with the value of PE transactions so far in 2016 just half the average of the two previous years. Buyout shops have announced deals valued at $5.3bn since January 1, down from $9.7bn in the same period last year and $11.6bn during the same period in 2014, according to the M&A KnowledgeBase. To get a sense of how far the size has fallen, consider this: the biggest transaction so far this year would rank as only the sixth-largest PE deal printed during the same period of 2014 and 2015.

Fittingly, the biggest PE purchase so far this year is a divestiture (Airbus’ sale of its defense electronic business to KKR). Hewlett Packard Enterprise, CA Technologies and Intuit have also all sold divisions to buyout firms. The other notable driver of activity has been secondary transactions, where PE firms sell portfolio companies to other PE shops. Examples of these buyout-to-buyout deals in 2016 include Infogix and Sovos Compliance.

Taken together, the strategies that buyout firms have used so far this year are much more conservative than what we saw in the two previous years. (For instance, exactly a year ago, Informatica went private in a PE-backed transaction for $5.3bn, which valued the slow-growing data integration software provider at about 5x trailing sales and 25x EBITDA.) In many ways, this year’s activity simply reflects PE firms picking up smaller and less expensive targets, effectively doing deals with ‘walking around money’ rather than depending on lenders. But as those lenders (slowly) return to the market this year, we may well see buyout shops start to bag bigger targets once again.

PE-backed M&A

Period Deal volume Deal value
January 1 – April 7, 2016 68 $5.3bn
January 1 – April 7, 2015 53 $9.7bn
January 1 – April 7, 2014 61 $11.6bn

Source: 451 Research’s M&A KnowledgeBase

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A record year for tech M&A, and so much more

Contact: Brenon Daly

Sure, the number of deals and spending on them in 2015 blew away anything we’ve seen since we were surfing the Web on Netscape browsers, but there was a whole lot more going on inside last year’s activity. 451 Research subscribers can get our full report on what happened last year and what’s likely to play out this year. Looking inside the record deal flow we recorded in 451 Research’s M&A KnowledgeBase, for instance, we saw a number of highlights from 2015:

  • Acquirers have never announced more tech, media and telecom (TMT) transactions valued in the billions of dollars than they did in 2015, including two of the three largest pure tech transactions in history.
  • Last year saw an unexpectedly large number of tech giants either sit out the record M&A activity altogether (Symantec, the former JDS Uniphase) or significantly dial back their acquisition programs (SAP, Oracle, Yahoo, Intuit).
  • The value of divestitures by US-listed tech companies hit a new record, coming in at twice the average annual amount over the past half-decade.
  • Private equity firms announced the most acquisitions ever for the industry, more than doubling the number of deals they did during the recent recession.
  • Even as interest rates ticked higher, buyout shops paid unprecedentedly rich multiples at the top end of the market in their purchases.
  • Despite the record number of startups valued at $1bn or more, just one VC-backed company recorded a 10-digit exit in 2015, down from an average of four exits each year over the previous three years.

Our report not only highlights these trends, but also maps them to the views from the main participants in the tech M&A community to give a sense of what will shape acquisitions in the coming year. See the full report.

Valuations of significant* tech transactions

Year Enterprise value-to-sales ratio
2015 3.6x
2014 4.4x
2013 3.3x
2012 2.9x
2011 3.2x
2010 3.4x
2009 2.6x
2008 2.4x
2007 3.8x

Source: The 451 M&A KnowledgeBase *Average multiple in 50 largest acquisitions, by equity value, in each year.

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After a time on NYSE, Solera is back in private hands

Contact: Brenon Daly

In a sort of private equity (PE) ‘homecoming,’ auto insurance software provider Solera Holdings plans to sell itself for $3.7bn in cash to buyout firm Vista Equity Partners. The net price for Solera, which has been a debt-fueled acquirer since its founding a decade ago, is pegged at $6.5bn by Vista.

Although it has been listed on the NYSE since 2007, Solera has PE-backed carve-out roots. The company has had a sometimes-contentious relationship with Wall Street. Investors have taken issue with how much Solera’s executives have paid themselves, in addition to a slumping stock price that had nearly been cut in half from its early 2014 highs to recent lows.

In part because of the prolonged slide in its shares, Solera said in August that it was exploring ‘strategic alternatives.’ Vista is offering $55.85 for each Solera share, with the deal expected to close by early 2016. Shares of Solera have ranged from $70 at the start of 2014 to $36 at the start of August.

With an enterprise value of more than $6bn, the Solera take-private would be the second-largest PE transaction of 2015. However, the proposed transaction stands as the largest LBO of a vertical market software vendor, according to 451 Research’s M&A KnowledgeBase . Typically, PE shops buy software ‘platform’ companies that serve large numbers of customers across a variety of sectors. In recent years, horizontal software companies, such as Compuware, Informatica, BMC Software, TIBCO and others, have landed in PE portfolios.

The planned take-private of Solera continues a recent surge in PE spending. So far this year, buyout shops have announced transactions valued at $37.3bn, according to 451 Research’s M&A KnowledgeBase. That’s up about two-thirds from the same period in 2014, and twice the spending over the same time in 2012. It only trails the January-September level in 2013, which was skewed by the $25bn LBO of Dell.

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

Bain reaches into Thoma Bravo’s closet for a Blue Coat

Contact: Brenon Daly

More than three years after going private, Blue Coat Systems has been flipped to another private equity firm at nearly twice the price of the initial leveraged buyout (LBO) by a Thoma Bravo-led consortium. Bain Capital said Tuesday that it will pay $2.4bn in cash for the old-line networking and security vendor. (Subscribers to The 451 M&A KnowledgeBase can click here to see our estimates for both the trailing revenue and cash flow at Blue Coat.) Thoma Bravo took Blue Coat private for $1.3bn in late 2011, after HP was rumored to have dropped out of the bidding.

Under Thoma’s ownership, we understand that Blue Coat returned to mid-teens percentage growth as it expanded beyond its core offering of network security and WAN optimization, both of which are rather mature markets. (For instance, a mid-2014 survey of more than 200 information security professional by TheInfoPro, a service of 451 Research, showed that almost nine out of 10 respondents (86%) have already deployed some form of Web content filtering, a long-standing offering from Blue Coat.)

Blue Coat made three acquisitions while in Thoma Bravo’s portfolio, including paying a rather ‘un-PE’ multiple for network analytics startup Solera Networks. (Click here to see our proprietary estimate of terms of that transaction.) Of course, being a PE-owned company, Blue Coat also fattened up its cash flow in recent years. According to our understanding, Thoma Bravo has more than tripled Blue Coat’s EBITDA since the LBO.

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

Can tech companies wearing sensible shoes be nimble?

Contact: Brenon Daly

As the tech giants get more and more gray hair on their heads, they all seem to desperately want to be young again. How else to explain the impetuous plan by the sensible shoe-wearing Hewlett-Packard to separate its enterprise and consumer businesses, with the stated goal of making the two independent companies more ‘nimble?’ Do the architects of the plan somehow think that cutting in half a 75-year-old company will create two businesses in their late 30s?

Remember, too, that about three years ago, HP initially dismissed a similar (but smaller-scale) plan to spin off just its PC business. At the time, executives said HP was ‘better together,’ citing low supply costs, improved distribution and easier cross-selling from the broad HP portfolio.

So why the change of heart that will result in a messy disentanglement taking about a year to implement, costing billions of dollars and resulting in as many as 10,000 additional job cuts? We suspect the fact that HP sales are now 10% lower than when it dismissed that spinoff plan may have something to do with it. (As we noted earlier, HP is basically splitting itself into two companies roughly the size of Dell, which itself had a massive and contested change in corporate structure last year as it sought a ‘fresh start’ through a $24bn leveraged buyout (LBO).)

In addition to HP – Silicon Valley’s original startup – a number of other tech industry standard-bearers have found (or likely will find) themselves under pressure to radically overhaul their corporate structure in pursuit of growth. Some of these have already been targeted by activist hedge funds, while others are still on a watch-list:

  • CA Technologies: Revenue is declining at the 38-year-old company, but it still throws off a ton of cash, trading at less than 10 times EBITDA. Its size and financial profile make it a textbook LBO candidate.
  • EMC: Already under pressure by an activist shareholder to ‘de-federate’ its business, EMC has staunchly resisted calls for change with a variation on the ‘better together’ theme. (But then, so did eBay until recently.) With VMware, it owns one of the most valuable pieces of the IT vendor landscape.
  • Symantec: After a decade of trying to marry enterprise storage and security, a corporate divorce seems likely at some point. (The three CEOs the company has had in the past two years have all kicked around such a separation.) Meanwhile, the topline is flat and Symantec trades at a discount to the overall tech market at just 2.5 times sales.
  • Citrix Systems: In business for a quarter-century, Citrix rode the wave of client-server software to a multibillion-dollar market value. However, despite numerous acquisitions and focus, it has yet to fully capitalize on the next wave of software delivery, SaaS. That business currently generates about 25% of total revenue at Citrix but is only slightly outpacing overall growth, despite industry trends. Citrix stock has been flat for the past four years, while the Nasdaq has nearly doubled during that period.

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

As growth flatlines, TIBCO taps out

Contact: Brenon Daly

Announcing the largest tech take-private in 16 months, Vista Equity Partners said it will acquire middleware and analytics software vendor TIBCO Software for about $4.3bn. The leveraged buyout (LBO) comes after the one-time highflier spent the previous several months exploring ‘strategic alternatives.’ Even though the LBO values TIBCO at a market multiple of some 4x trailing sales, the exit price is less than TIBCO fetched on its own this time last year. That reflects the difficulty the company has had in finding any growth recently.

Private equity (PE) firm Vista will pay $24 for each of the roughly 165 million TIBCO shares outstanding. At more than $4bn, TIBCO stands as the largest-ever purchase for Vista, more than twice the size of any check the PE firm has written in the past.

At an enterprise value of $4.3bn, TIBCO is going private at roughly 4x its trailing sales of $1.1bn. (Both sales and profit have declined through the first three quarters of TIBCO’s current fiscal year.) The multiple is slightly richer than the 3.6x sales that rival Ascential got from IBM almost a decade ago. For more of a current comp, rival Informatica – which is only a smidge smaller than TIBCO, but is still growing at double-digit rate – trades at roughly $3.7bn market value. Subscribers: Look for our full report on the transaction later on 451 Research.

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