Category: M&A

Contact:  Scott Denne, Jordan McKee

With the acquisition of Jetlore, PayPal joins a multiplying cluster of payments companies moving into commerce software. Owning such assets brings these buyers one step up in the sales process and is a natural way to leverage their consumer data. Not to mention, software has higher margins than payments. But perhaps more importantly, it lands them in one of the more dynamic corners of the software market.

In Jetlore, PayPal gets commerce personalization software that applies machine learning to customer data to automate the layout for email, landing pages and product listings for large retailers. By catering to the digital side of the largest retailers, the acquisition stands in contrast to PayPal’s previous purchase, the $2.2bn pickup of iZettle, which was meant to expand into brick-and-mortar sales at SMBs. (Although terms of its Jetlore buy weren’t disclosed, the price paid for the lightly funded target likely contrasts with iZettle’s haul as much as the respective rationales.)

The acquirer took a small step into commerce software late last year with the launch of PayPal Marketing Solutions, which provides merchants with data and analysis about the consumers on their sites that use PayPal. That unit will now be home to the Jetlore team, where PayPal’s shopper data could potentially be used to help train Jetlore’s algorithms.

More importantly, as retailers adjust to mushrooming digital (and mobile) shoppers and search for ways to fend off Amazon’s growing dominance, commerce software is drawing an outsized share of tech budgets. In 451 Research’s VoCUL, Corporate Mobility and Digital Transformation survey, digital commerce and the closely related web-experience management were two of the three most commonly cited categories when respondents were asked about which applications their organization would deploy or upgrade in the next 12 months.

PayPal rival Square recently inked a deal for Weebly that covers both of those categories. Moreover, Vista Equity Partners’ acquisition of payments provider Fiverun, which it merged with commerce software vendors MarketLive and Shopatron, also highlights the opportunity to mix payments with commerce software. Yet, as payments companies take a natural step up the funnel with commerce, marketing software firms are taking a similar step down the funnel with commerce (see Adobe’s recent acquisition of Magento).

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Contact: Scott Denne, Sheryl Kingstone

Adobe’s $1.7bn acquisition of Magento Commerce brings the buyer into new territory. Not only does it extend the enterprise software vendor’s customer engagement suite beyond marketing, but Adobe is also paying a price that’s well beyond its norm.

The company spent the past two years repositioning its marketing software business as a ‘customer experience’ business. Yet it lacked tools to finalize the most important part of a customer experience – the purchase. The pickup of Magento changes that. In buying Magento, Adobe fills a gap where its two strengths meet. The company made its mark in creative and content, later building a weighty position in marketing and advertising software. Its customers use those capabilities to bring business to their websites. Now, by owning a commerce platform, Adobe will have an offering that covers the last mile.

With Magento, Adobe inks its largest acquisition in the nine years since it paid $1.8bn for Omniture – the nucleus of its marketing software portfolio. Despite the similar purchase price, Omniture was more than twice the size of Magento and valued at half the multiple – more in line with a typical Adobe deal. According to 451 Research’s M&A KnowledgeBase, Magento’s valuation – 11.2x trailing revenue – is six turns higher than the median valuation of an Adobe acquisition and its largest on record.

Although it’s above the norm for Adobe, it’s in line with market comps – other commerce software providers with scale have fetched similar prices. Salesforce paid 11x in its $2.8bn purchase of Demandware, while SAP paid nearly as high in its $1.3bn pickup of hybris (see 451 Research’s trailing revenue estimate for hybris here). More recently, a pair of private equity firms took CommerceHub private at 9.9x, and Shopify boasts 19x on the public market.

Digital commerce software products command a perennially high share of organizational resources, helping those vendors command premium valuations. In each of the two most recent 451 Research VoCUL: Mobility and Digital Transformation Surveys, 27% of respondents told us their company plans to deploy or upgrade digital commerce systems in the next 12 months. That number jumps to 32% in the latest survey when including only businesses in Magento’s sweet spot: $100m to $1bn in annual revenue.

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Contact:  Scott Denne

Following a pair of down years, publicly traded strategic acquirers have come roaring back to the tech M&A market. Through the first four months of 2018, those buyers have collectively paid more for tech acquisitions than any start to the year since 2015. Our recent survey suggests that could continue through the rest of the year as newcomers print big deals and veteran acquirers outdo themselves.

According to 451 Research’s M&A KnowledgeBase, public companies spent $123bn on tech acquisitions through April, up from $73bn in the same period last year. Put another way, only 2015 and 2006 had produced more spending at this point in the year since 451 Research began tracking tech M&A in 2002. More than any other deal, T-Mobile’s $26bn reach for Sprint has propped up the total. Still, even backing out that purchase, which may well be undone by regulators, and Fujifilm’s increasingly doubtful agreement to buy a majority stake in Xerox for $6bn, the current year remains ahead.

In the April version of the semiannual M&A Leaders’ Survey from 451 Research and Morrison & Foerster, 58% of respondents projected an increase in strategic M&A. They also said – at a rate of six to one – that the new tax code, by lowering rates and making offshore cash available, would bolster strategic M&A. Whatever the role that tax law has played, strategics do appear to be coming back to market – and bigger than before.

T-Mobile, for example, had only acquired one other company since its reverse merger with MetroPCS in 2012. Fujifilm had only done the occasional tech deal, never approaching the $1bn mark. Looking at the buyers that round out the top five strategic transactions this year – General Dynamics, Microchip Technology and Salesforce – all had been frequent acquirers but had never before spent more than $5bn on a single deal until 2018.

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Contact: Scott Denne

Teradyne has announced a pair of deals at elevated valuations as developments in the Internet of Things (IoT) and artificial intelligence (AI) stoke the staid market for industrial automation technologies. The semiconductor testing vendor brought two new additions to its burgeoning robotics business: Mobile Industrial Robots (MiR) and Energid. Both fetched above-market valuations – valuations that are justified by a surge in deployments of automation tech.

Teradyne paid $148m, or 12.3x trailing revenue, for MiR and $25m, or 4.2x forward revenue, for Energid. Both transactions also include earnouts that would roughly double the ultimate price (we don’t include those in calculating the multiples). Those prices are well above the median valuation for players in the industrial automation segment. According to
451 Research’s M&A KnowledgeBase, the median multiple for targets in that space have hovered between 2.2-2.4x trailing revenue in each of the past four years.

The deals that have come in well above that mark often have an IoT or AI angle. Today’s acquisitions align with that trend – MiR makes robots that deliver parts and supplies around a factory and Energid develops motion-control software. Other industrial automation transactions that went off at high multiples include Teradyne’s 2015 purchase of Universal Robots (at 7.5x) and PTC’s pickup of Kepware (5x), a provider of software that enables legacy industrial equipment to link to IoT networks.

Those valuations – rare for the industrial automation sector – come as manufacturing facilities, warehouses and the like are increasing their budgets for automation projects. According to 451 Research’s Voice of the Enterprise: Internet of Things, Budgets and Outlook 2017 report, 39% of respondents told us their organization had deployed IoT projects for the management and automation of buildings, factories and warehouses, up from just 26% in the middle of 2016.

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Contact: Scott Denne

A pinnacle acquisition of an IT infrastructure vendor shows just how much Salesforce is betting on the digital transformation trend. In shelling out $6.6bn for MuleSoft, Salesforce is spending twice what it did on its previous largest purchase in an effort to push its business from a developer of enterprise apps to the go-to technology provider for organizations in the cloud era – a position occupied by IBM, Microsoft, Oracle and SAP in the fast-fading client-server age.

The deal not only sets a new high for Salesforce, it stands well apart from other transactions in the infrastructure management corner of the tech M&A market. Salesforce will pay $6.6bn (20% of it coming in stock) for MuleSoft, making it the fourth-largest infrastructure software acquisition, according to 451 Research’s M&A KnowledgeBase. The sales of HPE’s software business ($8.8bn), BEA Systems ($8.5bn) and BMC Software ($6.9bn) fetched similar prices, although the multiples couldn’t be further apart.

Salesforce’s purchase values MuleSoft at 22x trailing revenue, the highest ever for a $1bn deal in its category. Moreover, compared with those three larger transactions, MuleSoft, with $296m in trailing revenue, is the only one to post less than $1bn in revenue. The next-highest valuation on a $1bn-plus infrastructure software deal came with Cisco’s $3.7bn AppDynamics buy, nearly five turns lower than today’s pairing.

In most of its acquisitions since the start of the current decade, Salesforce has angled to build off its CRM roots and into the broader category of customer engagement – acquiring new apps to sell to marketing, sales and service teams. Selling apps to the line of business differs from selling apps to IT. The marketing team, for example, gives little consideration to what software the sales team uses.

The combination of apps with MuleSoft’s integration software, which can load those apps with data from legacy IT systems and other SaaS products, should strengthen Salesforce’s ability to sell a strategic package of software for digital transformation initiatives, where IT innovation is driven by business strategy. As idealistic as that sounds, a real change is underway. According to 451 Research’s Digital Transformation Leaders and Laggards report, 53% of surveyed companies are either considering or planning their digital transformation strategy.

Salesforce also sets up a strong challenge to its competitors with this move. In owning MuleSoft, Salesforce now has an asset that can lift data from on-premises database, CRM and ERP systems to essentially reside in SaaS applications, potentially converting older systems into commodity repositories, rather than cornerstones of the IT stack.

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