Category: M&A

The Logi-cal move for Marlin Equity Partners’ newest asset 

Scott Denne

Contact: Krishna Roy, Scott Denne

Marlin Equity Partners extends its shopping spree in business intelligence (BI) software with the acquisition of Logi Analytics. Following its 2014 reach for Longview Solutions, a corporate performance management (CPM) stalwart, Marlin has bought two assets to bolt on to that platform – arcplan and Tidemark Systems. Although it hasn’t announced plans to combine Logi with Longview, we suspect that could be the case since Logi offers capabilities that align with Longview’s strategy to develop into a modern CPM platform.

Logi would provide Longview with vital elements to address this endgame – embeddable BI and analytics, dashboards, and reports. Logi has built itself into a go-to name for embedded analysis. Furthermore, the company has expanded its purview into visual analysis and data discovery, and moved into self-service data preparation in recent years. Longview could make use of these offerings to assemble a soup-to-nuts CPM platform.

Although terms of the deal weren’t disclosed, it’s likely a significant transaction. Logi had raised almost $50m in venture capital, and as of 2016 was generating about the same amount in annual revenue. With this deal, Marlin extends its BI portfolio beyond CPM, a roughly $1bn market, into reporting and analytics, a market that, according to 451 Research’s Total Data Market Monitor, is 20x larger and contested by 10x as many vendors.

VCs aren’t buying what VCs are selling

Brenon Daly

Contact: Brenon Daly

VCs aren’t buying what other VCs are selling, slamming shut a once-reliable exit door for startups. The recent shift in M&A has left the number of VC-to-VC acquisitions down about 40% so far this year compared with the previous three years, according to 451 Research’s M&A KnowledgeBase. The current weekly pace of two sales of VC-backed companies to other VC-backed companies would put this year’s total at about 105, representing the lowest full-year number of exits since the start of the decade.

There are several reasons for the decline in intra-industry deals, depending on the stature of the acquiring startup. In the rarified land of unicorns, there is a prevailing focus for VC portfolio companies on operational improvements, rather than inorganic expansion. Unlimited spending – whether it’s on KIND bars or Y Combinator graduates – has fallen out of fashion.

For instance, the M&A KnowledgeBase lists 24 acquisitions for Dropbox, which has raised more than $2bn in debt and equity. However, not one of those purchases has come in the past two years. It’s a bit different for Uber, which has its own ‘operational improvements’ to make. That besieged startup hasn’t done any deals in 2017, after doing two in each of the two previous years, according to the M&A KnowledgeBase.

Beneath that top tier of once-active, big-name startups is a fatter slice of VC-backed companies that have also cut their shopping, but for a different reason. In many cases, the startups simply don’t have the money for M&A because they haven’t been able to raise any new funding. This year is on pace to feature the fewest number of startups receiving venture investment since 2012, according to trade group National Venture Capital Association.

Cisco seeking software 

Scott Denne

Contact:  Scott Denne

While both Cisco Systems and Hewlett Packard Enterprise face declining hardware businesses, the two companies have responded with opposing M&A strategies. With yesterday’s announcement that it will pay $1.7bn to acquire BroadSoft, Cisco sets up 2017 for a once-a-decade amount of M&A spending. But it’s not just a burst of activity that sets it apart from its rival. The networking giant has steadily sought software vendors as it looks to get its top line back to growth.

With its latest announcement, Cisco has now spent $6.5bn on acquisitions since the start of the year. According to 451 Research’s M&A KnowledgeBase, that’s more than it spent in the first 10 months of the year in any of the previous 15 years, except 2009. It’s reached for software assets in all eight of its deals this year, starting with the $3.7bn pickup of application performance monitor AppDynamics in January.

Over the past 12 months, Cisco’s top line dropped by 3% led by lower switch sales, while HPE’s sales through the first three quarters are down 7% year over year due to a slump in servers. HPE has responded by bolting on more hardware – its two largest transactions this year were for storage providers SimpliVity and Nimble Storage – shying away from software following the disastrous $11.7bn Autonomy buy in 2011, one of several deals it unwound last year across two multibillion-dollar divestitures.

While Cisco has made some large software purchases, it has spread those bets across multiple acquisitions and business units. So it’s not burdened with the legacy of a single software transaction that drags down the company’s results. Although it has often taken chances in its software deals – it paid 17x trailing revenue to enter a new market when it bought AppDynamics – its latest purchase, BroadSoft, brings it into familiar territory by obtaining an asset that sells primarily to internet service providers, a market Cisco has long sold to.

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

Synchronoss’ planned ‘pivot’ turns into a face-plant

Brenon Daly

Contact: Brenon Daly

With its attempt at a pivot having turned into face-plant, Synchronoss will unwind its massive, bet-the-company acquisition of Intralinks by divesting the collaboration software vendor to private equity (PE) firm Siris Capital Group. The buyout shop will pay about $1bn for Intralinks, which Synchronoss acquired last December for $821m.

It was a pairing that faced skepticism from the very start, because the business models and client base for the two companies had virtually nothing in common. The combination also ladled a hefty amount of debt onto Synchronoss, which then compounded problems around servicing that debt by having to restate its financials due to accounting errors. Shares of Synchronoss have lost two-thirds of their value since the acquisition announcement.

As Synchronoss stock cratered, Siris Capital began buying equity, ultimately becoming the company’s largest shareholder. Siris used that position to agitate during the company’s review of ‘strategic alternatives’ announced in early July. Not unexpectedly for the beleaguered company, the process proved fitful. Siris Capital initially offered to acquire all of Synchronoss but then pulled its bid as the company, which was advised by Goldman Sachs & Co and PJT Partners, continued to look for another buyer.

Instead of an outright acquisition of Synchronoss, Siris will carve out the Intralinks division and add that to its portfolio. The transaction is expected to close in mid-November. Further, the buyout firm will invest $185m into the remaining Synchronoss business, which will continue trading on the Nasdaq.

With the divestiture, 17-year-old Synchronoss effectively abandons its attempt to become a broad provider of enterprise software, and retreats back to servicing its long-standing client base of communications and media companies. The move is a reminder that software can be hard. Just ask Dell Technologies and Lexmark. Both of those tech companies also retreated from their M&A-driven effort to become software vendors, divesting their software portfolio to PE shops in billion-dollar deals over the past year.

Startups stuck in a billion-dollar backlog

Brenon Daly

Contact: Brenon Daly

Startups are increasingly stuck. The well-worn path to riches – selling to an established tech giant – isn’t providing nearly as many exits as it once did. In fact, based on 451 Research calculations, 2017 will see roughly 100 fewer exits for VC-backed companies than any year over the past half-decade. This current crimp in startup deal flow, which is costing billions of dollars in VC distributions, could have implications well beyond Silicon Valley.

First, the numbers. So far this year, 451 Research’s M&A KnowledgeBase reports just 439 VC-backed companies have been acquired, putting full-year 2017 on pace for roughly 570 exits. That’s 16% fewer deals than the average number of VC exits realized from 2012-16, and the lowest number of prints since the recession year of 2009, when startups were mostly focused on survival rather than a sale.

The reason for the current slowdown in the prototypical startup-sells-to-brand-name-buyer transaction that has generated hundreds of billions of dollars in investment returns over the years is that the buyers aren’t buying. (We would note that’s only the case for the bellwether tech vendors, the so-called strategic acquirers. Rival financial buyers – both through direct investment and acquisitions made by their portfolio companies – have never purchased more VC-backed firms in history than they have in 2017, even as the overall number of venture exits declines. Private equity now accounts for 17% of all VC-backed exits, twice the percentage the buying group held at the start of the decade, according to the M&A KnowledgeBase.)

Parked in VC portfolios, startups can, of course, build their businesses, along with the accompanying value. What they can’t do as long as they are still owned by venture investors is realize that value, at least not tangibly or completely. That takes either a sale of the company outright or an IPO. (Wall Street hasn’t provided many exits at all for VC-backed companies since 2000, and isn’t ever likely to be a primary destination for startups.)

And although we’re talking about small companies, there’s already been a pretty big impact. Even if we take a conservative average exit price of $50m for startups, multiplying that across the 100 exits that won’t happen this year means a staggering $5bn won’t get distributed in 2017 that would have in previous years. Without capital once again flowing from corporate acquirers back to startups and VCs, the entire ecosystem runs the risk of stagnation.

Survey: Steady as she goes for tech M&A

Brenon Daly

Contact: Brenon Daly

Undeterred by the recent slowdown in M&A activity, tech acquirers have largely left their bullish forecast for dealmaking unchanged. For the third consecutive time, essentially half of the respondents to the semiannual M&A Leaders’ Survey from 451 Research and Morrison & Foerster indicated that they expected an acceleration in acquisition activity.

The 51% that forecast a pickup over the next year in M&A in our most-recent edition is more than twice the 19% that projected a decline. The results lined up very closely with the sentiment from both the year-ago survey as well as our previous survey in April.

More broadly, the outlook from the three recent surveys reflects an unusual bit of stability in what is an inherently lumpy business. A bit of history: Over the previous half-dozen years of the M&A Leaders’ Survey from 451 Research and Morrison & Foerster, swings of 10 or even 20 percentage points from one edition to the next haven’t been uncommon.

451 Research subscribers can click here for the full report on the views from 150 top dealmakers, including their forecasts on M&A valuations, their thoughts on where startups should be looking to exit, and how they see the pitched fight with cash-rich private equity buyers playing out.

Barely a ripple in the pool of tech M&A buyers

Brenon Daly

Contact: Brenon Daly

New companies are constantly wading into the tech buying pool. As welcome as those new entrants are, however, their arrival has barely caused a ripple in the overall tech M&A market. Unconventional buyers – including retailers looking to jumpstart online sales and consumer product vendors looking to digitally connect their wares – have come up far short in offsetting the dealmaking absence of the mainstay tech acquirers. The resulting void of several hundred transactions has left 2017 on track for the lowest overall tech M&A volume in four years, according to 451 Research’s M&A KnowledgeBase.

Already this year, the M&A KnowledgeBase lists several first tech deals from well-known names from outside the tech industry such as IKEA, Albertsons, Signet Jewelers and Whirlpool. These debutants join other non-tech giants that have recently reached for startups, including Bed Bath & Beyond, Hudsons Bay Company, Unilever and Deere & Company.

Given that digital deals by analog companies tend to be viewed as ancillary to their businesses, they will likely never have the same M&A pace of tech vendors themselves. For instance, we noted in our recent Q3 report on tech M&A that heavy machinery manufacturer Deere & Company, which bought a tiny machine-learning startup in early September, had gone about three years since its previous tech transaction. In the interim, other acquirers inked more than 11,000 tech deals, according to the M&A KnowledgeBase.

As these non-tech buyers dabble in deals, the bellwether acquirers have dramatically slowed their pace. Consider the recent activity of some of the companies that have traditionally set the tone in the tech M&A market. Salesforce has put up just one print so far this year. Serial acquirer Oracle hasn’t announced an acquisition in six months. IBM is averaging a deal every other month in 2017, just half the rate it acquired companies in both 2016 and 2015.

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

bpost’s trek through Amazon 

Scott Denne

Contact:Scott Denne

Looking for a patch of ground in a rising market, bpost picks up a declining asset as it prints its first tech deal with the $820m purchase of Radial, eBay’s former commerce services unit. The acquirer, which operates the Belgian mail service and other logistics businesses, is aiming to capitalize on the growth of e-commerce in North America. Yet its projections ignore the extent of its vulnerability to an increasingly dominant Amazon.

Radial formed with the 2016 combination of retail fulfillment services firm Innotrac and the former eBay Enterprise business, which provided fulfilment, order management and other services. The two were bought out by investor syndicates and combined in 2016 by their shared owner Sterling Partners.

Its fortunes have tracked those of its customers, many of which have filed for bankruptcy since the start of 2016, including Aeropostale, RadioShack, Toys R Us and Sports Authority. Radial’s revenue is projected to decline to about $1bn from roughly $1.25bn last year.

At 8x trailing revenue, Radial fetches the same multiple that eBay Enterprise nabbed in its 2015 sale. That’s a rich multiple considering the earlier acquisition of eBay Enterprise included e-commerce software platform Magento, which has since been spun off and likely had higher margins than the services-heavy Radial.

That multiple may turn out to be less rich than bpost’s projections that the asset can expand its top line by 6-8% annually, considering that it’s coming off a year where it lost 20% of its revenue catering to the second tier of retailers. Not only are those the retailers that are most vulnerable to Amazon’s domination of commerce, the online goliath runs a fulfillment business of its own, making Radial vulnerable on two fronts – those customers that aren’t crushed by Amazon could very well side with it.

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

Guidewire’s Cyence experiment 

Scott Denne

Contact:Scott Denne, Scott Crawford, Garrett Bekker

Guidewire Software has printed its most significant deal to date with the acquisition of Cyence, a provider of risk analytics. Not only does the $275m price tag ($265m net of cash) make it Guidewire’s largest transaction so far, it extends the acquirer’s ambitions as an insurance software provider in a way that none of its previous purchases have.

Cyence applies data science to the monitoring of cyber and other data relevant to understanding the nature and impact of technology risk. The company enables insurers to price policies for new lines of business around emerging risk. Cybersecurity insurance is the first application for the technology – reputational insurance and others will come later.

This isn’t Guidewire’s first foray into analytics, as it picked up EagleEye Analytics last year in a $42m deal. In that transaction, the company obtained analytics tools that directly complemented its insurance workflow suite (underwriting management, claims processing, billing). With Cyence, it plans to play a role in the creation of new insurance products, a significant expansion in the value proposition that built Guidewire over the past decade and a half – replacing legacy insurance systems with modern software and (more recently) SaaS.

Expanding a company’s value proposition doesn’t come cheap. Guidewire will pay $140m in cash and $125m in stock (a small portion of which will be reserved for an earnout). Founded in 2014, Cyence has an annual revenue run rate of about $15m, putting the multiple well beyond the 4x trailing revenue Guidewire paid in its only other $100m-plus deal, the $160m acquisition of claims management SaaS vendor ISCS in December 2016.

Guidewire isn’t the only player looking to help insurance providers price emerging risks lurking on company balance sheets. Vendors focused on third-party tech risk such as BitSight and Prevalent have targeted the cyber-insurance market as well, which also drove FICO’s acquisition of QuadMetrics in June 2016.

Union Square Advisors advised Guidewire on the deal.

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

Tech M&A: Questions about the quarter

Brenon Daly

Contact: Brenon Daly

Boosted by a September surge, spending on global tech acquisitions in the just-completed Q3 soared to the highest quarterly total of 2017. In fact, the $119bn worth of tech deals tallied by 451 Research’s M&A KnowledgeBase during the July-September period only slightly trailed the total amount spent during the first six months of 2017. Big prints dominated recent deal flow, with both of this year’s largest transactions coming in September. More broadly, Q3 accounted for six of the 10 biggest deals so far this year.

Spending on tech transactions in September hit its highest monthly level since October 2016, coming in twice as high as the average of the previous eight months of the year, according to the M&A KnowledgeBase. Yet even with that spike, the value of announced deals so far in 2017 has slumped to the lowest level for the opening nine months of any year since 2014. (The just-completed quarter reverses a particularly light Q2, which recorded the lowest quarterly value of transactions in four years.) At this point in the year over the past three years, tech acquirers, on average, had handed out $360bn – a full $100bn more than the roughly $260bn worth of announced spending so far in 2017.

Boosted by a September surge, spending on global tech acquisitions in the just-completed Q3 soared to the highest quarterly total of 2017. In fact, the $119bn worth of tech deals tallied by 451 Research’s M&A KnowledgeBase during the July-September period only slightly trailed the total amount spent during the first six months of 2017. Big prints dominated recent deal flow, with both of this year’s largest transactions coming in September. More broadly, Q3 accounted for six of the 10 biggest deals so far this year

However, focusing on the top end of the market in September, there’s some question about whether the recent momentum for momentous deals will continue through the final quarter of the year. A number of significant prints, including both of Q3’s biggest transactions, appear to be uncharacteristically large purchases done in unusual circumstances. We look at some of the reasons for that – as well as some of the imp lications of this new development – in our full report on Q3 tech M&A, which will be available to 451 Research subscribers later today.