Category: M&A

Wipro snags Appirio for SaaS scale

Scott Denne

Contact: Scott Denne

Wipro makes the latest and largest bid to bring SaaS expertise to its systems integration business with the $500m acquisition of Appirio. Accenture, CSC and IBM have all inked recent nine-digit deals for similar companies. None of their targets were quite as large as Appirio, which was cresting $200m in annual revenue at the time of its exit.

In terms of valuation, Appirio’s multiple occupies the lower part of the narrow band of valuations on comparable transactions. Bluewolf fetched 2.7x in its sale to IBM last March. Cloud Sherpas got the same from Accenture in September 2015. Fruition Partners came in at 2.4x when it was purchased by CSC in August 2015.

With Appirio, Wipro gets the last independent SaaS vendor with significant scale. Appirio’s size was likely a draw for Wipro, which will need to do more M&A as it stretches for an ambitious revenue target. When Abidali Neemuchwala took the helm in February, the company promised to get its revenue to $15bn by 2020. Wipro finished its most recent fiscal year with $7.7bn, up 9% from the previous year.

It will need about 18% growth per year to hit its target and has already been uncharacteristically aggressive in pursuit of that. In February, the company paid $460m for HealthPlan Services and with Appirio it has now inked two $400m+ deals in a single year. Prior to 2016, Wipro had only spent more than $100m on two transactions in the entire previous decade.

M&A isn’t the only ingredient in its drive to hit $15bn. The company has reorganized about a half dozen themes where it can find growth above and beyond the core IT infrastructure services market. One of those themes is a focus on digital design and customer experience consulting. In that respect, Appirio and Wipro are aligned. Consulting generates just roughly 5% of Wipro’s business – Appirio itself has spent the past year adding digital design capabilities.

William Blair & Company advised Appirio on its sale (as well as Bluewolf and Fruition on their exits).

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

A summer surge puts Q3 tech M&A back on record pace

Brenon Daly

Contact: Brenon Daly

For at least one quarter, it was as if we never turned the calendar on the record-breaking pace of tech M&A we saw in 2016. Dealmakers around the globe spent $153bn on 910 tech, media and telecom (TMT) transactions announced from July to September. That ranks the just-completed Q3 as the third-highest quarterly total since the end of the recession, according to 451 Research’s M&A KnowledgeBase. In fact, the rather unexpectedly strong M&A spending in Q3 exactly matched the average quarterly tally from 2015, when deal value hit its highest annual level since the internet bubble burst.

This summer’s surge brings the total spent by TMT acquirers around the globe so far in 2016 to $336bn, putting 2016 already ahead of the full-year totals for six of the past eight years. Looking ahead, if we assume the pace of spending from January-September continues in Q4, full-year 2016 deal value would hit some $440bn – the second-highest annual total since 2002, according to the M&A KnowledgeBase.

Spending in the summer quarter was dominated by a parade of blockbuster transactions. Overall, last quarter saw four of the five largest deals of the year announced. Significant Q3 transactions include:

  • Continuing its big-ticket expansion into technology growth markets, SoftBank paid $32.4bn for ARM Holdings. The deal stands as the second-largest semiconductor transaction in history, trailing only Avago’s $37bn purchase of Broadcom last year.
  • Intel ended its experiment of baking security directly into its silicon by divesting a majority stake of its McAfee division. The move values McAfee at just $4.2bn, meaning the business has lost about 40% of its value under Intel’s six-year ownership. For comparison, during that same period, Symantec’s market value has almost doubled.
  • Hewlett Packard Enterprise unwound a series of earlier software acquisitions that were supposed to drive its next leg of growth, taking a pretty big discount in the process. The portfolio, which was accumulated over a decade by its predecessor company, cost HPE more than $20bn to acquire, but was spun off to Micro Focus in a transaction valued at $8.8bn.
  • Oracle paid $9.3bn, or 11x trailing sales, for NetSuite, making the largest purchase of a subscription software vendor ever. NetSuite’s valuation was roughly twice the level that Oracle has paid for the license-based software providers it has bought over the years.
  • In the biggest sale of a VC-backed company in two and a half years, Walmart paid $3.3bn for e-commerce startup Jet.com.

Our full report on the blockbuster Q3 tech M&A activity will be available to 451 Research subscribers later today.

Recent quarterly deal flow

Period Deal volume Deal value
Q3 2016 910 $153bn
Q2 2016 1,043 $110bn
Q1 2016 1,039 $73bn
Q4 2015 1,063 $185bn
Q3 2015 1,162 $85bn
Q2 2015 1,074 $208bn
Q1 2015 1,040 $121bn
Q4 2014 1,028 $65bn
Q3 2014 1,049 $102bn
Q2 2014 1,005 $141bn
Q1 2014 854 $82bn

Source: 451 Research’s M&A KnowledgeBase

Tech M&A this summer is a really big deal

Brenon Daly

Contact: Brenon Daly Kenji Yonemoto

It’s been a blockbuster summer for blockbuster deals. Since July, tech acquirers have announced more transactions valued at $1bn+ than any quarter since the recent recession. 451 Research’s M&A KnowledgeBase has tallied a record 33 ‘three-comma deals’ here in Q3, significantly above the average of roughly 20 transactions per quarter over the past two years. Overall, big-ticket purchases, which had a median value of $2.2bn, account for a staggering $130bn of the roughly $150bn in total spending on tech M&A this quarter.

The billion-dollar prints this summer came from across the IT landscape, according to the M&A KnowledgeBase, with three semiconductor deals valued at more than $1bn, the largest SaaS transaction in history and the biggest exit for a VC-backed startup in two and a half years. Another source that has (rather unexpectedly) contributed to deal flow at the top end of the market recently has been divestitures. Fully one-quarter of the $1bn+ deals in Q3 involved the sale of divisions of larger companies, such as Hewlett Packard Enterprise shedding its software unit and Intel divesting a majority stake of McAfee. (Several of the billion-dollar transactions announced in Q3, such as the HP Software and McAfee deals, effectively involve unwinding previous billion-dollar acquisitions.)

451 Research will publish a full report on M&A activity in Q3 early next week. But the headline for the quarter is certainly the record number of big prints, which helped push spending to the third-highest quarterly total since the end of the recession, according to the M&A KnowledgeBase.

1bn-deal-quarterly

Source: 451 Research’s M&A KnowledgeBase

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

Motorola motors toward public-sector software and services

Mark Fontecchio

Contact: Scott Denne, Mark Fontecchio

Motorola continues to look to software and services to rescue its hardware business. The acquisition of Spillman Technologies is the latest in a string of such deals by the radio communications company, which has spent the past five years getting back to its legacy business in public safety through a spinoff and several divestitures. Those moves brought it relief from several price-sensitive commodity markets but left it in one with little growth – there aren’t a lot of new fire departments and police stations that have yet to invest in a radio system.

Acquiring Spillman Technologies, a developer of dispatch and records management software for police and fire agencies, gives Motorola a software offering to push into a sector where it’s entrenched. That’s similar to the rationale behind its two other recent software purchases: PublicEngines and Emergency CallWorks.

In addition to market maturity, weakness in foreign sales has also pushed down revenue for Motorola’s hardware products, yet its managed services business has grown. Its $1.2bn acquisition of Airwave Solutions in February drove 26% year-over-year growth in its services segment last quarter (organically, that unit grew in the low-single digits). While services still makes up less than half of its roughly $6bn topline, the combination of Motorola’s hardware and existing network management services along with Airwave’s network management business provides it a channel through which it can push new offerings and grab share in a market it already dominates. Motorola’s public-safety business is 10 times the size of Harris, its nearest competitor.

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

As candidates brawl, some spending plans get knocked down

Brenon Daly

Contact: Brenon Daly

Regardless of the outcome of tonight’s inaugural US presidential debate, this year’s election process has already turned off voters. The prospect of casting a ballot for either of the two mainstream presidential candidates – who are both currently viewed ‘unfavorably’ by a majority of US voters – in an increasingly rancorous campaign is casting a cloud that expands far beyond Washington DC. The electoral disenchantment is also likely to hurt business.

That’s one conclusion of a new survey from 451 Research’s ChangeWave service, which last week asked more than 1,900 consumers what impact the ongoing US presidential election will have on their shopping plans for the next three months. The vast majority of respondents (71%) said the Trump vs. Clinton circus would have no impact on their discretionary spending through the end of the year. However, if we look at the minority-but-still-sizable remaining portion (29%), those respondents overwhelmingly indicated they are putting away their checkbooks. In fact, the number of consumers who forecast they would be decreasing their discretionary purchases (22%) was 11 times higher than those who said they would be increasing their purchases (2%).

We mention the ChangeWave finding because it may (and here we emphasize the word ‘may’) help explain some of the slowdown in recent tech M&A activity. Obviously, some qualifications are needed any time we extrapolate results from a consumer-based survey to the corporate world. To be clear, ChangeWave polled consumers only about their plans for individual discretionary purchases, and did not specifically address corporate M&A. Nor did it focus on tech. However, given that companies are just a collection of people who tend to bring their perceptions with them to the office, and acquisitions can sometimes be viewed as a discretionary purchase, we would make the case that ChangeWave’s finding has relevance to the tech M&A community.

Regardless of whether the presidential election is actually knocking deals off the table, something is slowing down activity. In the first half of 2016, tech acquirers announced an average of 350 transactions each month, according to 451 Research’s M&A KnowledgeBase. Both July and August came in below that level. In fact, last month’s total of just 297 tech deals, representing a 14% decline from the monthly average in the first half of 2016, was the first time since March 2014 that M&A volume failed to top 300. And while September won’t wrap up until the end of this week, this month is tracking even weaker than last month. (We are on pace for about 270 announced transactions for September.) In other words, as we get closer to election day, M&A activity is dropping off.

cw-presidential-election-impact

Google and other tech giants understand the value of natural-language technology

Scott Denne

Contact: Scott Denne

Virtual assistants, bots and conversational software interfaces are sending the world’s largest tech companies hunting for natural-language-processing (NLP) technologies and expertise. Google is the latest to make a kill with its acquisition of API.AI, which provides developers with access to NLP capabilities. With the purchase, Google could benefit from API.AI’s developer network, giving the search giant access to a significant number of bots, applications and devices already using speech recognition and NLP technologies.

However, multiple redundancies are the most striking feature of this deal – Google already offers developer tools for NLP and speech recognition, as well as its own conversational assistant in its recently launched Allo messaging app and its Google Home smart speaker. Those redundancies highlight the demand for NLP expertise as the acquisition of API.AI will expand Google’s team of experts working on conversational interfaces.

Google’s move comes just three months after Microsoft’s pickup of API.AI rival Wand Labs as the enterprise giant seeks to transform the functionality of its products with NLP, machine learning and data. IBM, Facebook, Google and Amazon have all inked previous NLP transactions and we anticipate continued interest in other independent NLP platform providers such as Recast.AI, init.ai and msg.ai, as well as bot-building platform specialists that include an NLP component. Both categories of vendors bring expertise and cater to developers, which is an important element to growing out diverse sets of training data to tune NLP algorithms.

Subscribers to 451 Research’s Market Insight Service will have access to a full report on Google’s API.AI buy later today. Meanwhile, click here to view a previous Spotlight on developer platforms for chat bots and NLP.

Notable NLP acquisitions

Date announced Acquirer Target
September 19, 2016 Google Speaktoit (dba API.AI)
June 16, 2016 Microsoft Wand Labs
March 4, 2015 IBM AlchemyAPI
January 5, 2015 Facebook Wit.ai
April 17, 2013 Amazon Evi Technologies

Source: 451 Research’s M&A KnowledgeBase

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

Infoblox sells for $1.6bn amid a slew of PE take-privates

Scott Denne

contact: Scott Denne

Billion-dollar take-privates continue to rise to record levels as Vista Equity Partners pays $1.6bn for Infoblox. Vista has ended the network management vendor’s four-year run as a public company – a run that has seen shifts toward virtualization catch up with the target. Many of Infoblox’s capabilities – e.g., DNS, DHCP and IP address management – are now included in different virtualization and cloud management products. As that has happened, Infoblox’s growth has slowed and it has become more reliant on specialty deployments, particularly for security, which now generates 16% of sales, up from 8% a year ago.

Today’s deal marks the third time this year that Vista has taken a public company off the market. The first two, Marketo and Cvent, went off at 8x trailing revenue – aggressive multiples for a private equity (PE) transaction. By comparison, Infoblox is selling for 3.7x. Marketo and Cvent were posting about 30% annual revenue growth at the time of their sales. Infoblox, on the other hand, was slightly down year over year last quarter and expects 6% or less growth over its recently begun fiscal year.

Being lower than Vista’s recent deals doesn’t mean that Infoblox isn’t commanding a strong multiple. Despite growth challenges and the fact that it puts up negative EBITDA – squinting past a restructuring charge gets it nearly in the black this year – Infoblox’s multiple comes in right at the median multiple for similar transactions.

Availability of debt has helped drive PE deals to recent highs. According to 451 Research’s M&A KnowledgeBase, there have now been 10 take-privates by PE firms valued at or above $1bn, more than any other full year in the past decade. (The total value of such transactions is higher than most years, but not breaking records as no single deal has cracked $5bn).

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

Amdocs’ engaging trio of acquisitions

Scott Denne

Contact: Sheryl Kingstone Scott Denne

Amdocs, the dominant provider of operational telecom software, stretches into customer engagement with a trio of uncharacteristic acquisitions. The telecom support systems giant must push beyond traditional operational and billing software (OSS/BSS) as the nature of customer service changes in the telecom industry.

The Israel-based company spent a combined $260m to acquire Brite:Bill, Pontis and Vindicia, enhancing its billing experience and customer engagement capabilities. Acquisitions have been a part of Amdocs’ legacy. However, three deals in a day in unusual. In fact, it’s been a decade since Amdocs inked three transactions in a single year.

It’s not just the number of new purchases that defies Amdocs’ M&A M.O. The vendor bought its way toward consolidating OSS/BSS, first pushing from BSS into OSS and then, more recently, doing deals to shore up its market share in that sector. Now Amdocs is looking to M&A for new capabilities to address the changing requirements of consumers. And there’s an urgent need to do that.

The increasing availability of digital communications and customer service has unleashed an abundance of new consumer demands. Telcos are no longer competing on price alone. Mobile, social and other digital channels are empowering customers to dictate the terms of engagement with their chosen service providers. That is forcing service providers to complement systems of record with systems of engagement that are agile and intelligent. According to our surveys, 76% of consumers prefer to use digital channels to avoid calling a customer service agent. Of those, 42% view that capability as a prerequisite for future loyalty.

Arma Partners advised Brite:Bill on its sale.

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

A tarnished Golden Tombstone

Brenon Daly

Contact: Brenon Daly

In each of the past nine years, 451 Research has surveyed more than 100 corporate development executives to find out which deal announced during that year stood out to them as the most significant transaction. The peer-selected prize, which we call the Golden Tombstone, has gone to companies across the tech landscape. Still, many of those blockbuster transactions haven’t generated the expected returns. The Golden Tombstone, it turns out, can tarnish over time.

We saw that yet again this week, as Intel unwound its full ownership of McAfee, which was voted the most significant transaction of 2010. With that divestiture, the number of Golden Tombstone-winning transactions that have been undone climbed to three, representing an alarming one-third of the annual prize winners. (The others: Hewlett-Packard Enterprises sold off its services business in May, reversing its 2008 acquisition of EDS; and Google unwound its 2011 purchase of Motorola Mobility three years later.) For the record, the ‘exit’ prices for all of those businesses was far less than the ‘entrance’ prices.

Not to jinx the transaction or anything, but we would nonetheless note that last year’s landslide winner was Dell’s acquisition of EMC. That transaction, which was announced last October and officially closed earlier this week, was an obvious vote for the Golden Tombstone. After all, it is the largest pure tech transaction in history. And yet, even though Dell and EMC are only (officially) beginning their corporate life together, there’s already some ominous history lining up against the deal.

Top vote-getter for ‘most significant tech transaction’

Year Deal
2015 Dell’s acquisition of EMC
2014 Facebook’s acquisition of WhatsApp
2013 IBM’s acquisition of SoftLayer
2012 VMware’s acquisition of Nicira
2011 Google’s acquisition of Motorola Mobility
2010 Intel’s acquisition of McAfee
2009 Oracle’s acquisition of Sun Microsystems
2008 Hewlett-Packard’s acquisition of EDS
2007 Citrix’s acquisition of XenSource

Source: 451 Research Tech Corporate Development Outlook Survey

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