Category: M&A

Salesforce: Try before you buy

Brenon Daly

Contact: Brenon Daly

When it comes to M&A, Salesforce likes to go with what it already knows. More than virtually any other tech firm, the SaaS giant tends to acquire startups that it has already invested in. Overall, according to 451 Research’s M&A KnowledgeBase, Salesforce’s venture arm has handed almost one of every five deals to the company. Just this week, it snapped up collaboration vendor Quip – the eighth startup backed by Salesforce Ventures that Salesforce has purchased.

For perspective, that’s twice as many companies as SAP Ventures (or Sapphire Ventures, as it has been known for almost two years) has backed that have gone to SAP. (We would note that the parallel between SAP/Sapphire Ventures and Salesforce Ventures doesn’t exactly hold up because the venture group formally separated from the German behemoth in January 2011.) Still, to underscore SAP/Sapphire Ventures’ nondenominational approach to investments, we would note that archrival Oracle has acquired as many SAP/Sapphire Ventures portfolio companies as the group’s former parent, SAP, according to the M&A KnowledgeBase.

Salesforce’s continued combing through its 150-company venture portfolio comes at a time of uncertainty and a bit of anxiety about the broader corporate venture industry. It isn’t so much directed at the well-established, long-term corporate investors such as Salesforce Ventures, Intel Capital, Qualcomm Ventures or Google’s investment units. Instead, it’s the arrivistes, or businesses that have hurriedly set up investment wings of their own over the past two or three years as overall VC investment surged to its highest level since 2000. (They seem to have been infected with the very common Silicon Valley malady: Fear of Missing Out.) It’s hard not to see a bit a froth in the corporate VC market when Slurpee seller 7-Eleven launches its own investment division, 7-Ventures.

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

BeyondTrust on the block?

Brenon Daly

Contact: Brenon Daly

Less than two years after acquiring BeyondTrust, Veritas Capital is looking to sell the privilege identity management vendor, several market sources have indicated. We understand that the private equity firm has retained UBS to run a narrow process, with the expectation that BeyondTrust would fetch at least twice the price the buyout shop paid in its September 2014 purchase. (Subscribers to 451 Research’s M&A KnowledgeBase can see our estimated terms of that deal by clicking here.)

BeyondTrust is expected to generate about $100m in sales this year and throw off roughly $40m of cash, according to our understanding. Recent transactions involving similar-sized identity and access management (IAM) vendors have gone off at about 6x sales. That’s roughly the multiple we estimate Vista Equity Partners paid for Ping Identity in early June, as well as the estimated valuation Thoma Bravo paid for IAM vendor SailPoint two years ago. (Subscribers to 451 Research’s M&A KnowledgeBase can view our estimated terms of the Ping deal and the SailPoint transaction.)

One reason acquirers have paid above-market valuations for identity-related providers is that cloud technology is predicated on knowing who users are and what they should have access to. That’s been reflected in infosec budgets. In the latest survey of IT security professionals by 451 Research’s Voice of the Enterprise, identity management ranked in the top quartile for security projects in the coming year.

VotE InfoSec priorities Q1 2016

Source: 451 Research’s Voice of the Enterprise: Information Security, Q1 2016

July fireworks in tech M&A

Brenon Daly

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

Massive SaaS: Oracle pays up for NetSuite

Brenon Daly

by Brenon Daly

Announcing the largest-ever SaaS transaction, Oracle says it will pay $9.3bn in cash for cloud ERP vendor NetSuite. The deal, which is expected to close before year-end, involves the ever-acquisitive Oracle snapping up the roughly 54% of NetSuite not already owned by Oracle founder and executive chairman Larry Ellison.

Terms call for Oracle to pay $109 for each share of NetSuite. Oracle’s bid represents a premium of nearly 60% over NetSuite’s closing price 30 days ago, before rumors swirled about this pairing. Although the premium is about twice as rich as typical enterprise software transactions, NetSuite is still valued just a smidge below its highest-ever stock price, which it hit in early 2014.

NetSuite is the latest SaaS firm that Oracle has gobbled up as the 29-year-old company increasingly stakes its future on cloud software. After initially ignoring – and even dismissing – the disruptive trend of subscription-based software, Oracle, which still sold more than $7bn worth of software licenses in its just-completed fiscal year, went on a SaaS shopping spree. In addition to NetSuite (ERP), Oracle’s other recent SaaS deals valued at $1bn or more include: Taleo (HR software), Responsys (marketing software), RightNow (CRM) and Datalogix (marketing data).

At an equity value of $9.3bn, NetSuite is valued at 11x its trailing 12-month revenue of $846m. That matches the average multiple paid by rival SAP in its multibillion-dollar SaaS acquisitions, as well as the valuation Salesforce put on e-commerce provider Demandware in June.

Further, to underscore the value that can accrue through the subscription model, it’s worth noting that NetSuite’s double-digit multiple is basically twice the multiple that Oracle has paid for the license-based software vendors it has acquired. (Of course, some of the discrepancy can be attributed to NetSuite’s enviable 30% growth rate, even as the 18-year-old company hits a $1bn run rate.)

Specifically, consider Oracle’s purchase more than a decade ago of PeopleSoft, which would stand as a representative ERP transaction for the ‘Software 1.0’ era while NetSuite serves as a ‘Software 2.0’ deal. Although Oracle paid $1bn more for PeopleSoft than NetSuite, PeopleSoft generated three times more revenue than NetSuite. Put another way, if we applied PeopleSoft’s valuation of 4x trailing sales to NetSuite, Oracle would have had to pay only $3.4bn – rather than $9.3bn – to take it home.

SaaS multiples

LogMeIn goes to GoTo

Brenon Daly

by Brenon Daly

Eight months after Citrix announced plans to spin off its GoTo business, the company has significantly bulked up the unit with the consolidation of rival online communications and support provider LogMeIn. The deal, which is structured as a tax-advantaged merger that values LogMeIn at $1.8bn, would increase GoTo’s revenue by about 50% to $1bn. It is expected to close early next year.

Terms of the Reverse Morris Trust transaction call for Citrix to own slightly more than half of the combined entity, holding 50.1% of the company with LogMeIn retaining the remaining 49.9%. Ownership notwithstanding, LogMeIn will have an outsized role in charting the future course of the $1bn SaaS giant.

Both the current CEO and CFO at LogMeIn will hold those respective roles at the combined firm, which will take LogMeIn’s current headquarters as its own. Further, LogMeIn will have five directors on the company’s board, with four coming from Citrix. We would attribute that weighting to the fact that LogMeIn has significantly outgrown the larger GoTo unit. In the just-completed second quarter, for instance, LogMeIn increased revenue about 28%, roughly twice the rate at GoTo.

At $1.8bn, the deal values LogMeIn at its highest-ever level. Over the past year, LogMeIn has generated $309m in sales, meaning it is being valued at 6x trailing sales. That’s a bit shy of the average of 7.5x trailing revenue paid for SaaS vendors in transactions valued at more than $1bn, according to 451 Research’s M&A KnowledgeBase. For instance, two months ago, Vista Equity Partners paid 8x trailing sales for Marketo, a smaller but slightly faster-growing marketing automation provider that, unlike LogMeIn, runs in the red.

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

Verizon strikes $4.8bn deal for Yahoo’s core biz

Scott Denne

Contact: Scott Denne

Verizon moves to augment its media business with the $4.8bn purchase of Yahoo’s central assets. The deal, which wraps up years of speculation about Yahoo’s future in the new media landscape, will see its core business and operations head to Verizon to be integrated with AOL, while its investments and other assets will stay behind in a company that will be renamed and restructured as a publicly traded, registered investment entity.

Aside from licensing revenue from some of the noncore patents that Yahoo will keep, nearly all of its $4.9bn in trailing revenue will head over to Verizon. The transaction values the target’s assets at about 1x trailing revenue, compared with the 1.6x that Verizon paid for AOL last year. The discrepancy in value reflects the depth of the comparative technology portfolios. Both vendors spent heavily on ad network businesses in the back half of the past decade and early years of this one. More recently, AOL turned its investments toward programmatic, attribution and other advanced advertising technology capabilities. Yahoo doubled down on content while its ad network technologies aged.

This move is all about scaling Verizon’s media footprint. Both Yahoo and AOL have roots in the Web portal space. And both are selling to Verizon for similar prices. But Yahoo’s media assets are substantially larger. AOL generates roughly $1bn from its owned media properties – Yahoo pulls in 3.5x that amount. Owning Yahoo’s media properties will enable Verizon to offer greater reach to advertisers and therefore land bigger deals and at better margins than the ad network revenue that made up almost half of AOL’s topline. Also, having a larger audience for its owned properties will provide AOL’s ad-tech business with more data that it can use to improve its audience targeting.

Telecom services is a saturated market with few net-new customers. Most growth comes from winning business away from competitors. With this acquisition (and AOL before it), Verizon plans to leverage its investments in mobile bandwidth and distribution – its existing mobile and TV customers – to find growth in the digital media sector. According to 451 Research’s Market Monitor, digital advertising revenue in North America will increase 12% this year to $40.6bn, compared with just 4% growth for mobile carrier services.

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

Workday nabs Platfora for big-data analytics

Scott Denne

Contact: Matt Aslett

In keeping with the trend of SaaS application vendors snagging stand-alone analytic capabilities, human capital management specialist Workday has bought Platfora, a big-data discovery and visualization provider. Workday’s motivation for the purchase is to complement the analytic capabilities already built into Workday Financial Management and Workday Human Capital Management – without users having to export data outside Workday.

Workday is not disclosing how much it is paying for Platfora, and while we imagine it was more than the $26.3m and estimated $35m it previously spent for Identified and Cape Clear Software, respectively, we would be surprised if the target’s backers generated a significant return on the combined $95.2m they invested in its four funding rounds.

While it has been reticent to share exact numbers, Platfora has clearly built up a decent-sized list of customers. Over time, the company has shifted its focus beyond Hadoop visualization to also address data discovery and preparation, while adding support for open source SQL-on-Hadoop projects and the Apache Spark in-memory processing engine. Platfora also provides Workday with a data discovery and visualization offering that it can use to complement the analytic capabilities that it has already added to its own applications, as well as enable business users to access data from external sources and bring it into Workday for analysis.

Workday’s Platfora buy follows similar acquisitions of analytic specialists by other SaaS application providers – such as Salesforce’s reach for EdgeSpring and Zendesk’s pickup of BIME Analytics (formerly known as We Are Cloud), although Workday doesn’t compete directly with either of these. In fact, it could be said that all three are looking to add value to take on a common enemy – incumbent enterprise application vendors such as Oracle, SAP and Infor.

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

Nuance voices desire to expand in customer service with TouchCommerce buy

Scott Denne

Contact:  Scott Denne Sheryl Kingstone

Nuance Communications breaks a two-year M&A dry spell with the $215m purchase of TouchCommerce. Building off its earlier acquisitions of Varolii and VirtuOz in 2013, today’s announcement gets Nuance deeper into the customer service segment with analytics software and tools for both self-service and agent-assisted service via multiple mobile and desktop channels.

Amid flat revenue and a cost-cutting program, Nuance hadn’t announced a new acquisition since its tuck-in of document software provider Notable Solutions in July 2014. In previous years, it directed some of its M&A spending toward customer service, although most went toward building out its medical transcription division – its largest business and one that declined slightly through its last fiscal year and the first two quarters of its current one.

Nuance isn’t the only one increasing its investments in customer service. According to 451 Research’s M&A KnowledgeBase, acquirers have spent $1.4bn on that category so far in 2016, putting it on pace to be the second-largest year on record. Our data suggests that the investments, particularly in mobile-heavy players like TouchCommerce, is warranted. According to a recent 451 Research Voice of the Connected User Landscape survey, 37% plan to deploy customer self-service capabilities over the next 24 months.

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

Dollar Shave Club: a rare unicorn indeed

Brenon Daly

by Brenon Daly

With a reported unicorn-sized exit, Dollar Shave Club has been able to pull off what few other high-profile e-commerce startups have done recently: actually deliver a return to its investors. The e-tailer, which raised more than $150m since its founding four years ago, sold to consumer products giant Unilever for $1bn, according to numerous press reports. Assuming that 10-digit price tag is correct, Dollar Shave Club investors stand to pocket a tidy return.

The same can’t be said for the backers of two other websites that frequently found themselves in the headlines for ‘disrupting’ the staid retail industry, but came up short when they sold earlier this year to the very brick-and-mortar companies they set about disrupting. Both Gilt Groupe (acquired by Hudsons Bay Company in January) and One Kings Lane (acquired by Bed Bath & Beyond in June) sold for less than the money they raised from VCs. Investors lavished about a quarter-billion dollars on both Gilt Group and One Kings Lane, or some $100m more than Dollar Shave Club took in.

The distressed sales of Gilt Group and One Kings Lane initially confirmed that some of the air appeared to be leaking out of the valuation bubble for many of Silicon Valley’s highest-valued startups. That shouldn’t come as a surprise. After all, a majority of the respondents to the M&A Leaders’ Survey from 451 Research and Morrison & Foerster forecast last October that the unicorns that would exit in the coming year would do so at a lower valuation than they had commanded in their latest VC fundings.

MoFo Unicorn outlook

SoftBank makes hard turn into IoT market with purchase of ARM

Scott Denne

Contact: Scott Denne

SoftBank Group digs deep into its treasury for a bet that won’t pay off for several years. The company will spend $32.4bn to acquire ARM Holdings, a provider of chip designs for the mobile ecosystem. SoftBank will hand over $22bn of its own cash and fund the remainder of the all-cash deal with a bridge loan that it expects to repay with the proceeds of its sale of Supercell and a chunk of its Alibaba stock (both transactions were previously announced). That will leave SoftBank, which finished its recent fiscal year with negative free cash flow of $4bn, with about $2.5bn in cash and $25bn in debt.

The acquisition is the second-largest semiconductor deal, edged out by Avago’s $37m purchase of Broadcom last year. Despite the wave of large-scale consolidation in the chip industry over the past two years, $30m-plus chip pairings are rare. The third-largest transaction, the take-private of Freescale Semiconductor, was announced almost a decade ago and was just over half the size of today’s deal.

SoftBank will pay 20.9x trailing revenue for ARM. That’s the first time any company has cracked the 20x mark in a $1bn-plus chip acquisition. Even 10x has only been passed on two previous occasions, according to 451 Research’s M&A KnowledgeBase. As a supplier of intellectual property, not the chips themselves, ARM has a stronger profit margin compared with other chip vendors. That accounts for some of the high multiple. Still, the roughly 46x EBITDA multiple is one of the highest among such transactions.

Part of the rationale for the deal – and the valuation – is built on the emerging Internet of Things (IoT) opportunity. As a major licenser of system-on-chip technologies, ARM stands to play a major role in that market. And SoftBank, as a provider of wireless connectivity services in both Japan and the US, anticipates that substantial synergies will develop among the companies’ offerings, although it admits that such synergies won’t generate meaningful revenue or cost savings for many years.

That said, the overall growth of IoT will provide tailwinds for ARM to grow into its valuation with or without synergies. According to 451 Research’s Market Monitor, service providers globally will post $11bn in annual revenue servicing M2M connections. That number will nearly triple by the end of 2020.

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