Category: M&A

Tech M&A Outlook webinar

Brenon Daly

Contact: Brenon Daly

With the world economy shuddering and global equity market sliding, 2016 is starting out in rough shape. That’s also crimping deal flow so far this year, with January spending on tech acquisitions just half the average monthly level from last year. To get a sense of what’s happening now in the M&A market and what we expect for the rest of the year, join us on Wednesday, February 3 at 1:00pm EST (10am PST) for our annual Tech M&A Outlook webinar. You can register here.

The hour-long webinar will start with a look back at the record-breaking year of 2015 to highlight some of the trends that helped push tech M&A spending to its highest level since the Internet bubble burst. What had buyers spending freely last year – including 83 transactions valued at more than $1bn – and what has happened to that confidence so far this year? That lack of confidence has also kept any startups from coming public so far in 2016, the first time that has happened since the credit crisis. What does the rest of the year look like for tech IPOs, and which companies might look to debut despite the inhospitable market?

Join the Tech M&A Outlook webinar for views from some of 451 Research’s 100+ analysts and what they expect to be driving deals in key sectors, including the Internet of Things, mobility and security. Register here.

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

For tech M&A, 2016 is more so-so than go-go

Brenon Daly

Contact: Brenon Daly

At the start of 2016, this year looks a lot more so-so than go-go for tech M&A. Spending on global tech, media and telecom acquisitions in the just-completed month of January exactly matched the middling monthly average registered from 2010-14, just before spending soared in 2015 to its highest level in a decade and a half. Compared with last year’s record, the value of January deals reached just half the average monthly spending in 2015. (See our full report on last year’s astounding M&A activity.)

Across the globe, acquirers spent just $20.7bn on 365 transactions in January, according to 451 Research’s M&A KnowledgeBase. (It’s worth noting that while the value of January acquisitions dropped by half vs. the average month in 2015, deal volume in January exactly matched last year’s monthly average.) One reason for the weak start for M&A in 2016 is the drubbing the equity markets have taken so far this year. The Nasdaq plummeted 8% in January, the worst monthly performance for the index in a half-decade.

Amid the index’s decline last month, a number of tech vendors got roughed up as they reported lackluster fourth-quarter results and projected a slowing 2016. (Think about Intel’s datacenter business in Q4 growing at just half the rate it grew in Q1-Q3, or Apple reporting flat iPhone sales for the first time in that product’s history.) The uncertainty basically knocked out any of the more speculative, high-multiple transactions from the top end of the M&A market. For instance, the average valuation of the four largest deals in January was less than 2x trailing sales.

To help make sense of what’s happening now in the tech M&A market, as well as the outlook for the rest of 2016, be sure to attend our webinar on Wednesday, February 3 at 10am PST. The hour-long Tech M&A Outlook webinar features forecasts for both acquisition activity and valuations, in addition to providing specific outlooks for a handful of key tech sectors – including Internet of Things, mobility and information security – that we expect to be particularly active in the coming year. You can register here.

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

IBM’s Resource-ful push into the CMO office

Scott Denne

Contact: Scott Denne

IBM’s acquisitions of Unica and Silverpop basically bookended a series of deals earlier this decade when enterprise software vendors rushed for marketing applications to push to the CMO suite. That’s what makes today’s reach for digital ad agency Resource/Ammirati surprising: Big Blue shows that its strategy for winning the CMO is shifting toward services and away from software.

Resource/Ammirati is among the largest independent ad agencies to mix creative services with digital marketing. It will join IBM Interactive Experience, the digital marketing services unit that Big Blue created in 2014 by blending its existing digital agency with researchers from its customer experience lab. The addition of Resource/Ammirati brings additional digital marketing expertise and, more importantly, a creative ad agency that develops marketing strategies and ad campaigns across online and offline media, having developed TV campaigns for Labatt Breweries and Birchbox, built mobile apps for Sherwin-Williams and designed Procter & Gamble’s e-commerce platform.

In marketing software, IBM has a set of loosely related marketing apps and seems to have rightly recognized that being half-heartedly committed to building a full marketing stack isn’t going to win the day. In IT, where IBM’s strength lies, buyers have a standard set of needs and a standard set of hardware and applications to fill those needs. Marketing is more complex. New categories and channels of customer engagement appear all the time and the best marketers are constantly making adjustments and running tests to optimize performance. Building a software stack to keep up is challenging – services are more flexible.

IBM’s move into digital marketing and agency services lessens the competition with enterprise software firms, though it invites competition from other IT service providers as well as the incumbents in the CMO suite: large agency holding companies. For its part, the latter group has become more active in nabbing IT-related services. In just the past two days, we’ve seen a couple of ad agencies purchase mobile development shops (WPP’s acquisition of ArcTouch and St. Ives’ reach for The App Business). And let’s not forget Publicis Groupe’s $3.7bn pickup of Web development firm Sapient, among other deals with a technology flare.

While IBM has a massive services business beyond marketing, it hasn’t been a careful steward of those assets of late. Last quarter, continuing a trend from 2015, Big Blue’s services revenue declined 11%, a faster rate than its software business.

Jordan Edmiston Group advised Resource/Ammirati on its sale.

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

Cannella nabs MPH as TV ads become digitally measured

Scott Denne

Contact: Scott Denne

Cannella Response Television (CRT) is aiming to capitalize on the increasing need for digital metrics in TV advertising by reaching for Media Properties Holdings (MPH). The target is best known for its REVShare business, which partners with local and regional broadcasters and service providers to package and resell television inventory on a cost-per-action (CPA) basis.

Though the coming programmatic TV (i.e., television that is bought in an automated fashion and closer to real time) generates more excitement and headlines, there’s an intermediate step underway and MPH’s inventory relationships put it in a position to capitalize. It will be many years before there’s a watershed shift of television ad sales into programmatic. Despite that, there is an increasing number of younger, digitally native brands that are expanding their TV buys. As they do so, they’re looking for firm ROI metrics to measure the impact of ad spending, rather than loose measures of reach and demographics. That’s benefiting inventory sources like MPH, attribution vendors and media buying agencies with a history in direct-response advertising.

Buying MPH gives CRT a bridge into that world. Today CRT mostly develops and distributes infomercials. Owning MPH will allow it to offer short-form ads to its base of direct-response clients and attract some younger brands seeking direct-response specialists. While MPH’s inventory partnerships could enable CRT to be a player in the eventual move toward programmatic TV, it will take a substantial investment to get there. MPH has developed some analytics capabilities to enable it to price inventory on a CPA basis, though its greatest asset is its partnerships, not its tech.

Petsky Prunier advised MPH on its sale.

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

With digital marketing divestments aplenty, opportunities arise

Scott Denne

Contact: Matt Mullen

For the first half of this decade, the rise of digital marketing technology in the go-to-market strategies of many of the largest global software vendors has been difficult to ignore. Yet in the second half of 2015, there were several indicators that the progress of these transitions toward digital marketing was not uniformly successful, and several large players announced that they were looking to divest their digital marketing divisions – a sign of retrenchment as they protect their core business by shedding underperforming units that failed to generate hoped-for revenue.

In August, as part of the HP split, the company decided to put its marketing optimization business in HP Inc, among its PC and printing operations. The rest of its software organization emerged at Hewlett Packard Enterprise. That same month, Intuit announced that it wanted to sell Demandforce, which it acquired for $424m in 2012. That came to fruition earlier this month, with Internet Brands as the acquirer. Other firms looking to sell their digital marketing assets include Teradata and SDL.

That these companies’ adventures in digital marketing are almost over doesn’t suggest that the rush to establish businesses in this market was foolhardy. There remains an opportunity for the assets that are overtly (or covertly) up for sale right now to be refocused – perhaps alongside other complementary assets – most likely via an acquisition by a private equity shop with a vision to do so. 451 Research’s own data shows that the bulk of the digital marketing opportunity currently remains greenfield, ensuring that with the right combination of technical assets aligned with an astute go-to-market strategy, an active channel and agency partnerships, there’s every possibility of creating a successful business.

Look for a full report on this topic in a forthcoming 451 Market Insight.

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

FireEye gazes into threat intel market

Scott Denne

Contact: Scott Denne Scott Crawford

FireEye acquires iSIGHT Partners as it seeks to differentiate its security platform among its high-end customers. The purchase expands FireEye’s presence in the threat intelligence market – an extremely fragmented space that caters to deep-pocketed customers due to the high cost of putting together threat intel.

Despite that narrow appeal, FireEye is bullish on the category. The $200m price tag is the highest we’ve seen for a pure-play threat intelligence firm (FireEye also included a $75m half-stock, half-cash earnout in the deal). That’s not to say there haven’t been notable transactions here. Last year, LookingGlass paid $35m for QinetiQ’s Cyveillance unit; Proofpoint nabbed Emerging Threats for $40m; and Cisco paid a bit more than that for ThreatGRID.

Multiples in threat intelligence transactions have varied. LookingGlass paid less than 2x trailing revenue for its acquisition, while Proofpoint likely paid closer to 10x – Emerging Threats had just 30 employees at the time of its exit. FireEye’s purchase values iSIGHT at 5x, making it the lowest multiple we’ve seen FireEye pay in its life as a public company. Considering that FireEye itself now trades at just over 3x, following a 67% decline in the past six months, its pickup of iSIGHT shows that it’s still willing to stretch a bit for a deal. Though maybe not as much as it did with its $1bn all-stock acquisition of Mandiant at the end of 2013.

Aside from the price tag, there are some parallels between today’s deal and the Mandiant buy. At the time of the earlier transaction, FireEye emphasized the complementary nature of automated insights gained via tech and the need for human research and response. The acquisition of iSIGHT extends that rationale and the target has already made an investment in integrating threat intelligence with technology.

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

For now, VC is still flowing — but what happens when it doesn’t?

Brenon Daly

Contact: Brenon Daly

For the most part, the venture capital industry seems like it hasn’t changed the calendar and still thinks it’s the ‘up and to the right’ year of 2015. Firms are still writing checks for amounts that, until a few years ago, only came from public market – rather than private market – investors. (Datadog raising almost $100m earlier this week, for instance.) And, even though there have been only a smattering of successful $1bn VC-backed exits in recent years, firms are still bidding up funding rounds for startups, and continuing to create ‘unicorns.’ (Anaplan crossed that threshold in a round announced earlier this week.)

That is unlikely to continue in 2016, at least according to a majority of tech investment bankers, many of whom have worked on private and public fundraising. In our survey last month, more than half of the tech investment bankers forecast that venture funding will get tighter in 2016 than it was last year. That stands as the most bearish outlook since the recession, coming in twice the level of bankers that said VC dollars will be less available in our previous survey.

If indeed venture firms start keeping their money in their own bank accounts – rather than investing it in entrepreneurs – that could well put startups under pressure, resulting in slower growth rates and lower valuations for those that survive tighter times as well as dramatic flameouts for those that don’t. Not to be too ominous, but recall how business contracted in 2008-2009 when debt – which, like equity, is oxygen for many companies – was no longer widely and easily available.

Of course, quite a few VCs recognized how the broad economic recession during the credit crisis could weigh on the tech industry. (Sequoia Capital posted its famous ‘RIP: Good Times’ slides in October 2008 as a cautionary forecast for its portfolio companies.) Similarly, a few VCs have recently sounded off that valuations have gotten ahead of themselves and that startups need to watch their spending more closely.

But for the most part, that message of fiscal responsibility has only started to get through to executives and their backers. Most money-burning startups continue to run their businesses as if there’s an inexhaustible supply of money. Triple headcount in a year? Sure, if a company can find enough warm bodies. Spend three times more on sales and marketing than the revenue that effort brings in? No reason not to as long as companies are valued on growth. But at some point this year, startups will almost certainly have to make different decisions than they’ve made up to now.

Projected change in availability of VC funding for startups

Year More available The same Less available
December 2015 for 2016 7% 36% 57%
December 2014 for 2015 36% 40% 24%

Source: 451 Research Tech Investment Banker Survey

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

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

Brenon Daly

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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Flashtalking seeks a second act in data with Encore Media pickup

Scott Denne

Contact: Scott Denne

Flashtalking reaches for Encore Media Metrics, a provider of advertising attribution and analytics, as it looks to challenge Google’s dominant position as the preeminent third-party ad server. The company has a footprint in the ad serving business through its creative capabilities, though it typically trails Google’s DoubleClick for Advertisers (DFA) ad server. Flashtalking hopes that with this deal, along with the recent purchase of Germany-based device-fingerprinting firm Device[9], the combination of its creative optimization and data capture and analysis capabilities will be enough to gain traction as a primary ad server.

The acquisition of Encore Media is likely modest in size. The target appears to have just a handful of employees and is mostly being bought to roll the technology into Flashtalking’s ad server. In those ways it is similar to Device[9], which Flashtalking snagged in September. The pair of transactions are the only two it has made since TA Associates took a majority stake in the firm in August 2013.

Flashtalking’s bid to carve away at DFA’s dominant position is ambitious. Other ad servers have fallen short in previous attempts to dislodge DFA, and Flashtalking’s own attempt comes at a time when Facebook is also making a push for this corner of the ad market. There are, however, reasons to think it could be successful. For one, a company of its size need only capture a modest overall share to reap outsized gains. Also, as programmatic advertising gains momentum, particularly among ad agencies, data-driven advertising rises alongside it. Flashtalking is betting that it can leverage its relationships and track record as a secondary ad server into a primary position.

We’ll have a full report on this deal in tomorrow’s 451 Market Insight.

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

Citrix’s reorg heads to the clouds with Cloud.com divestiture

Scott Denne

Contact: Scott Denne

Citrix has kicked off a restructuring program by selling its CloudPlatform and CloudPortal businesses to Accelerite, a unit of Persistent Systems. Following the attentions of an activist shareholder and an extended streak of lackluster growth – both top- and bottom-line – Citrix disclosed a strategic reorganization late last year that will see it spin off its GoTo SaaS business as an independent public company and divest or shut down several other product lines.

The assets it’s unloading today are those it obtained in the $200m purchase of Cloud.com back in 2011. Starting with the 2003 reach for Expertcity (now its GoTo division), Citrix was an active acquirer – averaging almost one deal per quarter in the years since. That transaction and the 40 that followed were an attempt to decrease its reliance on its terminal server product. Now that Citrix has narrowed its focus again, there’s plenty of fodder for other divestitures.

The company has also announced that it will stop investing in Bytemobile, which optimizes Internet video delivery and, like CloudPlatform and CloudPortal, is not linked to its newly minted focus on securing the delivery of apps and data. Today’s deal is the first divestiture we’ve recorded from Citrix and though it will likely be a net seller for the next few quarters, it hasn’t completely stopped buying. Citrix also announced today that it has acquired desktop virtualization assets from Comtrade.

We’ll have a more detailed report on Accelerite’s acquisition of Citrix’s assets in tomorrow’s 451 Market Insight.

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