Category: M&A

Even after record year, tech bankers say pipeline isn’t a problem for 2016

Brenon Daly

Contact: Brenon Daly

After working through a year that saw tech M&A spending soar to its highest level in a decade and a half, tech investment bankers say their pipelines are still relatively full for 2016. More than seven out of 10 respondents (72%) indicated that the total value of as-yet unclosed transactions is higher now than it was this time last year, according to the annual 451 Research Tech Banking Outlook Survey. This year’s bullish forecast is five times higher than the 14% that said their pipelines are drier than they were a year ago.

Although bankers’ assessment of their pipeline for this year ticked a bit lower from our previous survey, it is still the third-strongest response we’ve tallied since the recent recession. It is even more noteworthy when we consider that half of the bankers (51%) said in a separate question that we are at or near the end of the current M&A cycle. That was 10 times higher than the 5% who said the cycle is either just beginning or close to the beginning.

On the more important question about valuations (as opposed to activity), bankers are unprecedentedly bearish for this year. Nearly two-thirds of respondents to our survey (64%) indicated that they see deal pricing coming down in 2016, compared with just 14% that anticipate valuations ticking higher. That’s almost a direct reversal of typical valuation outlook over the past half-decade given by M&A advisers.

451 Research subscribers can click here to view the rest of the results of our annual survey of senior tech investment bankers and their forecast on how busy they expect to be – including buyouts and IPOs – and what tech sectors will see the most activity in 2016.

Change in dollar value of tech mandates

Year Increase Stay the same Decrease
December 2015 for 2016 72% 14% 14%
December 2014 for 2015 77% 17% 6%
December 2013 for 2014 65% 19% 16%
December 2012 for 2013 58% 21% 21%
December 2011 for 2012 67% 21% 12%
December 2010 for 2011 83% 10% 7%
December 2009 for 2010 68% 12% 20%
December 2008 for 2009 26% 22% 52%

Source: 451 Research Tech Banking Outlook Survey

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

Tech’s corporate acquirers pull back on M&A plans

Brenon Daly

Contact: Brenon Daly

After a record run for tech M&A spending in 2015, an unprecedented number of the main buyers in the market expect to cut back on their shopping in the coming year, according to our annual survey of corporate development executives. Respondents gave their most bearish forecast for acquisition plans in the nine years of the 451 Research Tech Corporate Development Outlook Survey. Fewer than one-third (31%) of respondents said their firms would be increasing activity in the coming year, a full 20 percentage points lower than the average level over the previous eight surveys.

For the first time in survey history, virtually the same number of corporate development executives forecast that their firms would be scaling back their M&A programs (28%) as said they would be increasing acquisition activity (31%) in the coming year. In previous surveys, the percentage of respondents projecting an increase has vastly outweighed those anticipating a decrease, ranging from roughly two to 10 times as many as respondents.

If the bearish sentiment does come through in the activity, 2016 would snap three consecutive years of higher M&A spending, culminating in a record of nearly $600bn worth of announced tech, media and telecom (TMT) acquisitions in 2015, according to 451 Research’s M&A KnowledgeBase.

451 Research subscribers can see our full report on the outlook from corporate development executives regarding M&A valuations, private equity activity and just how many – or rather, how few – startups will go public in 2016.

Projected change in M&A activity

Year Increase Stay the same Decrease
December 2015 for 2016 31% 41% 28%
December 2014 for 2015 58% 36% 6%
December 2013 for 2014 45% 42% 13%
December 2012 for 2013 38% 42% 20%
December 2011 for 2012 56% 30% 14%
December 2010 for 2011 52% 41% 7%
December 2009 for 2010 68% 27% 5%
December 2008 for 2009 44% 33% 23%

Source: 451 Research Tech Corporate Development Outlook Survey

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

A remarkable record for tech M&A

Brenon Daly

Contact: Brenon Daly

Both the number of tech, media and telecom (TMT) transactions and the spending attached to them in 2015 soared to their highest level in a decade and a half, as an unprecedented wave of consolidation reshaped the tech landscape more dramatically than any single year since the Internet bubble burst in 2000. Two of the three largest TMT deals since then printed in 2015, helping to push the total value of last year’s acquisitions to nearly $600bn, according to 451 Research’s M&A KnowledgeBase. That smashed the previous record tech M&A spending level by more than 40% and only slightly trailed the value of all TMT transactions in the preceding two years combined.

Overall, we tallied a record 83 individual deals in 2015 with an equity value greater than $1bn in the KnowledgeBase. Many of those big-ticket acquisitions saw buyers – flush with cash but starved for growth – snap up rivals, such as Dell’s $63.1bn reach for EMC (the IT industry’s largest-ever transaction) and Avago’s $37bn pickup of Broadcom (the semiconductor industry’s largest-ever deal). Other notable pairings in 2015 came in markets such as Internet access (Charter Communications-Time Warner Cable), storage (Western Digital-SanDisk), telecom infrastructure (Nokia-Alcatel-Lucent), online gaming (Activision Blizzard-King Digital Entertainment), Internet travel (Expedia-HomeAway) and elsewhere.

It wasn’t just big acquisitions that printed in 2015. Last year also saw a record number of transactions, topping 4,300 for the first time in the history of tech M&A. (The level is about 20% higher than the average annual deal volume over the previous half-decade.) One notable example of the busy buyers last year was Microsoft. The tech giant, which is in the process of reinventing itself for the cloud era, announced 20 purchases in 2015, more than twice the number it had averaged per year recently. Similarly, IBM tripled the number of deals in 2015 from 2014, announcing 15 acquisitions last year.

Global tech M&A

Year Deal volume Deal value
2015 4,304 $594bn
2014 3,951 $387bn
2013 3,295 $246bn
2012 3,651 $185bn
2011 3,797 $233bn
2010 3,293 $190bn
2009 3,030 $143bn
2008 3,098 $326bn
2007 3,654 $420bn
2006 4,036 $418bn

Source: 451 Research’s M&A KnowledgeBase

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

NetApp nabs SolidFire before all-flash array opportunities burn away

Scott Denne

Contact: Scott Denne Tim Stammers

Making its most aggressive deal to date, NetApp pays $870m in cash for all-flash storage array (AFA) vendor SolidFire. NetApp’s major competitors long ago inked acquisitions to get into the AFA market, while NetApp took the unusual step of trying to develop a product internally – a project that saw only temporary and limited release of a device that was lacking several critical features.

The price tag shows that NetApp feels some urgency to fix that gap. We estimate that the market for AFAs will grow at a 36% CAGR between 2014 and 2019. NetApp typically prints about one transaction per year and has often bought sub-$10m revenue companies for high multiples. On an absolute basis, this is the biggest deal NetApp has done. In 2011, it spent $480m on LSI’s aging RAID storage business – a business that generated $700m in sales. SolidFire, by comparison, likely posted $50-100m in trailing revenue.

It appears that a bit of traction and patience has benefited SolidFire and its investors. Not only is this an unusually large acquisition for NetApp, the price tag is higher than any we’ve seen among AFA providers.

Past all-flash array M&A

Date announced Target Acquirer Deal value
December 21, 2015 SolidFire NetApp $870m
December 15, 2014 Skyera Western Digital Not disclosed
September 10, 2013 Whiptail Technologies Cisco Systems $415m
August 16, 2012 Texas Memory Systems IBM (see 451 estimate)
May 10, 2012 XtremIO EMC (see 451 estimate)

Source: 451 Research’s M&A KnowledgeBase

Look for a full report on this deal in tomorrow’s Market Insight Service.

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

One company’s trash is another company’s treasure

Brenon Daly

Contact: Brenon Daly

Corporate divestitures aren’t necessarily the castoffs they used to be. Increasingly, divisions that have outlived their usefulness inside large companies are getting shipped directly to other companies, bypassing the once-obligatory stop in a private equity (PE) portfolio. This trend of ‘strategic to strategic’ divestitures has been driven by dramatic changes in tech companies and their strategies – on both sides of the transactions.

On the ‘supply’ side, there have never been more divestitures by listed US tech companies than in 2015, according to 451 Research’s M&A KnowledgeBase. (See our full report on this year’s record level of activity.) Some tech companies – particularly those of a certain age – have sold off assets as part of a larger corporate reorganization. (For instance, Hewlett-Packard, which cleaved itself into two $50bn-revenue businesses in November, has shed five divisions this year – as many divestitures as it had done, collectively, over the previous half-decade, according to the KnowledgeBase.) In some cases, the push to divest has been sharpened by the ever-increasing agitation by activist hedge funds.

Meanwhile, on the ‘demand’ side, the fact that companies are dealing directly with other vendors on divestitures isn’t all that surprising when we consider how frequently they have been negotiating with each other on outright sales. (Consolidation, which corporate development executives told us in a survey last December would be the second-most-popular type of deal in 2015, is roughly akin to a scaled-out version of a divestiture.) Consolidation has reached an unprecedented level this year, with huge chunks of the IT landscape coming together.

Put that together, and publicly traded tech companies are increasingly finding themselves sitting across the negotiating table from other publicly traded companies. Carbonite, j2, CACI International, Raytheon, Trend Micro, Amdocs, Tangoe and others have all picked up businesses from fellow publicly traded companies in recent months, according to the KnowledgeBase.

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

Global Payments processes $3.8bn Heartland buy

Scott Denne

Contact: Jordan McKee Scott Denne

Global Payments’ $3.8bn pickup of Heartland Payment Systems has far-reaching implications for the payment-processing ecosystem. The combined entity will be firmly situated as a top-five player (by transaction volume) with a strong story to tell around integrated payments in the SMB sector. Market forces including downward margin pressure, technology innovation and heightened competition are guiding the hands of payment processors toward integrated payments, driving deals such as Vantiv’s $1.7bn purchase of Mercury Payment Systems in May 2014.

With an eye to the future, investors and competitors alike should closely monitor the integration process. Mergers in this space have been met with difficulty in the past, and Heartland and Global Payments will be no exception due to disparate distribution models and core processing platforms. A likely outcome could be that both organizations move forward with minimal integration, operating at arm’s length. It will also be important to closely monitor the status of Heartland’s executive team after the transaction closes. Heartland CEO Robert Carr is a thought leader in the payment-processing space and his departure would be a major loss to both organizations.

This is the largest tech acquisition in Global Payments’ history. Prior to today’s deal, the company had printed five purchases since 2012, all for $100-420m, to add online payments, payment software and other tech offerings to its portfolio. In the nine years prior, Global Payments had inked just six transactions, only two of which crested $100m. Global Payments’ reach for Heartland values the business at 19.1x trailing EBITDA – nearly identical to the level the acquirer itself was trading ahead of the announcement.

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

Sophos rides the endpoint-network convergence wave with SurfRight deal

Scott Denne

Contact: Scott Denne Eric Ogren

Sophos has made its first acquisition as a public company with a $32m deal for endpoint security player SurfRight. The purchase adds behavioral endpoint threat detection to its current drive to unify its network- and endpoint-security products. Sophos recently launched its XG Firewall, a product that aims to share data between its cloud endpoint products and its network-security products, in order to synchronize security strategies.

Sophos has picked up a few endpoint-security companies since becoming a semi-frequent acquirer in 2011, although it hasn’t spent much more than $10m on past deals. Advanced endpoint detection, such as the signatureless variety championed by SurfRight, doesn’t come cheaply. In recent years, we’ve seen Palo Alto Networks pay $200m for Cyvera and F5 Networks spend $92m for Versafe – both targets were putting up modest revenue at the time.

Several security companies are looking to merge endpoint and network security into a single offering. That’s something that Sophos hopes will be particularly appealing to its base of midsize customers, most of which have limited capabilities to deploy multiple security point solutions.

One of the hallmarks of a behavioral endpoint security approach is that you don’t have to know all the gory details of an attack to know that one program should not be manipulating the memory of another. The ability to detect memory-oriented threats, such as those commonly introduced by browsers, without reliance on signatures is a key technology that Sophos is acquiring along with the rest of SurfRight. After integration with its Heartbeat features, Sophos will have an enhanced early-warning capability to coordinate endpoint and network responses to advanced threats.

Holland Corporate Finance advised SurfRight on the transaction. Look for a full report on this deal in tomorrow’s 451 Market Insight Service.

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

ClearSaleing has been anything but for eBay Enterprise

Scott Denne

Contact: Scott Denne

Recently divested eBay Enterprise sheds another asset as the former e-commerce unit of eBay sells ClearSaleing, its advertising attribution business, to Impact Radius. This is the second divestiture from eBay Enterprise since it was acquired by a syndicate of private equity firms in July. Last month, it sold its CRM division to Zeta Interactive.

Algorithmic attribution recently led Convertro, Adometry and MarketShare to substantial exits. Though ClearSaleing was far earlier to market than those companies, it has floundered since 2011 under the ownership of GSI Commerce (which was later acquired by eBay). Impact Radius offers a number of products for tracking marketing data and performance, including an attribution offering. With this deal, it adds algorithmic capabilities that enable it to forecast and model the combined impact of marketing and advertising spend across multiple channels.

Although algorithmic attribution has generated a great deal of interest, there are a number of roadblocks to the technology gaining widespread acceptance. The first is the technical challenge of gathering all of the necessary price and performance data across channels and linking those together via a combination of definitive and probabilistic linkages. The second is the cultural challenge of getting an entire marketing organization onboard with a new set of metrics – metrics that have potentially negative consequences for marketing divisions that were happy to gauge their success on narrow metrics such as last-click attribution and demographic reach.

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

New insight on rapidly emerging IoT M&A activity

Brenon Daly

Contact: Brenon Daly

With the number of Internet of Things (IoT) acquisitions in 2015 already topping the total from the past two years combined, 451 Research has launched a dedicated channel for our qualitative and quantitative research in this rapidly emerging market. The IoT channel is the first addition to our 14-sector research dashboard, which we unveiled last summer.

The new channel covers the full scope of IoT, focusing on 10 primary ‘building block’ technologies that are increasingly enabling the digitalization and virtualization of huge swaths of the physical world. These trends – spanning from edge technology to core technology – have also sparked unprecedented M&A activity in the IoT sector, not only in terms of number of prints and spending on them but also the variety of buyers.

Essentially, any company that has a ‘thing’ and wants to create actionable business intelligence from it can be viewed as a potential IoT acquirer. According to 451 Research’s M&A KnowledgeBase , we have already seen companies as diverse as Google, adidas, Cisco and even farm machinery maker Deere & Company all ink IoT acquisitions. Even as those buyers have helped push spending on IoT deals up a staggering 100-fold in the past four years, the sense is that shopping in this market has only just begun.

For insight and forecasts on both activity and valuations around M&A in the IoT market, be sure to check out our new IoT channel.

IoT M&A

Year Deal volume Deal value
YTD 2015 81 $21.3bn
2014 61 $14.4bn
2013 21 $454m
2012 15 $767m
2011 18 $201m

Source: 451 Research’s M&A KnowledgeBase

November: a middling month for M&A

Brenon Daly

Contact: Brenon Daly

Although the number of tech deals in November dropped to the second-lowest monthly total so far in 2015, the aggregate value of last month’s transactions landed smack in the middle of announced M&A spending levels this year. The $39.3bn worth of spending on tech, media and telecom (TMT) acquisitions in the just-finished month is the median monthly amount for 2015, with five months coming above that amount and five below. Meanwhile, the number of prints in November came in at just 317, about 12% lower than the average rate in the previous 10 months, according to 451 Research’s M&A KnowledgeBase.

By definition, the lower-than-average M&A volume but straight-down-the-middle spending level means last month saw a fair number of big prints. Indeed, the KnowledgeBase tallied 10 transactions with an equity value of at least $1bn announced in November. (That brought the year-to-date total for billion-dollar-plus deals to 74.) However, not one of last month’s acquisitions topped $6bn. For context, in the previous 10 months, we had seen 14 transactions worth at least $6bn.

Looking within deal flow at the top end of the tech M&A market, we can see that much of it came from old-line consolidation. Five of the six largest acquisitions featured buyers reaching for targets that operate in the same market. For instance, videogame maker Activision Blizzard announced plans to pay $5.9bn for fellow videogame maker King Digital Entertainment, while the ever-maturing semiconductor industry saw a pair of 10-digit deals last month.

November’s solid spending level pushed this year’s post-Internet bubble record for M&A spending even higher. With still a month to go, the 2015 total for global TMT M&A spending has already topped $560bn, according to the KnowledgeBase. That works out to $140bn higher than the previous full-year record in 2007. Viewed another way, this year’s level has already added on a full quarter’s worth of spending from the previous record level.

Monthly M&A activity, 2015

Month Deal volume Deal value
November 317 $39bn
October 384 $113bn
September 378 $33bn
August 333 $27bn
July 435 $23bn
June 380 $35bn
May 311 $123bn
April 369 $47bn
March 340 $61bn
February 339 $49bn
January 358 $11bn

Source: 451 Research’s M&A KnowledgeBase