Category: M&A

IBM’s object lesson

Scott Denne

Contact: Scott Denne

IBM snags object storage specialist Cleversafe for a foothold in an increasingly important niche in enterprise storage. Despite its age and size – founded in 2004 and with 210 employees – the target was still a relatively early company. As we recently noted, Cleversafe had taken the long view of the object storage opportunity – that it would take 100 engineers at least five years and more than $100m in funding, which it raised, to have a viable product. In that time, the vendor rewrote its core stack twice and deployments were just starting to take off.

Object storage itself isn’t new, but the opportunity is gaining traction with the growth of cloud computing. As more businesses and people look to store large, infrequently accessed files such as videos, pictures and backups, object storage provides a better alternative to SAN and NAS systems and is becoming a key component of cloud storage services. And it’s worth noting that it’s IBM’s cloud group, not its storage unit, that is leading today’s deal.

Prior to this transaction, IBM seemed on the fence about the opportunities in object storage. Now that it’s taken out one of the pioneers of next-generation object storage, it will set off speculation that others will follow suit. Last year Red Hat shelled out $175m for Inktank and earlier this year Hitachi Data Systems paid $264m for Amplidata. And there are still plenty of potential targets left, including Cloudian, DataDirect Networks, SwiftStack and Scality, which recently partnered with Dell.

We’ll have a more detailed report on this acquisition in a forthcoming 451 Market Insight.

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As black swans darken summer sky, Q3 tech M&A gets grounded

Brenon Daly

Contact: Brenon Daly

Tech acquirers’ confidence eroded unmistakably in mid-August as equity markets around the world got routed, with some indexes tumbling hundreds of points in a single session. As the economic outlook dimmed around the globe, valuations for buyers and their holdings dropped as well. If the stock market uncertainty didn’t knock buyers out of the tech M&A market entirely, it at least caused them to scale back their acquisitions. Just seven of Q3’s largest 20 deals came after the mid-August turmoil, according to 451 Research’s M&A KnowledgeBase. Spending in the back half of the quarter fell 20% compared with the first half.

Slowed by the mid-quarter bear market, spending on tech, telecom and media (TMT) transactions across the globe in the July-September period totaled $81bn. Although that amount is a fairly representative quarterly total for 2013-14, it represents a dramatic slowdown from earlier this year. Q3 spending stands at less than half the level of M&A spending in Q2 and one-third lower than Q1, which kicked off 2015’s record run. On a comparative basis, the value of acquisitions in both Q1 and Q2 surged about 50% from the same quarters in 2014, while spending in the just-completed Q3 declined 21% compared with Q3 2014.

Viewed more expansively, the Q3 slowdown might have pushed back the date when spending in 2015 on TMT transactions sets a new post-bubble record, but the record will nonetheless fall this year. (Indeed, if this summer had simply continued the average monthly M&A spending we had seen in the first half of the year, 2015 would have already topped the recent record of $420bn set in the prelapsarian year of 2007.) As it stands, dealmakers have spent $407bn on TMT acquisitions so far this year, just a few big prints shy of the highest level of spending since 2000, according to 451 Research’s M&A KnowledgeBase.

See our full report on both M&A and IPO activity in Q3, as well as a look ahead to activity through the rest of 2015.

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

Recent quarterly deal flow

Period Deal volume Deal value
Q3 2015 1,115 $81bn
Q2 2015 1,056 $205bn
Q1 2015 1,032 $120bn
Q4 2014 1,028 $65bn
Q3 2014 1,049 $102bn
Q2 2014 1,005 $141bn
Q1 2014 854 $82bn
Q4 2013 787 $64bn
Q3 2013 859 $73bn
Q2 2013 760 $48bn
Q1 2013 798 $65bn
Q4 2012 824 $65bn
Q3 2012 880 $39bn
Q2 2012 878 $44bn
Q1 2012 920 $35bn

Source: 451 Research’s M&A KnowledgeBase

Barracuda bite off bigger chunk of MSP market with Intronis

Brenon Daly

Contact: Dave Simpson Brenon Daly

In its largest acquisition to date, Barracuda Networks nabs Boston-based Intronis for $65m in cash, primarily to improve its position in the MSP space. Intronis, a hybrid cloud backup/recovery vendor with 100 employees, is not well-known as about 75% of its MSP customers white-label its services. But it has almost 2,000 MSP partners, compared with only 200 MSP partners (and 5,000 VARS) for Barracuda alone.

Barracuda has averaged about a deal per year over the past decade, most recently focusing its M&A on its storage business. However, the company has noted some recent weakness in the overall storage space, which is a smaller portion of Barracuda’s overall sales than its security business. Although Barracuda was already in the upper echelon of hybrid-cloud backup/recovery vendors, the Intronis buy should strengthen its position versus key competitors in the storage arena. Also, there is little overlap between the two vendors’ channel partners. Only 37 of Intronis’ top 200 partners are also Barracuda partners, and 90% of Intronis’ partners are not Barracuda partners.

We have for some time been predicting – even advocating – consolidation in the crowded market for online (cloud-based) backup and recovery. Barracuda’s purchase of Intronis is the first shoe to drop, and we anticipate further consolidation in this sector over the next year.

The deal is expected to close by the end of this calendar year. Needham & Company advised Intronis on its sale. Click here for a full report on this transaction.

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

ShopKeep orders up a helping of inorganic growth with restaurant PoS system Ambur

Scott Denne

Contact: Jordan McKee

ShopKeep has acquired Ambur, a restaurant-focused tablet point-of-sale (PoS) vendor. The addition is intended to expand ShopKeep’s capabilities in the full-service restaurant vertical, helping it target larger, multi-location prospects. One of the target’s founders, Ansar Khan, has already joined ShopKeep in a business development capacity, though Ambur will remain a separate entity for now. The deal comes little more than six months after ShopKeep bought payment processor Payment Revolution.

Ambur’s PoS software offers a variety of front-of-house and back-of-house functionality. On the front end, it supports features such as order management, item modifiers, delivery/takeout, table layout and reservations. Management-focused tools include reporting, user groups and permissions, item inventory, payroll and employee summaries. Ambur is payment processor-agnostic, and stores data locally on the device with a Dropbox backup.

ShopKeep has turned its focus to inorganic growth in 2015 as it scales toward an IPO-able size. Its pickups of Payment Revolution and Ambur, while dissimilar, are designed to broaden its addressable market and revenue prospects. The reach for Ambur is particularly strategic in this regard given the latent opportunities for tablet PoS in the table-service restaurant sector. As midsized restaurants grow increasingly dissatisfied with their legacy back-office systems, this vertical will become the next battleground for tablet PoS providers. ShopKeep is wise to move in this direction, as its current-generation software is not suitable for larger restaurants that demand a more focused service.

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

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After a time on NYSE, Solera is back in private hands

Brenon Daly

Contact: Brenon Daly

In a sort of private equity (PE) ‘homecoming,’ auto insurance software provider Solera Holdings plans to sell itself for $3.7bn in cash to buyout firm Vista Equity Partners. The net price for Solera, which has been a debt-fueled acquirer since its founding a decade ago, is pegged at $6.5bn by Vista.

Although it has been listed on the NYSE since 2007, Solera has PE-backed carve-out roots. The company has had a sometimes-contentious relationship with Wall Street. Investors have taken issue with how much Solera’s executives have paid themselves, in addition to a slumping stock price that had nearly been cut in half from its early 2014 highs to recent lows.

In part because of the prolonged slide in its shares, Solera said in August that it was exploring ‘strategic alternatives.’ Vista is offering $55.85 for each Solera share, with the deal expected to close by early 2016. Shares of Solera have ranged from $70 at the start of 2014 to $36 at the start of August.

With an enterprise value of more than $6bn, the Solera take-private would be the second-largest PE transaction of 2015. However, the proposed transaction stands as the largest LBO of a vertical market software vendor, according to 451 Research’s M&A KnowledgeBase . Typically, PE shops buy software ‘platform’ companies that serve large numbers of customers across a variety of sectors. In recent years, horizontal software companies, such as Compuware, Informatica, BMC Software, TIBCO and others, have landed in PE portfolios.

The planned take-private of Solera continues a recent surge in PE spending. So far this year, buyout shops have announced transactions valued at $37.3bn, according to 451 Research’s M&A KnowledgeBase. That’s up about two-thirds from the same period in 2014, and twice the spending over the same time in 2012. It only trails the January-September level in 2013, which was skewed by the $25bn LBO of Dell.

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

GoDaddy scoops up Apptix’s hosted Exchange customers

Scott Denne

Contact: Liam Eagle Scott Denne

GoDaddy is not typically in the business of obtaining subscribers via M&A. Its deals (10 in the past 24 months) tend to focus on picking up technology or market specialization. The fact that GoDaddy is willing to shell out for Apptix’s hosted Exchange business speaks to the company’s confidence in the lifetime value of these users. Reselling Office 365 has been a major driver of new business since GoDaddy began offering it in January 2014. As an upsell from domain registration (GoDaddy’s largest business), hosted email might be a more frictionless sale than even Web presence.

GoDaddy will pay $23m for the asset and will inherit approximately 60 employees. Following the close, the acquired customers will be migrated to Office 365 through GoDaddy. Apptix posted about $15m in annual revenue from its hosted Exchange business. In addition to the upfront consideration, GoDaddy is on the hook for an earnout that could be as high as $16m if every customer migrates to GoDaddy. A more likely scenario, according to the seller, is that it will get paid 50% of the earnout.

Apptix’s desire to part with its multi-tenant Exchange hosting users speaks to the challenge of positioning a mass-market hosted Exchange product in a world where Office 365 (hosted by Microsoft) is a simple alternative. Almost across the board, service providers focused on Exchange hosting have been narrowing their focus on specialized situations, such as hybrid, private and custom engagements for which Office 365 might not be a fit.

Pacific Crest Securities advised Apptix on its sale.

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

Where does the tech M&A market go from here?

Brenon Daly

Contact: Brenon Daly

In both August 2015 and August 2011, concerns about slowing global economies knocked stock markets around the world into a tailspin, while also ratcheting up volatility. Intuitively, we would assume that both conditions, which introduce more variance and uncertainty, would make it more difficult to do deals. But is that actually the case? And if so, what can the whipsawing markets from four years ago tell us about how M&A activity might play out for the rest of 2015?

To get a sense, we split 2011 into a ‘pre-turmoil’ period of January through August, and then a ‘post-turmoil’ period of September through December (which is roughly the same four-month block that remains in 2015). When we ran the numbers in 451 Research’s M&A KnowledgeBase, we got a pretty clear picture of acquisition activity in the two periods of 2011: the M&A market never got back on track after the summer upheaval.

Through the first eight months of 2011, dealmakers averaged $22.3bn in spending on tech, media and telecom (TMT) transactions each month. For the remaining four months of 2011, average spending dropped about 40% to just $13.6bn per month. Further, it wasn’t just a case of where a deal or two in the front half of the year skewed the total. Instead, it was pretty even spending on significant transactions. There were eight separate acquisitions announced in the first eight months of 2011 valued at more than $4bn, while not a single deal that size hit the tape in the last four months of the year.

We have noted how the black swans have already befouled the M&A market in the short term. (Spending on TMT transactions dropped a staggering 80% in the second half of August, according to the KnowledgeBase.) If past is precedent, the rest of 2015 won’t be as bad as that, but it also won’t be anywhere near as good as it has been. A 40% decline – like we saw at the close of 2011 – would mean each of the remaining months would come in at roughly $30bn in average monthly spending, compared with the monthly average since the start of 2015 of nearly $50bn.

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

Microsoft adds Adallom

Brenon Daly

Contact: Adrian Sanabria Brenon Daly

Continuing its accelerated shopping spree, Microsoft has reached for infosec startup Adallom. Although terms weren’t released, reports from newspapers in Israel, where Adallom has its roots, peg the price at $250m-320m. Assuming those reports are reasonably accurate, the acquisition would be larger than our understanding of the Aorato buy last November. Aorato stands as Microsoft’s most recent security purchase, and the technology will run alongside the just-acquired technology from fellow Israeli company Adallom.

The Adallom pickup fills a gap between cloud-based IAM and third party SaaS products, allowing Microsoft customers to add much broader control over user authorization and activity within internal (Office 365) and third-party SaaS applications such as Salesforce, Workday and Google Apps. This extension of user permissions and directory services creates a layer of monitoring and control not previously possible in the traditional enterprise. Also, with Office 365 as one of the most popular services for vendors such as Adallom to enhance, Microsoft now has the opportunity to offer much greater control, visibility and security to existing customers.

Microsoft’s purchase of Adallom is the tech giant’s twelfth transaction of 2015, which is twice as many as it has averaged in the same period each year over the past half-decade. Moreover, virtually all of the companies that Microsoft has snagged this year have been relatively small startups. (All but one of the startups acquired in 2015 has raised $50m or less in total funding.) In years past, Microsoft has typically announced a 10-digit deal (e.g., Nokia devices, Yammer, Skype) along with the technology tuck-ins. Of course, that shift to smaller targets might have something to do with the billion-dollar write-downs Microsoft has made on several of its larger acquisitions inked under previous CEO Steve Ballmer.

Recent Microsoft M&A activity

Period Number of announced transactions*
January 1 – September 8 2015 12
January 1 – September 8 2014 7
January 1 – September 8 2013 7
January 1 – September 8 2012 5
January 1 – September 8 2011 3
January 1 – September 8 2010 0

Source: 451 Research’s M&A KnowledgeBase *Excludes purchases of domain names and IP addresses

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BlackBerry sweetens its own turnaround

Scott Denne

Contact: Scott Denne Chris Hazelton

BlackBerry looks to right another ship with the $425m cash acquisition of Good Technology. Brimming with confidence following the comeback from its own near-sinking, BlackBerry is taking on the mobile management software vendor, which was poised for a public offering earlier this year, yet never pulled the trigger – instead, it added another $80m in private financing to its then-dwindling cash pile.

BlackBerry is transforming itself from a device maker to a mobile security software provider for enterprises. Good is a leading mobile security vendor, but the two companies have often clashed when it comes to mobile messaging. With the future in supporting and securing mobile apps, Good is further along on this route when it comes to iOS and Android. This deal offers BlackBerry a major opportunity to catch up to and surpass the competition. Good has more than 2,000 ISV- and customer-developed apps, which now gives BlackBerry one of the largest mobile app ecosystems. There may be some overlap in customers, but BlackBerry did experience a long period of customer migration, and some of that went to Good. In effect, BlackBerry might be buying back former customers.

Good posted decent growth last year, racking up $211m in revenue for an increase of 32%. However, its losses were excruciating, at $95m for the year, and losses the previous two years were in the same neighborhood. While spending heavily on topline acceleration isn’t rare among its peers, Good didn’t have much to show for it once you take into account that one-third of that revenue came from its legacy consumer products and intellectual property licenses, two segments that were not expected to be meaningful contributors in the long term – more so today as BlackBerry was Good’s most significant licensee.

We’ll have a full report on this transaction in our next 451 Market Insight.

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Family drama at VMworld

Brenon Daly

Contact: Brenon Daly

Even before he talked products or markets, VMware CEO Pat Gelsinger kicked off his comments to Wall Streeters at his company’s annual conference with a moment of ‘family time.’ In this case, it was to defend the current corporate parentage, with EMC owning a super majority of VMware as part of a larger ‘EMC Federation.’

Gelsinger essentially said that the way things are now in the EMC family is the way they should be. He went on to knock down rumors that he was planning – or even considering – any changes in the current corporate structure, specifically singling out recent reports about a kind of fratricide by VMware in which his company would take over EMC. ‘Better together’ is the family motto.

Not everyone agrees, however. Some critics, such as the kind that buy small chunks of stock in a company and then try to tell it what to do, counter that the current structure actually inhibits growth in the family.

The activist hedge funds have a point, given that VMware stock has basically flatlined over the past five years while the S&P 500 Index has nearly doubled. (The underperformance stands out even more when we consider that a half-decade ago, VMware was running at less than $1bn in quarterly revenue. It now puts up more than $1.5bn in sales each quarter. There aren’t too many S&P 500 companies that are two-thirds bigger now than they were in 2011. Most, including EMC, have only slightly grown.)

Given that Elliott Associates, an activist hedge fund that has already successfully pushed to reshuffle EMC’s board of directors, effectively crashed the VMworld party, it’s not unreasonable to expect even more changes in the EMC Federation. (Remember, too, that the ‘standstill’ agreement between Elliott and EMC expires this month.) There may well be some family drama before the year is out.

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