Category: M&A

Black swans roil tech M&A market

Brenon Daly

Contact: Brenon Daly

During the six-year bull run on Wall Street, corporate treasuries have been as flush with cash as executive offices have been flush with confidence. Put those two factors together and we have the makings of an M&A boom like the one that has put spending on tech acquisitions so far this year already twice as high as it was in the recession years.

Remove either of the crucial components of cash and confidence, however, and deals don’t get done. It’s hard to go shopping when your head is spinning with volatility and your guts are clenched in uncertainty. That hesitancy comes through clearly when we look at the prints for August.

In the first two weeks of the month, it was business as usual. Private equity shops and corporate buyers around the globe announced 172 tech, media and telecom (TMT) transactions with an aggregate value of $21.6bn, according to 451 Research’s M&A KnowledgeBase. In the two weeks that followed, as black swans flew above the equity markets around the world, dealmakers announced just 145 acquisitions worth $4.6bn. As uncertainty erased trillions of dollars of stock market capitalization over the past two weeks, spending on M&A plunged almost 80%.

Heavily skewed to the first half of the month, August spending totaled $26.2bn, which is roughly half the average amount for the previous seven months of 2015. Yet even with the mini-recession in tech M&A since mid-August, spending on 2015 deals overall is still tracking to its highest level since 2000. Through eight months of the year, dealmakers have announced transactions valued at about $375bn, roughly $45bn short of the $420bn recorded in 2007.

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

Wall Street confidence July 2015

 

 

 

LANDesk lands a new dashboard with Xtraction acquisition

Brenon Daly

Contact: Brenon Daly

In its first acquisition in almost a year, LANDesk picks up existing partner Xtraction Solutions in an effort to make data more visible for the systems management vendor’s clients. The two companies have been partners for more than a year, with a handful of joint customers using Xtraction’s dashboards. Although terms weren’t disclosed, we understand that LANDesk paid in the low tens of millions of dollars for Xtraction, which had only a dozen or so employees and no outside funding.

In addition to data visualization (think, ‘BI for IT operations’), the deal is also important because it expands the sources of data that can be represented. Most IT environments are a hodgepodge of technology from various vendors and vintages. Xtraction has 50 connectors built for many of the larger IT management providers, including HP, Microsoft, BMC and ServiceNow. Another area where LANDesk might look to expand Xtraction’s reporting technology is IT security, where dashboards are increasingly being used to help make sense of the streams of reports about the ever-expanding number of vulnerabilities faced by businesses.

Xtraction is the sixth purchase LANDesk has made since private equity firm Thoma Bravo carved out the systems management vendor from Emerson Electric five years ago. Since then, according to our understanding, LANDesk has added about $100m to its top line while nearly tripling its cash flow. The company says it has plenty of cash in treasury – not to mention a deep-pocketed owner in Thoma Bravo – to continue to add pieces to its IT management platform.

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

Cross MediaWorks drawing BlackArrow at evolving TV ecosystem

Scott Denne

Contact: Scott Denne

BlackArrow becomes the latest acquisition target as legacy media businesses seek ways to cope (and maybe even benefit) from the secular shift in television viewing habits. The 10-year-old maker of technology for delivering ads into video-on-demand streams has sold to Cross MediaWorks, a reseller of local TV ad inventory.

BlackArrow’s platform enables cable and other TV service providers to sell ads into DVR and other forms of streaming video (across both Internet Protocol and QAM standards). In addition to the ad-insertion products, BlackArrow has developed a number of capabilities that should benefit Cross MediaWorks in packaging together ad inventory, including software for affiliate stations to manage their inventory – which could have applications for Cross to sell to networks and use internally – as well as an audience management platform to enable customers to develop targeted media plans.

The company was one of several startups that launched in the first half of the past decade to pursue the opportunity to bring some of the ad-targeting techniques of the Web into the world of television advertising. For most of its life, BlackArrow – as well as peers Canoe Ventures, INVIDI, Visible World and THIS TECHNOLOGY – was simply too early. Once reliably large, TV audiences were bleeding into DVR and across a larger pool of cable networks, but media buyers had yet to feel that they needed to buy differently to reach those audiences.

During that period, the company grew to a respectable business of about $20-30m in annual revenue, mostly through its capability to enable advertisements in DVRs. Now these once-early businesses are looking timely. In addition to today’s deal, Comcast took out both Visible World and THIS TECHNOLOGY earlier this year and Verizon paid $4.4bn to push AOL’s ad technology further into the TV ecosystem.

What’s changed is that viewers are fleeing traditional television for online video and video-on-demand services, the largest of which doesn’t even have advertisements in its content. As that happens, broadcasters and service providers need tools and technologies to optimize the audiences they have. Earlier this month, both Disney and Viacom fell short on quarterly earnings due to weakness in TV ad sales. And as surveys from ChangeWave Research, a service of 451 Research, show, the move away from paid TV services is gaining momentum.

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

Datacenter consolidation hits a record pace as Europe gets more international

Scott Denne

Contact: Mark Fontecchio

Global datacenter consolidation in 2015 is on a tear, and the reason varies by continent. European MTDC suppliers on the hunt for regional diversity are printing an unprecedented increase in the number and value of deals, while North American providers are outpacing overall M&A volume as they move up the stack to offer more managed services.

Through the first seven months of this year, there have been 11% more tech deals compared with 2014, yet colocation and hosting transactions are up 49%, according to 451 Research’s M&A KnowledgeBase. Western Europe alone is up 67% in datacenter deal volume. Datacenter consolidation is clearly outpacing the rest of the field.

Western European datacenter deal value has skyrocketed more than the rest. Last year, 4% of all datacenter M&A value went to Western European targets; this year, it’s half. Equinix buying UK-based TelecityGroup accounts for most of that – the $3.6bn price is the largest datacenter transaction in the KnowledgeBase. As we have previously noted, one of the key reasons for all of the consolidation activity in Europe is because customers in traditional markets are seeking reach into locations where new builds are difficult. The highly fragmented European market still has many regional providers with significant pull in their locales. They are now being subject to M&A conversations as bigger players look to enter territories without building new facilities.

In North America, it’s different. While geo-based deals are still aplenty (e.g., CyrusOne’s $400m purchase of Cervalis ), more large transactions have focused on providers moving up the stack and offering additional managed services. Digital Realty’s reach for Telx and QTS Realty’s pickup of Carpathia Hosting are prime examples.

Biggest datacenter deals of 2015

Date announced Acquirer Target Target HQ Deal value
May 29 Equinix TelecityGroup Western Europe $3.6bn
July 14 Digital Realty Trust Telx Group North America $1.9bn
March 2 NTT Communications e-shelter Western Europe See estimate
January 14 Zayo Group Latisys North America $675m

Source: 451 Research’s M&A KnowledgeBase

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

HP moves into PaaS, containers with Stackato purchase

Scott Denne

Contact: Scott Denne Jay Lyman

After a muted presence in M&A over the past few years, HP has set a stronger pace for acquisitions in 2015 by printing its fourth deal with the pickup of Stackato, ActiveState’s PaaS business. HP’s earlier deals of the year filled gaps in security (Vaultive) and networking (Aruba Networks and ConteXtream) – this transaction plugs two holes in its cloud offering.

HP was among the few enterprise cloud providers that did not have its own PaaS play. With Stackato, HP obtains an enterprise, polyglot private PaaS that also benefits from its basis in the open source Cloud Foundry software and community. Furthermore, the deal gives HP a much-needed stake in the container space through Stackato’s integration and support for Docker and containers.

Valuations in the PaaS sector have been a mixed bag, and there’s been little M&A activity. A couple of companies (Heroku and Tier 3) were taken out early in transactions valued above $100m. The market has also seen some tuck-ins (AppFog and dotCloud). Though terms of HP’s Stackato buy aren’t known, we noted early last year that Stackato was approaching a $10m run rate.

HP’s move comes amid the convergence of IaaS and PaaS. Other acquisitions, customer demand for IaaS-like experience in PaaS, deeper enterprise pushes from the likes of Amazon and Google via PaaS, and software from a number of providers have all contributed to a blurring of the lines, particularly when it comes to managing PaaS and IaaS, which is increasingly integrated. With its existing IaaS software in HP Helion (based on OpenStack), along with the acquired Eucalyptus, HP can now join the IaaS PaaS party by pairing with Stackato.

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

Technicolor turns to Cisco to keep pace with ARRIS

Scott Denne

Contact: Scott Denne

Technicolor fends off the danger from a merger of two rivals with a deal of its own. And what a deal. Technicolor will pay $600m for Cisco’s set-top box hardware unit – a mere 0.3x projected 2015 sales – and become a business that generates more than $3bn in set-top box revenue. Still short of the pending combination of ARRIS and Pace, but close enough to ensure that Technicolor won’t lose that battle based on scale alone.

Aside from the valuation – ARRIS’s purchase put a 0.8x trailing multiple on Pace – the two deals are quite similar. By tying up with Cisco, Technicolor gets broader exposure to the North American cable market to complement its European satellite base; ARRIS bought Pace in large part to boost its non-US sales.

Cisco’s set-top box unit needs some tuning – the cause of the lower multiple. In its previous fiscal year, sales of service-provider video infrastructure dropped by $812m, primarily due to lower set-top sales. In the first three quarters of the current fiscal year, the category slipped $271m, with the company once again blaming set-tops. Technicolor will pay Cisco $450m in cash and $150m in newly printed equity (with a lock-up commitment), and give the networking vendor a seat on its board.

It’s not just competition from ARRIS. Technicolor needs scale to continue to compete for the largest deals among service providers, which are themselves consolidating. According to 451 Research’s M&A KnowledgeBase, the past 12 months alone have seen seven acquisition of television service providers valued at more than $1bn.

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

eBay auctions off Enterprise unit

Scott Denne

Contact: Scott Denne

Just days away from spinning off its PayPal division, eBay inks a deal to divest eBay Enterprise, its e-commerce software and services business, to a consortium of private equity (PE) firms for $925m. The Enterprise unit was formed through the 2011 acquisitions of fulfillment service GSI Commerce and e-commerce software vendor Magento, as well as a smattering of smaller software purchases.

The transaction is valued at 0.8x trailing revenue – a number that’s familiar to Sterling Partners, one of the PE firms leading the deal. Sterling snagged Innotrac, a similarly sized order fulfillment provider, in 2013 at a nearly identical multiple. It’s worth noting that eBay Enterprise comes with a broader software portfolio than Innotrac did. In addition to Sterling, Permira Funds, Longview Asset Management and Innotrac itself are also participating in the buyout.

Valuations of e-commerce software companies have been somewhat subdued in the M&A market lately. Google’s 2013 pickup of channel intelligence at just over 4x trailing revenue appears to be the recent high-water mark. Multiples on the public markets, however, tend to be more generous, with Demandware and the newly public Shopify garnering above 15x.

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

Digital Realty peers into new business with Telx purchase

Mark Fontecchio

Contact: Mark Fontecchio

Digital Realty Trust (DRT) buys Telx Group, moving into the interconnection business and adding a services element to the primarily REIT company. DRT is paying $1.9bn to acquire Telx from private equity firms ABRY Partners and Berkshire Partners, a price that represents a valuation increase of 5-6x over what Telx sold for to ABRY/Berkshire in 2011, according to 451 Research’s M&A KnowledgeBase.

This takes DRT into a more services-oriented business, shifting its strategy and putting it into direct competition with one of its key tenants, Equinix. The services aspect will reduce margins yet provide higher revenue per square foot. In that respect, it has some similarities to a deal in May, when REIT firm QTS Realty Trust paid $290m for Carpathia Hosting to move up the stack.

Telx has 20 facilities, mainly in top US markets, with a total of 1.3 million gross square feet of space. DRT has a similar global footprint to Equinix but is missing interconnection options outside of the US. We wonder if Interxion could also be a potential target, in the ‘you might as well go big or go home’ philosophy. Picking up Interxion – recently left at the altar when would-be acquirer TelecityGroup was bought by Equinix – would provide DRT interconnect assets in Europe as well.

There have been 16 interconnection/peering deals dating back to 2002, according to the KnowledgeBase. Telx – with its sales to GI Partners, ABRY/Berkshire and now DRT – has been by far the biggest target, accounting for three of those 16 transactions and almost 95% of the disclosed and estimated value.

Bank of America Merrill Lynch and Morgan Stanley advised Digital Reality, while DH Capital and Barclays Capital banked the sellers. For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Selligent turns to HGGC to fund overseas expansion

Scott Denne

Contact: Scott Denne Matt Mullen

HGGC buys a majority stake in Selligent as the European marketing automation vendor aims to move into overseas markets. As part of the acquisition, HGGC will add capital to Selligent’s balance sheet, giving the company much-needed ammunition as it enters a crowded US market where it’s virtually unknown.

The company generates less than one-third of the revenue that publicly traded players in this space such as Marketo and HubSpot (which are more B2B-focused vendors) put up. It’s also facing competition from large enterprise software providers such as salesforce.com, Adobe and, most recently, NetSuite (with its acquisition of Bronto Software ), which have all invested hundreds of millions to carve out a lead in marketing automation.

Still, Selligent has several reasons to be optimistic about its expansion. The 25-year-old company has posted profitable growth for several years, it has a product portfolio that’s as deep as any of its competitors’ (as we discussed in a recent report), it has successfully moved into several European markets, and it managed a transition to a SaaS-based business without raising additional outside capital.

Jordan Edmiston Group advised Selligent on its sale.

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

Avast scores virtual mobile infrastructure deal

Mark Fontecchio

Contact: Mark Fontecchio

Virtual mobile infrastructure (VMI) sees some M&A activity, with Avast Software picking up Remotium. One of the top IT security concerns for mobility is securing corporate data on individually owned devices, according to 451 Research’s survey of IT decision-makers in June. Remotium’s VMI SaaS alleviates that by providing employees access to corporate applications and data without them residing on mobile devices. The move helps Avast’s push into enterprise mobility security and opens up the potential for more M&A in the sector.

Remotium is one of a handful of startups – along with a couple big players – that is providing VMI, as we noted in April. The technology includes a virtual machine on a remote server that provides users access to mobile apps on their devices, giving employees a way to work with enterprise apps without having any corporate data on the end device. While VMI M&A has been virtually nonexistent up to now, some money has started to flow into the space – Remotium rival Hypori, for example, has raised almost $14m in the past year for its VMI software.

Other potential targets in the sector include Israel-based Nubo Software and California-based Sierraware. They and Hypori were about the same size as Remotium when we last checked, with 20-30 employees.