Category: M&A

Dropbox continues collaborative streak

Scott Denne

Contact: Scott Denne Alan Pelz-Sharpe

Dropbox prints another collaboration deal, this time picking up CloudOn, a service for creating, editing and sharing Word, PDF and other documents over the Internet. The purchase comes just two months after a Faustian pact with Microsoft to completely integrate Office with Dropbox.

Today’s transaction appears to be larger than most Dropbox tuck-ins. The target raised $26m in venture funding and had about 50 employees. The deal (and the Microsoft partnership) highlight Dropbox’s efforts to build out collaboration and workflow tools to appeal to business customers, particularly SMBs. And with it, Dropbox continues a streak it began last year of nabbing collaboration tools and teams to add to its core sync and share offering.

A year or two ago, CloudOn would have been seen as a legitimate competitor to Dropbox. No longer. Now it’s time for consolidation as Dropbox and soon-to-be-public Box reach for the startups with the coolest features and functions.

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Social media primed for advertising M&A

Scott Denne

Contact: Scott Denne

Advertising already generates billions of dollars for Facebook and Twitter, but the market for tools that enable advertisers to target social audiences is still nascent. As the importance of advertising on social media grows and the platforms become more diverse, businesses from different corners of the marketing and ad-tech ecosystem will likely add offerings to address this need.

There have already been a few tuck-ins by advertising and social media marketing companies such as Sprinklr, MediaMath and Buddy Media (before becoming part of salesforce.com). Now, changes to Facebook’s News Feed algorithm that limit the reach of organic marketing mixed with a host of diverse social platforms beginning to sell advertising could spur dealmaking and generate attention for social advertising software vendors that can execute and optimize social advertising budgets.

Businesses built around social media marketing or those that focus on paid advertising in other, non-social channels have, so far, been the acquirers of social advertising firms. We believe the categories of acquirers should and will expand to include enterprise software providers, small business software vendors and, of course, continued activity from ad-tech firms.

Subscribers to 451 Research’s Market Insight Service can access a detailed report on this sector.

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

Zayo pays premium for Latisys to continue datacenter push

Scott Denne

Contact: Mark Fontecchio Kelly Morgan

Zayo Group takes its sharpest turn yet toward datacenter and networking services with the $675m acquisition of Latisys. The deal, Zayo’s largest in three years, continues a push into more profitable lines of business, a theme that’s dominated nearly all of its last 17 purchases dating back to 2012.

Zayo has traditionally been known as a broadband services provider, and about half of its revenue still comes from that segment. But that percentage has dropped considerably in the past year, as Zayo has used M&A to increase its presence in physical infrastructure services such as colo and raw fiber, which generate 47% of its revenue but 53% of its profit.

Latisys, with datacenters in the US and London, is fetching a high premium from Zayo. Two of Zayo’s colo deals last year – Neo Telecoms and Colo Facilities Atlanta – fetched about 10x and 3x EBITDA, respectively. This one is for about 15x EBITDA, a premium due to Latisys’ ability to both fill gaps in Zayo’s US portfolio and get it a foothold in Europe.

Look for a more detailed report on Zayo’s pickup of Latisys in tomorrow’s 451 Market Insight.

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DCIM companies get in datacenters but can’t find exits

Scott Denne

Contact: Rhonda Ascierto

More datacenter operators are using datacenter infrastructure management (DCIM) software to connect silos of data about power, cooling, space and connectivity. Though early, widespread adoption of DCIM seems inevitable, and this has attracted a rash of suppliers – we track about 70 or so. But a growing, largely untapped market has not meant success for all suppliers. Large DCIM deals are hard won, with long sales cycles. That’s made it tough for small suppliers to get a foothold and, therefore, has limited the exit potential in the space.

While some smaller players are growing, more are becoming marginalized. There were four DCIM acquisitions in 2014, according to The 451 M&A KnowledgeBase, including suppliers of mature software being used by some large facilities. We believe none of the companies’ sale prices matched or exceeded the capital they raised. They include N’compass, which was bought for $5m (less than 1x TTM revenue, we believe) by OTCBB company AlphaPoint last month, and Power Analytics, a decades-old DCIM supplier that was picked up by a local patent licensing firm in July.

Nearly half (45%) of all DCIM revenue is driven by just five vendors, and the top three are giants Emerson Network Power, Schneider Electric and Panduit. We expect revenue to continue to flow to large and diversified players. They spend heavily on development, and they promise longevity, which is important: ideally, DCIM is for the life of the datacenter.

There are, however, a few small suppliers with unique intellectual property and solid revenue that could generate a return. But M&A activity in past years points to a lack of options for the dozens of other smaller providers struggling to stand out. A couple of the more successful smaller players are likely to merge. By pooling their resources, they could improve their prospects, brand and efficiency – perhaps attracting an extra funding boost at the same time. A rollup like this could also help the less-successful small vendors, although we’re not aware of any plans to date.

Subscribers to 451 Research’s Market Insight Service can click here for a detailed report on exits in the DCIM sector.

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

Citrix stays tactical

Scott Denne

Contact: Scott Denne

Citrix’s first acquisition of 2015 sets it up for another year of tactical M&A. Though up from 2013, we tracked just $65m in dealmaking by Citrix in 2014. Sanbolic, a 15-year-old company that brings software-defined storage into Citrix’s VDI stack, appears to be another tuck-in.

In 2012, Citrix announced $833m in acquisitions. That was its highest annual total on record, though it was hardly an outlier. Over the previous decade Citrix had been willing to invest in larger deals. Prior to that record-breaking year it had only dipped below $100m annually on three occasions – 2009, 2008 and 2004.

Citrix was growing revenue at a double-digit pace in 2012. Now that its core desktop business is maturing, growth has come down to mid-single digits in the most recent quarter, with license revenue declining at the same rate. Last year, management was open about the fact that M&A would likely be limited to tuck-ins, rather than strategic deals such as Zenprise and Bytemobile that got Citrix into ancillary markets. If Sanbolic is any indication, the company doesn’t plan to change that just yet.

Citrix M&A by year

Year Deals Deal Value
2014 4 $65m
2013 2 $11m
2012 6 $833m
2011 7 $354m
2010 4 $127m
2009 0 $0
2008 3 $27m

Source: The 451 M&A KnowledgeBase

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Restaurant deal highlights TripAdvisor’s new tack

Scott Denne

Contact: Scott Denne

Following a short break to digest its largest-ever acquisition, TripAdvisor gets back to the deal table early in the year with the purchase of Amsterdam-based restaurant review and reservation site IENS. The move illustrates that TripAdvisor is poised to continue rolling up travel businesses, but with a new approach.

As we noted earlier , TripAdvisor has ramped up its dealmaking of late, although inking larger transactions isn’t the only change in its M&A approach. As the IENS buy shows, TripAdvisor is shifting its M&A beyond its core business of travel accommodation reviews and bookings. The company’s $200m takeout of Viator in July – it’s most recent deal until today’s announcement – expanded its presence in sightseeing, particularly booking tickets for attractions. Likewise, the transaction before that, the pickup of France-based restaurant reservation provider lafourchette (like today’s IENS purchase) got it deeper into restaurants, particularly booking reservations.

Before these three deals, almost all of TripAdvisor’s 21 acquisitions were done to expand the content and reach of its hotel review business. There’s also another nuance to its recent transactions. TripAdvisor has been steadily moving beyond ‘advising’ travelers and into booking. When it bought Viator, it was already providing reviews of tourist attractions; and when it reached for lafourchette, it had a long history in the restaurant review space. That’s a trend reflected in TripAdvisor’s own product development, as it expanded into hotel metasearch in recent years and launched a direct booking feature on its site at the end of last year.

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

Feeling vulnerable, Alert Logic buys Critical Watch

Scott Denne

Contact: Scott Denne

Alert Logic reaches for vulnerability manager Critical Watch to add 15 years’ worth of vulnerability data to its cloud and analysis products. Though it already had vulnerability scanning capabilities, Critical Watch was built for distributed systems and can provide a foundation for the security offerings that Alert Logic is developing for cloud environments.

Critical Watch also performs tens of thousands of vulnerability checks and has a library of vulnerability content that Alert Logic can plug into for its security analytics product line, but would be difficult to replicate on its own. The deal adds 17 employees to Alert Logic.

Though maturing, vulnerability management continues to grow in importance. According to surveys by TheInfoPro, a service of 451 Research, 9% of IT professionals identified vulnerability management as a major infosec pain point in the second half of 2014. That’s up from just 4% a year earlier. Only mobile devices and user behavior received higher responses.

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

What do the main buyers in the tech M&A market see for the year ahead?

Brenon Daly

Contact: Brenon Daly

Last year was a big year for tech M&A, but what was the biggest deal of year? To find out, we asked the main buyers in the tech M&A market: corporate development executives. As part of a broader survey, we had them look at the handiwork of their peers and give us their pick for the most significant tech transaction of 2014.

So which deal got the Golden Tombstone? Facebook’s $19bn cash-and-stock acquisition of WhatsApp. The purchase last February by the 10-year-old social network represents the largest VC-backed exit in history. It drew twice as many votes as the second-place transaction, SAP’s $8.3bn reach for Concur Technologies, which is the largest-ever SaaS acquisition.

Additionally, we asked the corporate acquirers what they expected for the coming year. Their responses point to a continuation of the record run of tech M&A. More than half of corporate development executives (58%) indicated that they expect their company to pick up the pace of dealmaking in 2015. That stands as the highest forecast in a half-decade and compares with just one in five respondents (6%) projecting a slowdown in their M&A activity in the coming year.

Other highlights from the survey of corporate development executives include a bearish outlook for startup valuations, a record forecast for IPOs and the expectation of unprecedented amount of competition in deals from their private equity rivals in 2015. Subscribers: See the full report.

Top vote getter for ‘most significant tech transaction’

Year Deal
2014 Facebook’s acquisition of WhatsApp
2013 IBM’s acquisition of SoftLayer
2012 VMware’s acquisition of Nicira
2011 Google’s acquisition of Motorola Mobility
2010 Intel’s acquisition of McAfee
2009 Oracle’s acquisition of Sun Microsystems
2008 Hewlett-Packard’s acquisition of EDS
2007 Citrix’s acquisition of XenSource

Source: 451 Research Tech Corporate Development Outlook Survey

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With buyers old and new placing big bets, tech M&A hits record in 2014

Brenon Daly

Contact: Brenon Daly

Spending on tech deals surged to a new record in 2014, driven not only by massive consolidation by old-line telco buyers, but also by the ever-increasing prices of bets placed on next-generation technology. Tech buyers across the globe announced transactions valued at $440bn last year, according to the 451 Research M&A KnowledgeBase. That topped the previous record (set in 2007) by 5% and, more dramatically, comes in at twice the average annual spending on tech deals since the credit crisis.

The nearly half-trillion dollars’ worth of deal value was, of course, dominated by telecommunications and media transactions. Last year’s two largest acquisitions (AT&T’s $48.5bn play for DIRECTV, and Comcast’s $45.2bn reach for Time Warner Cable) accounted for slightly more than 20% of the total yearly spending.

Add to that European telcos and cable outfits, which also took advantage of a highly attractive debt market, and bought up rivals at an unprecedented rate in 2014. Major buyers on the Continent included Altice, Vodafone and British Sky Broadcasting. Altogether, telco and media deals around the world accounted for roughly half of last year’s total spending.

The other half came from a series of speculative deals by emerging tech icons – emboldened by record amounts of cash and, in many cases, record prices for their stock. For instance, Facebook – which finished last year with shares trading around an all-time high – not only paid the highest price for a VC-backed startup ($19bn for WhatsApp) but also rolled the dice on a virtual reality company that barely had a prototype product (it paid $2bn in March for Oculus VR). Similarly, Google dropped $3.2bn on Nest Labs. The maker of ‘smart’ thermostats may offer Google a way into broader home-automation offerings. Or not.

More established tech stalwarts also paid up for deals last year. SAP announced the largest-ever SaaS transaction, its $8.3bn acquisition of Concur Technologies in the summer. SAP valued the travel and expense management application vendor three times more richly than SAP itself is valued. Oracle inked its largest deal in a half-decade, handing over $5.3bn for old-line hospitality software provider MICROS Systems in June.

And finally, in addition to strategic acquirers, financial buyers got back to business in 2014, announcing more than $50bn worth of transactions, according to the 451 Research M&A KnowledgeBase. Included in last year’s total are a number of headline-grabbing LBOs (TIBCO Software, Riverbed Technology, Compuware), as well as a healthy number of sponsor-driven midmarket transactions.

Global tech M&A

Year Deal volume Deal value
2014 3872 $439bn
2013 3275 $255bn
2012 3644 $186bn
2011 3794 $232bn
2010 3293 $190bn
2009 3030 $143bn
2008 3098 $326bn
2007 3654 $420bn
2006 4036 $418bn
2005 3054 $360bn
2004 2091 $219bn
2003 1514 $60bn
2002 1922 $81bn

Source: The 451 M&A KnowledgeBase

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Telstra’s unusual, unsurprising Pacnet purchase

Scott Denne

Contact: Scott Denne Agatha Poon

Telstra reaches for Pacnet in an uncharacteristic – but rational – deal. The $297m purchase price, at a $697m enterprise value, makes Pacnet a substantially larger target than anything Telstra has bought. According to The 451 M&A KnowledgeBase, Telstra has made six acquisitions (including today’s) this year. Prior to today’s announcement, it had never paid more than $270m in a transaction (a mark it set earlier this year with the pickup of video software vendor Ooyala) in the past 15 years.

Also, like Ooyala and unlike Pacnet, most of its past acquisitions aimed to move the Australia-based telecom giant into ancillary offerings, while the Pacnet buy supplements a core business. Earlier this year, Telstra bought Ooyala as well as a video ad serving business, Videoplaza, to supplement that. It inked two acquisitions to bolster its healthcare software offering, after having scooped up the foundational piece of that business with the 2013 reach for Database Consultants Australia’s eHealth division. Telstra was a muted acquirer from 2010-2012, but even in its earlier phase of active M&A (11 deals between 2004-2009), it largely focused on snagging Asian Web properties.

With Pacnet, Telstra is obtaining assets such as datacenters and fiber and undersea cables that support its ambition to make the company a strong regional and global player in enterprise services, which is already a $4bn business annually.

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