Category: M&A

Atos’s Xerox buy is no Bull

Scott Denne

Contact: Scott Denne

France-based outsourcer Atos reaches across the pond with the $1.1bn pickup of Xerox’s IT outsourcing (ITO) business. The purchase price values the target at 0.7x 2014 revenue, which is above Atos’ norm. The outsourcing and managed services provider has been a bargain hunter in its biggest acquisitions. In fact, you have to go all the way back to 2003 to find a deal where it paid 0.5x trailing revenue – everything disclosed since then has been below that.

For its last big buy – France-based hardware maker and outsourcing shop Bull – Atos paid $847m, or an enterprise value of 0.3x revenue. Before that it ponied up $1.1bn for Siemen’s ITO unit, valuing the target at a mere 0.2x revenue (on top of that it took cash from Siemens to cover the cost of lost contracts, delayed projects and layoffs).

All that’s not to say Atos wasn’t shopping carefully with this transaction. For one thing, Xerox’s ITO business posted revenue growth in the high single digits in each of the past three years, unlike those earlier purchases. Also, the multiple it’s paying for Xerox’s ITO unit is just a hair lower than the 0.85x median multiple on similarly sized ITO deals over the past 24 months, according to The 451 M&A KnowledgeBase. Finally and most importantly, Xerox brings Atos into the US market in a big way. Nearly all of Xerox’s ITO customers are in North America, whereas only 7% of Atos’ business comes from that region.

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Host Europe snags a competing German hosting company

Scott Denne

Contact: Scott Denne

Oakley Capital Investments unloads intergenia to an old friend. Host Europe, a Germany-based hosting and managed services provider that was owned by Oakley until 2010, is buying its competitor in a deal that values the target at $261m. The sale generates a 2.5x return to Oakley, which took a 51% stake in intergenia in late 2011 for $54m.

Past ownership isn’t the only thing that Host Europe and intergenia have in common. Both companies focus on German-speaking markets. Both have a large Web hosting business and are attempting to move upmarket with managed services and more SMB customers. And both have inked recent acquisitions in support of this move: intergenia nabbed internet24 in 2013 and Host Europe picked up a pair of companies that same year (domainFACTORY and Telefonica Germany Online Services) and, of course, intergenia today.

Despite the numerous small datacenter shops remaining and M&A growth across other sectors, 2014 hasn’t been a banner year for multitenant datacenter acquisitions in Western Europe. Only 36 firms in that region have been bought so far – compared with 29 in all of last year. And few transactions have been substantial. In fact, today’s deal is the largest purchase of such a company this year, according to The 451 M&A KnowledgeBase.

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A buyout for Bitdefender?

Brenon Daly

Contact: Brenon Daly

Bitdefender is rumored to be the latest European antivirus (AV) vendor of scale to be picked up by a buyout shop. Several market sources have indicated that Romania-based Bitdefender, which is a division of a larger company and hasn’t taken outside funding, has been sold. Neither the price nor the private equity (PE) acquirer could be immediately learned.

According to our understanding, Bitdefender generates about $50m in revenue. The consumer-focused company says its AV technology protects 500 million users, which is more than twice as many as rival AVG claims. In addition to selling directly, Bitdefender also OEMs its offering to more than 100 partners, which partially accounts for how the company’s technology has made it onto a half-billion machines.

A number of PE firms already have Europe-based, consumer-focused AV providers in their portfolios, including Apax Partners with Sophos, Summit Partners with AVAST and TA Associates with AVG, although that company is now publicly traded. Also, General Atlantic (briefly) owned a minority stake of Kaspersky Lab.

In general, those investments haven’t generated stellar returns for the buyout barons. GA had a less-than-harmonious holding of Russian firm Kaspersky for about a year. AVAST didn’t make it public when it was on file two years ago. And both Sophos and AVG have been valued in the range of 2-3x sales. Applying that multiple to Bitdefender would value it at roughly $100-150m.

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WD reaches up the storage stack

Scott Denne

Contact: Tim Stammers Scott Denne

Could Western Digital’s Skyera acquisition be its first step to becoming a full storage systems vendor? The purchase brings the disk drive giant a product to immediately move up the stack and become a systems provider. We don’t believe, however, that Skyera’s systems were the main motivation for the deal.

Skyera was building all-flash storage arrays, with much of the focus on building its own flash drives and controllers. That intellectual property and expertise will fit well inside WD’s existing lines of PCIe, SAS and SATA enterprise flash drives, as well as its embedded offerings. It could also provide some of the building blocks for WD’s HGST subsidiary to put together its own array.

Skyera’s systems have not seen huge success in the highly competitive all-flash array market, as they lack standard enterprise features such as multi-controller availability, as well as data management services. And the company appears to have had trouble attracting new capital to its most recent round, relying on existing investors (including WD) to fund it with an undisclosed amount of capital, on top of the roughly $70m that Skyera raised across two earlier rounds.

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

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Buying a dried-up Riverbed

Brenon Daly

-by Brenon Daly, Christian Renaud

Announcing its largest-ever acquisition, private equity (PE) firm Thoma Bravo says it will pay $3.6bn for Riverbed. The take-private of the WAN optimization vendor comes after more than a year of pressure from activist hedge fund Elliott Management. Under terms, Thoma, which has a history of profitably acquiring infrastructure software providers, will hand over $21 for each of the roughly 170 million fully diluted Riverbed shares.

Thoma Bravo is valuing Riverbed at 3.4x the $1bn that the company has put up over the past year. (Sales growth has been underwhelming so far in 2014. Through the first three quarters of the year, Riverbed inched up its top line by 6% – just one-quarter the growth rate from full-year 2013.) The valuation is roughly in line with other recent significant take-privates such as Thoma’s leveraged buyout of Compuware and Vista Equity Partners’ LBO of TIBCO Software.

The primary reason why Riverbed’s growth has stalled – which precipitated the initial unsolicited approach from Elliott – is the considerable changes in market requirements (greater demand for traffic analysis and grooming) and enterprise networking (evolution to cloud-delivered services). A study by TheInfoPro, a service of 451 Research, earlier this year indicated that more customers were planning to cut their spending with Riverbed in 2014 than increase their spending with the vendor. We’ll have a full report on this transaction in tomorrow’s 451 Market Insight.

RVBD spend plan

 

Intuit’s international accounting

Scott Denne

Contact: Scott Denne

Intuit extends its overseas holiday by picking up Acrede, a UK-based payroll software provider. In four of Intuit’s seven acquisitions this year, the accounting software vendor has reached for a business based outside the US. That’s in stark contrast to the previous 11 years, when it nabbed a total of two international businesses.

Until recently, sales of Inuit’s core accounting products were limited to US customers as expansion overseas meant not only hiring local staff, but revamping the offering to comply with local regulations. Recently, the company has begun to expand into a few international markets, including Canada, the UK, India and Australia. Acrede’s payroll SaaS has been built for use in multiple markets and specializes in catering to businesses with payroll needs that stretch across borders; those attributes give Intuit the opportunity to expand its international capabilities as well as cater to larger customers who themselves operate across borders.

It’s no coincidence that payroll software is a big part of Intuit’s thrust into international markets – revenue from online payroll products accelerated in its most recent fiscal year, increasing 25%. Even its desktop payroll offerings posted growth last year, in opposition to the rest of its desktop wares. The overall business grew 8%.

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Belden plugs into Tripwire

Brenon Daly

Contact: Brenon Daly

Belden’s acquisition of Tripwire marks not only the company’s largest purchase, but also the richest valuation it has ever paid. Belden is handing over $710m in cash for the security management vendor. That values Tripwire at nearly 5x sales, which is more than twice the multiple Belden has paid in its past half-dozen deals. (For its part, Belden trades at less than 2x sales, despite its shares hitting an all-time high upon the deal announcement.)

A company known primarily for cables and wiring, Belden has inked seven purchases over the past four years as part of a broader effort to get into new markets. Not all of those moves have worked. (For instance, it divested a wireless LAN startup after more than two years on the books. Despite the irony of a wiring provider buying a wireless vendor, Belden actually sold Trapeze Networks for more than it originally paid for it.) Nonetheless, growth in new markets is one of the main reasons why Belden shares have more than tripled since the end of the recession, roughly three times the gain in the broader US indexes.

Still, the pickup of Tripwire is a not-insignificant gamble. Strategically, Belden imagines extending Tripwire’s security, which is currently focused entirely on enterprises, to industrial settings. And financially, Belden is essentially clearing out its coffers to cover the transaction. (It is drawing down approximately $200m on an existing line of credit to help pay for Tripwire.)

And, as noted, Belden is paying up for Tripwire. Terms value the Portland, Oregon-based target at 4.9x sales. For context, Tripwire sold to its current owner – private equity shop Thoma Bravo – for about $225m, or 2.2x sales, in mid-2011, according to our understanding. So one way to look at the three-year period Tripwire was owned by Thoma Bravo is that while revenue didn’t quite double, the company’s price more than tripled.

The primary reason why Thoma Bravo is getting an above-market valuation on its exit is the operational efficiencies that it helped bring into Tripwire. The company is projected to grow in the high teens, which is twice the rate it was growing before being acquired by the PE shop. Maybe more importantly, Tripwire more than tripled its EBITDA margin, to above 30% currently, while also accelerating its growth.

Look for a more detailed report on Belden’s acquisition of Tripwire in tomorrow’s 451 Market Insight.

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Accel-KKR takes a second helping of WCM

Scott Denne

Contact: Alan Pelz-Sharpe Matt Mullen Scott Denne

Accel-KKR makes its second move into Web content management (WCM) in as many days with the acquisition of EPiServer. As the faster-growing of the two, EPiServer likely traded hands at a higher multiple than Ektron, which Accel-KKR bought yesterday.

Ektron has had a difficult few years. The company went from a peak of 300 employees to about one-third of that today. It has also undergone turmoil at the top, losing senior executives in the process. But it would be too easy to portray this as simply a case of bad management, since the WCM sector has also been in turmoil and many players have just fallen off the map. Ektron has remained a well-regarded and visible player, especially within .Net IT environments.

EPiServer, in contrast, has plotted a steady and modest course of growth over the past few years, pushing toward $50m in revenue and continuing to build the partner network that characterized its go-to-market model.

The WCM market went from hugely hyped and overvalued in the early 2000s to an arena that has been ravaged by low-cost ‘good enough’ alternatives as well as buyer obstinacy in staying on old platforms, due to the complexity and risk of moving. Those high-end customers are starting to migrate, but their tastes and requirements have gone from encompassing the largely commoditized Web publishing use cases that previously predominated, to supporting social media, e-commerce and deeper personalization and mobility.

There are no indications yet that EPiServer, Ektron and North Plains Systems (a digital asset manager that Accel-KKR bought in 2011) will be operated as anything other than separate entities, but a combination of all three would create a mature, reputable organization with many cross-selling opportunities. Each party has – to varying degrees – existing global presences, so a combined entity would have a considerable head start over newer entrants.

Subscribers to 451 Research’s Market Insight Service can access a more detailed report on Ektron’s sale here and will find a Deal Analysis on Accel-KKR’s EPiserver buy in tomorrow’s sendout.

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CenturyLink seeds DR biz with DataGardens buy

Scott Denne

Contact: Scott Denne Al Sadowski

CenturyLink reaches deeper into dedicated services with the acquisition of disaster recovery vendor DataGardens. The deal is the latest of several by CenturyLink as it continues to expand its legacy telecom business into hosting, managed services and cloud as its wireline calling and networking business shrinks amid a shift toward mobile and VoIP calling.

Terms of the transaction weren’t disclosed, but it falls on the lower end of CenturyLink’s purchases, and is likely more reminiscent of AppFog ($15-25m) than Tier 3 (click here for our estimate on that sale). While small, the acquisition does show a subtle shift in CenturyLink’s M&A strategy in that it’s looking toward more specialized services to layer on top of its existing assets.

Its past deals that transformed the company from a telecom services provider into a multitenant datacenter business were high-priced platform plays. Its $2.5bn pickup of Savvis brought CenturyLink into the hosting and colocation arena, and its takeout of Tier 3 gave it an infrastructure-as-a-service platform. DataGardens adds a disaster recovery service to that platform. We expect CenturyLink to continue to build and buy additional dedicated workloads for its Tier 3 technology, especially services such as disaster recovery that it can upsell to its legacy business networking customers.

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OpenText returns to M&A with Actuate purchase

Scott Denne

Contact: Scott Denne

OpenText comes off its M&A holiday with the $330m acquisition of business intelligence and analytics vendor Actuate. This is OpenText’s first deal since just over a year ago, when it inked its largest purchase – the $1.2bn GXS buy.

Its reach for Actuate shows that OpenText still has the same M.O. despite its longest break in dealmaking since 2007. The enterprise information management provider values the target at 2.5x trailing revenue, in line with both the GXS valuation and the median valuation of its disclosed and estimated acquisitions over the past four years, according to The 451 M&A KnowledgeBase.

With this transaction, OpenText rescues Actuate from a punishing period in its 16 years as a publicly traded company. Over the past year (but before the deal announcement), Wall Street sent Actuate’s stock tumbling down by half, in response to the lower-than-expected profits posted during its transition to a SaaS model. While Wall Street may not have been impressed with Actuate’s transition to SaaS, OpenText was. SaaS revenue accounts for the lion’s share of OpenText’s recent growth and its last two big transactions – GXS and the $246m pickup of EasyLink Services in mid-2012 – were both done, in part, to bolster that segment of its business.

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