Category: M&A

Alliance becomes biggest dealmaker in move from offline to online marketing

Scott Denne

Contact: Scott Denne

Amid similar moves by its peers, Alliance Data Systems makes the biggest leap from marketing data to marketing software in its $2.3bn acquisition of Conversant. Like other offline marketing data service providers, Alliance sees a move into digital marketing as the only real way to grow its offline marketing data business.

Alliance is handing over 7% of its stock (worth $1.2bn) as well as shelling out $1.1bn in cash to get its hands on Conversant; despite that, the stock is up 2% on the news. That’s as much a reflection of Conversant’s financial metrics – the target has better margins than Alliance’s Epsilon and will boost the EBITDA margins of that unit (which will be home to Conversant) from about 22% to above 25%.

At a multiple of 3.7x trailing revenue, the transaction is on the high end of valuations for ad-tech firms – again, reflecting Conversant’s unusually high profit margins in that sector – but lower than the 10x and beyond paid (in smaller deals) by Alliance’s peers Acxiom and Neustar.

This isn’t Alliance Data’s first move into digital marketing: it picked up a handful of email marketing businesses last decade and again in 2011 and 2012 when it bought a pair of digital marketing agencies – Aspen Marketing Services and Hyper Marketing – for a combined $820m. The company has also dabbled in other areas of digital marketing and ad tech, but has found little success beyond email and has remained a services-heavy business.

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Did SAP exercise an an opportunistic option for OpTier?

Brenon Daly

-by Brenon Daly

Despite raising more than $100m in backing, OpTier quietly wound down this summer after a dozen years in business. Even more quietly, some of the assets from the formerly highly valued startup may have been snapped up on the cheap by SAP.

That’s according to several market sources, and an opportunistic purchase would certainly make sense. SAP licensed a fair amount of OpTier to monitor its cloud software internally, so it could have simply brought the technology in-house. Although a deal hasn’t been announced (much less terms for any transaction), we understand SAP paid $10-20m for much of OpTier’s IP.

Assuming our understanding is correct, it would mark a sharp comedown for OpTier. As recently as three years ago, the Israeli startup was reported to be seeking an exit of up to $300m in a process run by Morgan Stanley, which is also an investor in OpTier.

Although OpTier grew quickly through much of the past decade with its business transaction monitoring product, it was slow to step into the more valuable market of code-level application performance monitoring (APM). (See our 2012 report on the ‘pivot’ at OpTier .) For comparison, at least two APM startups founded after OpTier – AppDynamics and New Relic – are both valued in the neighborhood of $1bn and are expected to go public in 2015.

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Idera could reignite M&A binge with TA cash

Scott Denne

Contact: Scott Denne

Idera’s bid to roll up companies in the IT performance management space gets a boost as TA Associates acquires the company. Idera launched beyond the database management business with a pair of acquisitions last summer – CopperEgg and Precise Software – with plans to ink more, but has been quiet since.

Idera is one of several vendors primed to consolidate the performance management category, fueled by the expansion of cloud deployments and mobile software and, in part, by private equity (PE) money in the sector, such as Thoma Bravo’s $2.5bn purchase of Compuware and earlier pickup of Keynote Systems, as well as Insight Venture Partners’ investments in SmartBear and Kaseya.

With trailing revenue of about $40m and little growth, the transaction is likely on the small end of a TA acquisition (the PE firm’s median deal size is $150m, according to The 451 M&A KnowledgeBase ), suggesting that TA has set aside more capital for add-on purchases. The PE firm’s move delivers an exit to longtime investor Austin Ventures, which first backed Idera more than a decade ago, as well as Vector Capital, Silverton Partners and Greylock Israel, which became backers though the acquisitions of Precise Software and CopperEgg.

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Rakuten reaches for Ebates in latest bid for international growth

Scott Denne

Contact: Scott Denne

Rakuten makes its largest bet yet to expand its international e-commerce efforts. The Japan-based Internet conglomerate is shelling out $1bn, at 6x last year’s revenue, to buy Ebates, a shopping rebates site.

Best known as an online retailer, Rakuten runs a variety of mostly Web-based services, which are linked together through a common membership database where customers can earn rewards points by shopping across services. Despite a concentration on international M&A – only two of the 21 acquisitions it’s made over the past decade were based in Asia – the company’s e-commerce membership overseas is only half what it is in Japan. Also, its overseas e-commerce sales dropped 6% last year to $1.17bn.

The addition of Ebates boosts Rakuten’s exposure outside of Japan – about twice the value of merchandise is sold through Ebates than all non-Japanese sales on Rakuten. Though not a retailer, Ebates attracts members to its platform by offering rebates on products that they find on Ebates (though the buying is done on a retailer’s site).

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Its IPO stuck, Box is no longer the upstart startup

Brenon Daly

Contact: Brenon Daly

This year’s Burning Man and BoxWorks have more in common than just a spot on the calendar. The two festivals have grown far beyond the original events, both in terms of scope and attendees. In fact, both the bacchanal in the desert and the Box user conference, in their own ways, have grown so much from their anti-establishment roots that they’ve now become part of the establishment. The onetime fringe events have gone mainstream.

While the Burners debate whether the festival ‘sold out’ its founding principles, the Boxers have posed a similarly existential question: What are we now?

Throughout its three-day conference for developers and customers, which wrapped Thursday, Box took great pains to show how much it has grown up in its nine years in business. For the first time ever, BoxWorks was held at an actual convention center (the same location Oracle will use later this month for its user conference and salesforce.com will use next month). And more than ever before, Box populated its panels and presentations at the event with big company representatives, consciously underscoring just how far it has come since its fabled ‘pivot’ away from the consumer business.

But the clearest indication of the change at Box came from the very top of the company. CEO Aaron Levie, who normally freewheels through speeches, sounded much more measured. The 20-something-year-old CEO dialed down his snark and couched some remarks in language that read like it came from an SEC filing. (Maybe filing an S-1 does that to a chief executive?)

As an example of this new business-like attitude, consider the shift in Box’s relationship with onetime nemesis Microsoft. At previous BoxWorks, Levie thrived by bashing Microsoft, positioning the company as a lumbering dinosaur that had been outflanked by the nimble startup, Box. And yet, one of the key features for Box that Levie played up during his keynote was the fact that Box now partially integrates into Office 365. (For the record: It’s in beta, and comes more than three years after Microsoft launched Office 365 and Levie blogged that Box ‘would love’ to connect with the offering.)

With Box likely to put up about $200m in sales this year, it’s clearly no longer a startup. But what was made equally clear at BoxWorks this year is that the company is no longer an upstart, either. It’s turning into another enterprise software vendor, whether it likes it or not.

In our opinion, it is that realization that makes it more likely that Box will be sold or, at the least, be a more willing seller. In the consolidated, mature market of enterprise software – where a company like Microsoft puts up more revenue each day than Box does in a year – scale is an advantage. Despite all of its marketing spending and a more grownup user conference, Box still doesn’t have scale, and can likely only obtain that by getting acquired. So which company is likely to pick up Box? Hewlett-Packard is our top pick, followed by Cisco.

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LogMeIn signs into identity market

Scott Denne

Contact: Scott Denne Adrian Sanabria

Earlier this year, we took a look at M&A possibilities for the cloud application control (CAC) market, and pegged cloud SSO/IAM products as a good matchmaking opportunity. That’s exactly what’s happened with LogMeIn’s acquisition of Meldium. The acquirer’s AppGuru product allows enterprises to monitor and control employee access to SaaS apps. With authentication being the key chokepoint for CAC services, the ‘melding’ of Meldium’s offering with AppGuru could give LogMeIn customers an opportunity to address two issues with one stone.

The $15m price tag (including an unspecified earnout) for Meldium is a typical deal size for LogMeIn, which has built a diverse set of SMB applications, mostly organically, having only made four acquisitions (all between $7.5-16m) since its debut as a public company in 2009. One difference with its Meldium purchase: LogMeIn is jumping on the target earlier than it typically does. Meldium is a year out of its stint at Y Combinator, whereas Ionia and Bold Software, LogMeIn’s two most recent targets, had more than two decades of operations between them when they were picked up.

While LogMeIn has plenty of cash ($220m and growing) and equity to do larger deals, its M&A activity has been light, opting instead to lean on internal development to expand into areas like collaboration, Internet of Things and IT management for SMBs from its starting point in remote desktop applications. Small, tactical buys have served LogMeIn well – it’s projecting 30% revenue growth this year to $217m, outpacing the 15-20% gains it has put up in each of the past three years.

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Veritas enters IAM fray with BeyondTrust buy

Scott Denne

Contact: Scott Denne Garrett Bekker

Veritas Capital’s acquisition of BeyondTrust adds to a flurry of recent deals in the identity and access management (IAM) sector. The transactions continue to flow as CISOs become less reliant on perimeter defenses alone.

At $310m, Veritas is valuing BeyondTrust just a smidge over 3x trailing revenue, putting it below the multiple on Thoma Bravo’s purchase of SailPoint and above the 2.5x that Gemalto paid for SafeNet in its $890m acquisition of that company in August. Other recent deals in this sector include RSA’s pickup of Symplified’s assets and a pair of IAM purchases this summer by IBM.

In a December 2013 survey by TheInfoPro, a service of 451 Research, IAM was the most cited security-related spending priority for IT shops over the next 12 months. Given the increasing role of identity as a key security construct in both cloud and mobile computing architectures, we expect that identity-related technologies will remain fodder for future dealmaking.

Recent IAM transactions

Date announced Acquirer Target Deal value
September 3, 2014 Veritas Capital BeyondTrust Software $310m
August 12, 2014 Thoma Bravo SailPoint Technologies Click for estimate
August 11, 2014 IBM Lighthouse Security Group Not disclosed
August 8, 2014 Gemalto SafeNet $890m
July 31, 2014 IBM CrossIdeas Not disclosed

Source: The 451 M&A KnowledgeBase

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Thoma Bravo gets better than face value from Compuware

Scott Denne

Contact: Scott Denne

At first glance, the $2.5bn take-private of Compuware looks like a fairly typical (though larger) Thoma Bravo deal – the private equity firm has bought many aging, but profitable, tech companies for multiples that are similar to this transaction. After stripping away the results for Covisint, the services business that it’s unloading as part of the deal, the terms look quite different.

The acquisition values Compuware at $10.92 per share, but that includes the 80% stake that Compuware holds in Covisint, a former subsidiary that Compuware took public last year, which will be distributed to Compuware shareholders ahead of the close. That per-share price gives Compuware a 3.1x trailing revenue valuation and 21.5x enterprise value to EBITDA multiple – both are on the high end of what Thoma usually pays.

Since Thoma isn’t actually paying for Covisint, stripping out that company’s financial performance and implied value makes Compuware a relative bargain. After backing out Covisint’s low revenue and high operating expenses, the EBITDA multiple drops to 12.3x, well below the median 17.4x for a Thoma Bravo take-private, not to mention the 22.3x it put up for Compuware rival Keynote Systems last year, according to the The 451 M&A KnowledgeBase.

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Summer ends with M&A hot streak

Scott Denne

Contact: Scott Denne

As summer turns to fall, tech M&A shows no sign of cooling off. In August, we’ve seen the value of disclosed and estimated acquisitions double from last year to $29.74bn on 290 transactions, matching last year’s total.

As in the rest of this record year, telecom consolidation drove the total up, as Telefonica’s $9.83bn purchase of Brazil’s Global Village Telecom accounted for a full third of the value of August’s announced transactions.

Though telecom was the biggest contributor, there were five other $1bn+ deals this month from multiple sectors, such as gambling technology and payments. Compare that with two $1bn+ acquisitions last August, neither of which crossed $2bn. Rounding out the list of this month’s largest transactions were a pair of gaming companies, FunPlus and Twitch, which were both just shy of the $1bn mark.

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Gaming has Amazon Twitch-ing

Scott Denne

Contact: Scott Denne

Amazon reaches for Twitch, a website for watching and broadcasting videogame play, in a $970m deal that could benefit multiple parts of the Amazon empire. In picking up Twitch, Amazon could boost its Prime offering with original content while helping many other parts of the company, from its core retail sales to its advertising business and, of course, its gaming foray.

While Amazon Prime, its subscription media business, lags Netflix, it’s gaining ground fast. According to a June survey by ChangeWave Research, a service of 451 Research, 42% of subscribers to an alternative TV service chose Amazon, up from 33% a year earlier, and only half what Netflix garnered. That same survey also showed the impact of original content on those numbers – 20% of Netflix subscribers said they mostly use the service for original content, compared with just 4% for Amazon. To be clear, Amazon hasn’t indicated how or whether Twitch will be integrated with Prime, but it just bought itself billions of hours of unique content.

Twitch, with a substantial audience overseas, also provides an opportunity to grow Amazon’s media business beyond North America via sales of premium features such as ad-free viewing and larger uploads. Through the first half of 2014, Amazon’s international media revenue – the slowest portion of its business – grew just 5%, or about one-third the rate that unit grew in North America.

Owning Twitch also gives Amazon a fertile ground for entering the gaming market itself – an Amazon console has long been rumored and the company recently acquired game studio Double Helix Games. It also expands Amazon’s reach into a desirable demographic – young men – that it can sell to directly and leverage for its advertising business.

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