networking – Page 9 – Inorganic Growth

Juniper back in the market — and how

December 7, 2010 Brenon Daly

Just nine months after Juniper Networks picked up a small stake in Altor Networks through the startup’s second round of funding, the networking giant decided Monday to take home the whole thing. Juniper will hand over $95m in cash for the rest of the virtual firewall vendor. (Altor had raised around $16m in backing, including the undisclosed investment from Juniper.) At the time of the investment, Juniper said it planned to develop an ‘even closer’ relationship with Altor, its primary virtualization security partner. See our full report on the deal.

The purchase of Altor stands as Juniper’s fifth acquisition this year, and brings its M&A spending to almost $400m so far in 2010. That’s fairly remarkable activity, considering that Juniper had been out of the market for a half-decade. And with the exception of its recent pickup of Trapeze Networks, Juniper’s buys have been big bets on small companies. The networking giant has paid $70m-100m each for Ankeena Networks, SMobile Systems and Altor – and we gather that all three of the target companies were running in the single digits of millions of dollars.

Recent Juniper acquisitions

Date	Target	Deal value	Rationale
December 6, 2010	Altor Networks	$95m	Virtualization security
November 18, 2010	Blackwave (assets)	Not disclosed	Internet video content delivery
November 16, 2010	Trapeze Networks	$152m	Wireless LAN infrastructure
July 27, 2010	SMobile Systems	$70m	Mobile device security
April 8, 2010	Ankeena Networks	$69m	Online media content delivery

Source: The 451 M&A KnowledgeBase

Trapeze’s long road to an obvious home

November 17, 2010 Brenon Daly

Contact: Brenon Daly

Two and a half years after a head-scratching sale to an unexpected buyer, Trapeze Networks has finally landed where it pretty much should have gone in the first place: Juniper Networks. The networking giant said Tuesday that it will hand over $152m in cash for the WLAN gear maker, with the deal expected to close before the end of the year. The price is actually $19m (or 14%) higher than Trapeze fetched in its sale in June 2008 to Belden. (That’s a reversal from most divestitures, which typically return dimes on the dollar compared to the original acquisition price.)

Trapeze’s combination with Belden was a bit puzzling from the start, so it’s not surprising to see the company, which is primarily known for its wiring products, unwind its purchase of a wireless vendor. In fact, it’s only surprising that Trapeze went through a period of ownership at a company other than Juniper. After all, Juniper had an OEM arrangement with Trapeze and even put money into the startup’s series D round of funding. We gather that Juniper was close to taking home Trapeze before it sold to Belden, but the two partners got snagged on a final price.

Since Trapeze sold for the first time, there have been a handful of exits for other WLAN providers. Most notably, Colubris Networks got snapped up by Hewlett-Packard and Meru Networks actually made it to the Nasdaq. Meru went public at $15 per share, which has been basically the midpoint of its trading range since its debut in late March. The stock also currently trades at about $15, giving Meru an equity value of roughly $240m, or about three times 2010 sales. Incidentally, Bank of America Merrill Lynch both led Meru’s offering and advised Juniper on its pickup of Trapeze.

Reading Cisco’s signals

November 11, 2010 Brenon Daly

Contact: Brenon Daly

As a bellwether for the tech industry, Cisco Systems laid out a fairly bearish outlook for Wall Street in its report on fiscal first-quarter results. The projections of lower-than-expected revenue at the networking giant trimmed some $20bn from its market value Thursday, and helped dragged down the Nasdaq, which has tacked on 6% over the past month. But from our perspective, Cisco is not just a key indicator for the equity market – it’s also a key indicator for the M&A market.

Looking more closely at the company’s fiscal Q1 report, we can’t help but be struck by Cisco’s paltry M&A spending. During the August-October period, the company handed over a total of just $69m (net of cash at acquired companies) for its purchases of ExtendMedia and Arch Rock. (Specific terms on both deals weren’t disclosed.)

While that may sound like a lot of money, it’s pocket change to Cisco, which generated $1.7bn in cash flow from operations in the quarter. Or more dramatically, consider this: during Q1, Cisco spent $2.5bn on share repurchases. That means it spent more than 35 times more on its own equity than on the equity of other companies.

Not that Cisco has been alone in staying out of the big-ticket M&A market recently. We noted that October (the final month of Cisco’s fiscal first quarter) was the first month of 2010 that a tech company didn’t announce a single transaction valued at more than $1bn. Obviously, that streak was broken last week, when Oracle said it was spending $1bn for Art Technology Group. Still, it was only Oracle’s second significant acquisition of the past 18 months.

Riverbed bolts onto Steelhead

October 29, 2010 Brenon Daly

Contact: Brenon Daly

Riverbed Technology just keeps flowing higher. Shares in the company, which hit the Nasdaq four years ago, notched their highest-ever close Wednesday. The market values the WAN traffic optimization (WTO) vendor at a staggering $4.2bn. That works out to some 7.7 times projected 2010 sales of $545m and some 6.2 times next year’s forecasted revenue of some $680m.

The company has garnered that rich valuation by selling its Steelhead appliances, which basically help customers move network traffic more quickly. Through M&A, Riverbed has added some smarts to its boxes. That expansion has been crucial for Riverbed because it is still basically a one-product shop, while its rivals (notably Cisco and Blue Coat Systems, but also Juniper Networks) pitch WTO wares as part of a larger network offering.

Most recently, the company picked up protocol analysis and packet-capture technology with its purchase of CACE Technologies. Although exact terms on the deal – only Riverbed’s second acquisition – weren’t revealed, the company did indicate that it paid less than $20m for CACE, which is perhaps best known for its Wireshark and WinPcap tools. (My colleague Steve Steinke has our full report on the purchase.) The deal comes a year and a half after Riverbed bought Mazu Networks, which added visibility and security technology through the startup’s network behavior anomaly detection offering.

Oracle parlays new interest in chips into small stake in Mellanox

October 29, 2010 Brenon Daly

Contact: John Abbott

When Oracle started hinting recently about its growing interest in chip vendors, Mellanox Technologies was at the top of our list of potential acquisition candidates. It turns out that Oracle is indeed interested in Mellanox, but only in a chunk of it. Oracle said earlier this week that it bought 10% of Mellanox’s ordinary shares on the open market.

Oracle didn’t reveal the price it paid for Mellanox or when it was in the market. But on a back-of-the-envelope basis, the stake probably represents about a $70m bet on Mellanox. (The company has about 35 million shares outstanding, and the price has been bumping around $20 each for much of the past month.) Other significant investors in Mellanox include Fidelity Management & Research, with an 11.7% stake, Alger with 7.5%, and the company’s CEO, Eyal Waldman, who owns 5.3% of the company.

As it picked up the chunk of equity, Oracle was quick to add that the purchase is for investment purposes only, and is not the start of a larger play for Mellanox, friendly or otherwise. Its stated motive is to solidify common interest in the future of InfiniBand.

Mellanox is one of only two suppliers making silicon for InfiniBand switches and adapters, the other being QLogic. It formed a close relationship with Sun Microsystems eight years ago, and more recently, its chips have been used within Oracle’s Exadata and Exalogic data-warehousing and storage appliances. In return for Oracle’s dollars, Mellanox will make Oracle Solaris one of its core supported OS platforms. But it will continue to work with Oracle’s rivals, including IBM, Hewlett-Packard and Dell.

As far as datacenter communications fabrics go, InfiniBand has maintained its technical lead over Ethernet and it looks like it will be doing so for a while to come. Even so, Mellanox has also launched a parallel set of 10Gb Ethernet products in the past few years in order to maintain its growth. And it’s also been looking to diversify into the consumer space, if reports that it recently tried (apparently unsuccessfully) to acquire fellow Israeli company CopperGate Communications for $200m are true. Privately held CopperGate develops chips for home entertainment devices and digital home broadband networking.

No celebration for this anniversary

October 22, 2010 Ben Kolada

Contact: Ben Kolada

One year ago, Equinix announced that it was acquiring Switch and Data in its largest-ever transaction. The deal gave Equinix an immediate presence in several new markets, and alleviated capacity constraints in existing ones. However, the acquired properties haven’t lived up to their expectations, and Equinix was forced to trim its revenue guidance as a result. (Equinix will provide more details on its Q3 results on Tuesday.)

With the revision, investors sliced $1.3bn (about 25%) in market value from the combined company. For perspective, that’s nearly twice the amount that Equinix paid for its rival. And it’s not as if the Internet infrastructure industry is anti-acquisition. Digital Realty Trust closed two major deals this year worth a combined $1.1bn. Meanwhile, its shares have climbed 20% since the year began, compared to the Nasdaq’s 8% return.

With its hands full on its consolidation play and the market having punished its stock, Equinix won’t be announcing another acquisition anytime soon. In fact, we wonder if Equinix might not be a seller before it once again returns as a buyer. We wouldn’t be surprised to see the company divest legacy Switch and Data assets that are outside its core footprint.

Ulticom’s shareholders cash out

October 15, 2010 Brenon Daly

Contact: Brenon Daly

Cash is king. We got a reminder of that tried-and-true business adage when we were skimming the terms of Ulticom’s sale to buyout shop Platinum Equity earlier this week. While the pending take-private is hardly a regal outcome for shareholders of the telecom software provider, the structure of the deal helps them get a bit more back from the business than they would have otherwise.

According to terms of Tuesday’s buyout, Platinum will pay $2.33 for each of the roughly 11 million shares outstanding at Ulticom. That works out to about $26m of equity consideration for the company. Far more important, however, the buyout shop will hand back roughly $64m of Ulticom’s $77m in cash to shareholders. This is actually a rare case of a cash ‘rebate’ being pocketed by the existing owners of a business (shareholders) rather than the soon-to-be owners. The bid works out to an enterprise value for Ulticom of about $16m, for a business that was likely to do around $38m in revenue in the current fiscal year.

Further, this is actually the second time that Ulticom has parceled out its cash. A bit of background: Ulticom is majority owned by Comverse Technology. The scandal-tainted company acquired Ulticom in 1996, which then spun off a chunk in a public offering in April 2000. That offering – along with a secondary shortly afterward – gave Ulticom way more money than it could ever use. While the company was sitting on a mountain of cash, interest in it was muted because Ulticom had to restate several years worth of financial filings because of options grants and revenue recognition issues. Those concerns pretty much sank Ulticom’s M&A plans in 2008, when it was being advised by Jefferies & Company.

Last year, however, Ulticom got itself back together. It settled with the SEC, got relisted on the Nasdaq and even threw a bone to long-suffering shareholders, paying out $200m in cash through a dividend. (Part of the reason Ulticom emptied out its treasury, we suspect, is to make it more attractive to private equity firms, which wouldn’t have to write such a large check for the company.) The move paid off for Ulticom, not to mention its shareholders. Morgan Keegan Technology Group (the former Revolution Partners) advised Ulticom on the deal, which is expected to close by January

There’s only one 3PAR

August 23, 2010 Brenon Daly

Contact: Brenon Daly

Let’s see, where have we heard this before? A storage company with hundreds of millions of dollars in revenue finds itself in a billion-dollar bidding war between two tech giants, advised in the process by high-end boutique Qatalyst Partners. Last summer, scarcity value drove the price of Data Domain; today it’s 3PAR.

Looking to trump Dell’s existing agreement for 3PAR, Hewlett-Packard on Monday lobbed a topping bid for the high-end storage provider. HP, advised by JP Morgan Securities, is offering $24 for each share of 3PAR, giving the proposed transaction an enterprise value of $1.56bn. (That’s according to our math, compared to the $1.66bn that HP gives its bid.) In any case, the offer is some $380m, or 33%, richer than Dell’s initial bid. Recall that Dell’s offer of $18 valued 3PAR at the highest level ever for the stock.

One interesting observation about HP’s topping bid: it is exactly the same percentage (33%) that EMC had to hand over for Data Domain, which had agreed to sale to NetApp. Of course, this is HP’s first counter, while EMC had to bump its own bid. (Initially it offered $30 for each Data Domain share, but ultimately paid $33 per share when it closed the deal in July 2009.) Of course, there was little hope of NetApp matching EMC in a bidding war for Data Domain. In the case of 3PAR, however, rivals Dell and HP are on much closer financial footing. Terms of Dell’s original agreement with 3PAR call for a $53.5m breakup fee

nextstop gets Facebooked

July 13, 2010July 13, 2010 1 Comment

Contact: Jarrett Streebin

After years of building up its platform organically, Facebook has been acquiring like mad this year. The Palo Alto, California-based startup has just purchased its fourth company since January, up from only one in 2009. The latest acquisition is nextstop, a user-generated travel recommendation site. Like earlier buys this year, this one is about adding features to the Facebook platform.

Location features are something Facebook has been promising for some time but has yet to deliver. The sheer growth of sites like Foursquare, Gowalla and SCVNGR has demonstrated widespread demand for location-based services and networks. Twitteradded location features through its Mixer Labs acquisition and Google already has a service called Latitude, in addition to having invested in SCVNGR, a network similar to Foursquare. Facebook has also recognized the attraction of such offerings. It’s rumored that it recently had talks with Foursquare about an acquisition.

However, what check-in-based sites like Foursquare and Gowalla lack is user-generated content. People can interact but there is no way for users to write reviews about locations they visit. It’s likely that with nextstop, Facebook will incorporate user reviews into its forthcoming location offering. Not only will users be able to see where their friends are, they will be able to read what they wrote about places. With these features, Facebook’s location offering will represent the next wave in location. That’s if it ever arrives. We’ll be looking at moves by Facebook and other key technology buyers as well as our outlook for dealmaking in the second half of the year in our midyear webinar on Thursday. Click here to register.