Category: SaaS

TriNet expands with ExpenseCloud

Brenon Daly

Contact: Brenon Daly

Throughout its history, TriNet Group has been a slow but steady consolidator. Perhaps the best-known play by the outsourced HR provider came three years ago, when it gobbled up publicly traded rival Gevity HR for $99m. In its most recent deal, however, the private equity-backed buyer has shifted gears a bit.

Rather than simply add more accounts through an acquisition, TriNet has added a nifty offering to its portfolio. The company recently picked up three-year-old startup ExpenseCloud, which helps automate the process around creating and reimbursing employee expenses. TriNet says the expense management offering will be available on its platform later this year.

Although, candidly, employee expense management sounds like a ho-hum market, the big player in this space – publicly traded Concur Technologies – has shown it can be a wildly valued one. The company’s shares currently change hands at their highest-ever level, putting its market valuation at a whopping $3.4bn. Concur recently projected that sales for its current fiscal year, which ends in September, would be in the neighborhood of $440m, meaning investors are valuing the company at 7.6 times this year’s projected sales.

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Facebook sucks the air out of the IPO market

Brenon Daly

Contact: Brenon Daly

All the breathless coverage of Facebook’s kickoff of its IPO roadshow bordered on the ridiculous, even for Wall Street. The reports flew as Facebook made its way along the well-trod path to becoming a public company, a journey that thousands of other companies have already made. But each step (even the most inconsequential) apparently merited coverage: Which door did CEO Mark Zuckerberg use to get into the meeting with potential investors? Did he wear his trademark hoodie as he met the button-down types?

Given this, it’s pretty clear that Facebook hasn’t left any room on the IPO stage for any other would-be debutant. That was underscored by the fact that – according to our understanding – another tech company was originally thinking about making the rounds to buyside institutions this week. Word was that Eloqua was loosely targeting mid-May for its roadshow, but understandably stepped back as the Facebook carnival rolled into town.

Whenever Eloqua does get a chance to tell its story to Wall Street, however, we think it’ll get a pretty good hearing from investors. The on-demand marketing automation vendor is growing about 40% annually (the rate in Q1 actually came in above that level, outstripping full-year 2011) and is likely to finish this year at roughly $100m in sales. It’s right on the cusp of profitability, too. Beyond that, Eloqua has a highly valued rival that recently made its debut: ExactTarget, which currently garners a market value of $1.6bn.

So it’s probably a prudent move by Eloqua and its underwriters not to try to compete with all the noise and flash from the once-in-a-generation offering from Facebook. After all, Wall Street isn’t known for its patience, much less a long attention span. Once Facebook does get listed, many investors will be off looking for the next shiny object.

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

Buying into the social side of HR

Brenon Daly

Contact: Brenon Daly

After three consolidation plays in the fragmented human capital management (HCM) market, private equity-backed rollup Peoplefluent has expanded into enterprise collaboration with the acquisition of Socialtext. Although 10-year-old Socialtext was one of the pioneers of collaboration software (or ‘wikis,’ as they were known in the early days) and did attract some 6,500 users, it struggled to actually put up revenue.

According to our understanding, Socialtext was only generating about $5m in revenue. Peoplefluent – backed by Bedford Funding, whose principals served as executives at ERP rollup Geac – isn’t renowned for paying high multiples. It paid less than 2 times sales for both of its main consolidation acquisitions, 2008’s platform purchase of Authoria and 2010’s reach for Peopleclick. (Earlier this year, it also added a learning management vendor, Strategia Communications.)

Peoplefluent’s move to add collaboration to its HR platform comes almost exactly two years after HCM giant SuccessFactors paid $50m for social enterprise software provider CubeTree. Additionally, we’ve seen salesforce.com combine elements of its acquisition of collaboration software startup Manymoon with its step into the HCM market through its high-multiple purchase of Rypple. And salesforce.com just added another small part to its collaboration offering, tucking in tiny startup Stypi

Intuit pays up for SMB-focused Demandforce

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

Intuit on Friday announced its largest M&A move in six years, acquiring SMB-focused marketing automation startup Demandforce for $423.5m. The deal, and Demandforce’s valuation, was primarily driven by the target’s market traction. The company, founded just in 2003, has amassed a customer roster of more than 35,000 SMBs. The transaction also demonstrates the accounting and tax giant’s desire to further penetrate this market with additional products and services – this is its first major play in marketing automation.

The Demandforce acquisition complements Intuit’s QuickBooks software and expands its offerings for SMBs. (We’d note that Intuit already offers a marketing management and productivity application called QuickBase, though that product is for enterprises.) Demandforce provides marketing automation SaaS and helps businesses maintain an online profile and better communicate with their customers. The company has grown considerably over its short lifetime. According to Inc.com’s annual survey of the fastest-growing companies, Demandforce generated $15.3m in revenue in 2010, up from $6.4m in 2009. Continuing that growth rate would put its 2011 revenue at roughly $25-30m.

Intuit is handing over $423.5m in cash for Demandforce, making this deal Intuit’s largest since it forked over $1.35bn for transaction processor Digital Insight in 2006. Demandforce’s growth certainly factored into its valuation. Assuming that Demandforce maintained historical growth rates, Intuit’s offer would value the target at a whopping 15-20 times trailing sales. If our initial estimates are correct, that valuation is double and even triple some precedent valuations. For example, in 2010, IBM bought Unica for 4.4x sales. Unica had flatlined during its final years as a public company, with revenue remaining in the $100m ballpark for the four years before its sale. The valuation is also double Teradata’s Aprimo acquisition, also announced in 2010. Teradata paid $525m for Aprimo, or 6.3x sales.

Spirent secures its testing platform with Mu

Brenon Daly

Contact: Brenon Daly, Eric Hanselman

A relatively infrequent shopper, Spirent Communications has picked up Mu Dynamics, adding security testing for applications to the company’s performance-testing portfolio. The deal, which is only the British company’s second acquisition in the past half-decade, was announced last week and closed Monday. Spirent paid $40m in cash for Mu, which is projected to contribute about $18m in sales next year. (We understand that talks got going only in December, with Duff & Phelps’ Pagemill Partners unit advising Mu.)

The purchase of Mu Dynamics should also help Spirent expand its market, both in terms of customers and products. Traditionally, Spirent has sold its performance analysis offering as a hardware-based platform to network equipment manufacturers that use it to test the performance of products before they launch them. (It primarily competes in this market with Ixia, although Spirent is much larger and more profitable than its rival.) With Mu, Spirent will get a software product that can be more quickly and easily deployed, even within corporate IT departments.

As more and more applications are run on virtualized infrastructure, the process of testing is adapting. Where hardware-based systems have traditionally been used in test environments, it’s much more difficult to connect them to the virtual and ‘cloudy’ application deployments that are predominating. Spirent’s move will give it tools to address these environments. Ixia has also developed product capabilities in this area. Software versions of testing products can also scale well to match the increased scaling demands placed on applications.

Additionally, Spirent obtains Mu Dynamic’s small – but potentially disruptive – cloud-based testing division called Blitz.io, which bumps up against startups such as SOASTA, Apica, AppDynamics, LoadStorm and other SaaS testing providers. Blitz.io already has some 15,000 users.

While both the performance and security of applications is important to increased cloud application adoption, security is turning out to be a far more significant factor. In a survey earlier this year, ChangeWave Research, a service of 451 Research, found that companies gave higher marks to the reliability of cloud apps than they did to the security of them. Further, of the companies that are not currently running cloud applications, one-third of them cited ‘security concerns’ as the reason they have passed so far. That was twice as high as any other concern voiced by the more than 1,500 respondents to our survey.

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

IBM reaches into the app layer for Varicent

Brenon Daly

Contact: Brenon Daly

IBM has mostly stayed away from acquiring application vendors, reaching instead for companies that typically either bolster its sprawling Global Services division or infrastructure software business, particularly in the management layer. Big Blue stepped a bit out of its regular acquisition area on Friday with the purchase of sales performance management (SPM) vendor Varicent Software. IBM is adding Varicent, which helps companies manage quotas and incentives for sales agents, into its Smarter Analytics division.

Although IBM didn’t disclose terms of the deal, we estimate that nine-year-old Varicent was generating about $35m in sales, give or take a few dollars. That would make it less than half the size of its publicly traded SPM rival, Callidus Software, which increased revenue 18% in 2011 to $84m. Callidus currently trades at slightly north of 3 times trailing sales. Slapping that multiple on Varicent gives a price in the neighborhood of $100m, which is probably a reasonable starting point for valuation.

Of course, Callidus’ current valuation doesn’t reflect any acquisition premium that an acquirer would have to pay. Also, we would probably make the case that Callidus has a more valuable revenue stream, given that more than half of its revenue comes from subscriptions. (Last year, Callidus reported that SaaS revenue hit $45m of the $84m in total sales. More importantly, the subscription business grew twice as fast as the company’s overall revenue.) Varicent was more of a traditional software provider, with license and maintenance plus a bit of consulting. Finally, one other SPM vendor to keep an eye on is Xactly. We understand that company, which has raised roughly $70m in venture backing, may be looking to go public in 2013.

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

Citrix consolidates collaboration

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

In its third collaboration deal in the past 18 months, Citrix Systems said Wednesday that it will acquire small Copenhagen-based startup Podio. The target provides team collaboration SaaS for SMBs, apparently mostly through a ‘freemium’ model. Its product is used for project management, social information sharing, sales lead management and employee recruitment management. It also provides related Apple iPhone and Google Android applications. But Citrix isn’t the only company consolidating in the collaboration market – its Podio buy comes at a time of record interest in this sector.

While there are many collaboration vendors in the market, Podio has a different approach – it enables users to create their own applications to carry out specific tasks. This allows teams to tweak the platform to cater to their specific needs. Citrix will integrate Podio into its GoTo cloud services suite, making it easy for existing customers to adopt the platform. Podio already integrates with Dropbox, Google Docs and Box.

Citrix isn’t disclosing terms of the acquisition, but we suspect that the three-year-old firm probably generated less than $5m in revenue. Podio claims tens of thousands of customers in 170 different countries, but the majority of them are likely only using its free product. If our revenue assumption is correct, then this deal should be considered more of ‘tech and talent’ play than anything else. Citrix traditionally pays above-average valuations, but we doubt that it paid more for Podio than the $54.2m it forked over in its last collaboration acquisition – ShareFile. The 27-employee firm had raised a total of $4.6m from Sunstone Capital, CEO Tommy Ahlers and private investors Thomas Madsen-Mygdal and Ulrik Jensen.

Beyond Citrix’s recent consolidation, the collaboration market is seeing increasing interest overall. The 451 M&A KnowledgeBase shows 79 collaboration acquisitions in 2011 – nearly double the volume in 2010 and an all-time record. Throughout the collaboration sector, some of the most notable transactions since the beginning of 2011 include Yammer buying oneDrum (announced just today), salesforce.com reaching for Manymoon and Dimdim, Citrix competitor VMware acquiring Socialcast and SlideRocket, and Jive Software picking up OffiSync (click on the links for disclosed and estimated valuations). Jive itself made its own splash in social collaboration when it went public in December. The company hit the Nasdaq at $850m and has since seen its market cap balloon to nearly $1.6bn, or 14 times projected 2012 revenue.

Citrix’s collaboration acquisitions

Date announced Target Collaboration sector Deal value
April 11, 2012 Podio Team collaboration Not disclosed
October 13, 2011 Novel Labs (aka ShareFile) File sharing & team collaboration $54.2m
December 17, 2010 Netviewer AG Web conferencing $115m

Source: 451 Research M&A KnowledgeBase; Click on the links for disclosed and estimated valuations

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

A pivot that pays off for ExactTarget

Brenon Daly

Contact: Brenon Daly

In the startup world, there are more pivots than in an NBA game. But often lost in this flurry of activity is that – at some point – changing the direction of the business needs to produce some actual value. (Otherwise, the pivoting just becomes pirouetting, as one of our VC friends recently quipped.) One of the most successful pivots we’ve seen recently came to light on Thursday, with the IPO of ExactTarget.

The online marketing vendor stormed onto the NYSE with a debut valuation of more than $1bn, and then surged from there. (The offering – led by J.P. Morgan Securities, Deutsche Bank Securities and Stifel Nicolaus Weisel – priced at an above-range $19 per share and then traded above $24 in early-afternoon session.) Followers of the IPO market will know that this was actually ExactTarget’s second run at an offering. It had been on file in 2008, before pulling the paperwork in mid-2009.

At roughly the same time that it took itself off the IPO track, ExactTarget dramatically changed its business. It went from selling a single product (email marketing) to a single slice of the market (SMB) to a full cross-channel marketing vendor serving companies of all sizes. The pivot had immediate consequences on its P&L sheet: ExactTarget went from running solidly in the black when it was on file four years ago to running deeply in the red now.

However, it’s a move that has paid off. Counter to the typical pattern, the growth rate at ExactTarget has actually accelerated as the company has gotten bigger. As it consciously increased its spending (particularly around sales and marketing), ExactTarget has taken its annual growth rate from 32% in 2009 to 41% in 2010 and then pushed that to 55% last year. And this is not some rinky-dink business. ExactTarget recorded $208m in sales in 2011. Another way to look at its growth: the $60m in revenue that ExactTarget did in Q4 2011 is more than it did in the full year when it was previously on file (2007 revenue was $48m).

With the benefit of hindsight, it’s probably a good thing that ExactTarget didn’t go public when it had initially hoped to. Three years ago, it was a sub-$100m revenue company, putting up a decent, but hardly spectacular, growth rate. Sure, it could have expanded the business as a public company, but the moves would have been far riskier and (almost certainly) slower because of the myopic scrutiny of Wall Street.

Instead, ExactTarget had the freedom behind closed doors to reposition its business to accelerate. The series of investments it chose to make have almost certainly meant the creation of several hundred million dollars of additional market value. In fact, on just a back-of-the-envelope calculation, ExactTarget’s debut has created more value than any other IPO of an on-demand vendor that we can think of. The company has some 66 million shares outstanding (or closer to 74 million fully distributed), so at a price of $19 each, ExactTarget was worth an astounding $1.25bn (or closer to $1.4bn fully distributed) before it even hit the aftermarket. In comparison, salesforce.com priced at a valuation of about $1.1bn in its 2004 IPO, based on the prospectus share count.

A barb-less Benioff? salesforce.com grows up

Brenon Daly

Contact: Brenon Daly

In just a half-year, it sounds like salesforce.com has done a fair amount of growing up. We were thinking that Thursday as the San Francisco-based company once again hosted an event in its hometown. But the tone was markedly different from the event it put together here last fall. Most notably, salesforce.com stopped throwing punches and started throwing hugs to other enterprise software vendors.

Rather than blasting Oracle as a ‘false cloud’ provider or taking swipes at SAP as a dinosaur, CEO Marc Benioff extended olive branches to those rivals. In his keynote, he talked about ‘coexisting’ with those companies, stressing the need for ‘deep integration’ between salesforce.com’s products and the widely deployed software. (But Benioff wouldn’t be Benioff if he didn’t put his own marketing spin on the relationship: he positions salesforce.com as the ‘social front office’ for rival existing back-office systems, such as general ledger apps.)

It was a rather dramatic change in tone, suggesting that salesforce.com is staking its claim as a full-fledged member of the fraternity of enterprise software vendors. The company certainly has the numbers to back up that claim: in its previous quarter, salesforce.com announced its first-ever nine-digit contract and is on track to generate close to $3bn in revenue this year. (And don’t forget that salesforce.com also sports a major-league market cap of $20.7bn.)

For their part, Benioff and other people at the company say that détente is in response to customers’ need for software vendors to work together. That’s certainly understandable as most companies run a mishmash of software from a variety of providers. But we might suggest that the tone also reflects a new reality that has only emerged on a grand scale since last fall: the division between the old-line license model and the emerging on-demand model is not as irreconcilable as once thought.

Just since salesforce.com’s last event in San Francisco, SAP and Oracle have done landmark acquisitions of high-profile SaaS vendors, ones that were often mentioned in the same breath as salesforce.com. (The spending spree cost the old-line companies more than $7bn.) So if the old software guard – and even more importantly, their customers – figure they can work with SaaS providers, maybe it’s not too farfetched to imagine SAP and Oracle perhaps taking a run at salesforce.com in the future.

Nuance consolidates with Transcend acquisition

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

Following a record dealmaking year for the speech recognition software vendor, Nuance Communications today announced the $313m acquisition of medical-focused rival Transcend Services. The deal is Nuance’s largest purchase since its last significant medical acquisition in April 2008, when it paid $363m for eScription. Nuance had earlier acquired Transcend competitor Webmedx for an undisclosed amount in July 2011. Each of these transactions bolsters Nuance’s healthcare division.

Nuance is handing over $29.50 per share in cash for Transcend, valuing the target’s equity at $313m (Transcend had no debt and about $13m in cash at the end of 2011, so the enterprise value is slightly lower at $300m). The per-share offer is a 40% premium to Transcend’s closing share price the day before the deal was announced and, with the exception of a brief uptick in July 2011, the highest price Transcend’s shares have seen since 1996. However, the valuation for the company is lower than a precedent transaction. Using enterprise value, Nuance is valuing Transcend at only 2.4x trailing sales. Meanwhile, its pickup of eScription, a SaaS provider of voice recognition and transcription services, was valued at a loftier 8.1x trailing sales. Some explanation for the discrepancy is the premium given to SaaS companies and difference in margins. EScription had an equally lofty operating margin of 39% compared with Transcend’s 16%. Further, Transcend’s SaaS platform was relatively nascent, having hit the market just last summer.

The Transcend buy follows a record year of dealmaking that saw Nuance announce eight transactions worth nearly $400m. But the buying spree may not be over, given the continuing consolidation in the transcription and voice recognition sector. Even MedQuist, a relatively infrequent acquirer and Transcend’s chief competitor, bought three companies in the past two years, including M*Modal for $130m in July 2011.