Category: SaaS

Jive talkin’ on Wall Street

Brenon Daly

by Brenon Daly

Despite one of the more inhospitable environments for IPOs, Jive Software has put in its paperwork for a $100m offering. The company, which sells a social network for businesses, has seen revenue nearly triple from 2008 to $46m last year. In the first half of this year, Jive has continued its strong growth on the top line, pushing revenue up 77%. Assuming it continues to track to that level, it would finish 2011 at about $80m in sales.

Clearly, that growth is what Jive will be selling on Wall Street. And that pitch seems to have caught the attention of IPO investors, at least looking at recent offerings that resemble the planned IPO from Jive. For instance, the financials of Cornerstone OnDemand, which went public in March, line up very similarly with those at Jive. Both companies are relatively immature, having only really begun generating any revenue of note in 2007 and still finishing 2010 with less than $50m in sales. Further, neither Jive nor Cornerstone have been running their businesses at an operating profit, much less a net profit, in recent years.

Not that the ‘sub-scale size’ or red ink has hurt Cornerstone on the Nasdaq. The company hit the market at about $900m, and even after the historical declines on the broad market earlier this month, it is still valued at close to $700m. That works out to an incredibly rich valuation of almost 13 times trailing sales. So maybe Cornerstone’s eye-popping multiple has something to do with Jive’s decision to file its prospectus, even as the market and the economic outlook have deteriorated since Cornerstone debuted.

RealPage gets diluted on a deal

Brenon Daly2 Comments

by Brenon Daly

Exactly a year after going public, RealPage on Monday evening announced its largest-ever acquisition. However, the $74m cash-and-stock purchase of MyNewPlace didn’t exactly go over with Wall Street as the property management software vendor might have hoped. The recently minted shares of RealPage dropped 11% on heavy trading, hitting their lowest level since just about a month after their debut.

The concern? The acquisition will lower earnings at the company, trimming non-GAAP net income at RealPage by more than $1m this year. Conscious of the dilution, RealPage opened the conference call discussing the deal in an almost apologetic tone, acknowledging that it paid ‘a lot’ for MyNewPlace. In fact, the purchase price of this latest transaction is only slightly more than RealPage paid, collectively, in its three previous acquisitions.

But on the other side, the deal positions the company to be more relevant in the lead generation part of the rental housing market, which is undergoing dramatic changes. During the call, the company estimated that it would take five years and an investment of $30-40m to build a business, internally, that would do what MyNewPlace does right now. So, RealPage billed the purchase as a play to be more relevant in the long term. After a year on the market, we would have thought that RealPage would already know enough about the myopic vision on Wall Street to not talk about delayed gratification from acquisitions.

Verint reaches for Vovici

Brenon Daly

Contact: Brenon Daly

Once pretty much a company that only offered call recording, Verint has expanded its business over the past two decades through a series of acquisitions. Most recently, it reached for Vovici, adding the startup’s online surveys offering to its voice-of-the-customer portfolio. Vovici will be slotted into Verint’s Workforce Optimization (WFO) unit, which accounts for more than half of the company’s overall revenue.

However, we don’t expect that Vovici will substantially boost the top line at the WFO division. That business runs at about a rate of $100m per quarter, while we understand that the Herndon, Virginia-based startup was generating somewhere less than $15m in revenue. Verint is paying $57m in cash, with a possible earnout of up to $20m if certain undisclosed milestones are hit. That makes it Verint’s largest acquisition since the $1.1bn purchase of Witness Systems in early 2007.

Bolting onto the PE platform

Brenon Daly

Contact: Brenon Daly

One of the knock-on effects of private equity (PE) spending hitting its highest level in three years in 2010 has been the emergence of bolt-on deals in 2011. Consider the recent M&A activity at Emailvision, an SMB-focused email marketing vendor. The company had been listed on the Euronext, although, candidly, European investors didn’t really appreciate Emailvision’s SaaS delivery model. So rather than stick around as an unloved public company, the firm sold a nearly 70% stake last summer to PE shop Francisco Partners. The transaction valued the overall company at around $109m.

Fast-forward less than a year since selling a majority stake, and Emailvision has already done one small deal as well as a more recent acquisition that it could have never pulled off without the deep pockets of its PE patron. Earlier this month, Emailvision closed its $40m pickup of smartFOCUS, which had been listed on the London Stock Exchange. The transaction added more than $20m to Emailvision’s revenue, which we understand should hit about $110m this year. (That would be nearly twice the level it was before it went private, with M&A boosting an already healthy 40% organic growth rate.) And the vendor may not be done buying. We gather that Emailvision may well announce another deal before the end of the year.

Taleo targets Europe, acquires Jobpartners

Ben Kolada

Contact: Ben Kolada

In its first acquisition outside North America, Dublin, California-based Taleo announced today that it is buying European HCM vendor Jobpartners for €26m ($38m). While the price is a fraction of the $145m in cash that Taleo held at the end of March, it’s a fairly rich value for what we understand was a struggling company. We expect that Jobpartners’ wide European reach was the primary influencer for the company’s valuation, particularly since Taleo’s competitors are also looking to expand internationally.

Taleo is paying €26m in cash for Jobpartners and expects to close the deal in its third quarter. That price should be considered plentiful since we understand that the target was burning through cash (at least €36m in VC equity financing, by our tally) and that its revenue was likely in decline. Taleo hasn’t provided full-year revenue for Jobpartners, but expects the target to generate $2-3m in GAAP revenue from the date the deal closes to the end of the year. Annualizing that number would put Jobpartners’ full-year 2011 revenue at about $8-10m, or roughly €5-6m based on current conversion rates. That’s a nearly 50% decline from 2005, when the company issued a press release saying that its fiscal-year revenue hit €8m. We’ll have a longer report on this transaction in tomorrow’s Daily 451.

Callidus learns to love Litmos

Brenon Daly

Contact: Brenon Daly

Continuing to broaden its portfolio beyond its core commission-calculation offering, Callidus Software recently reached across the Pacific Ocean to snag early-stage learning management system (LMS) vendor Litmos. Based in New Zealand, Litmos had yet to raise any outside capital but had nonetheless drawn in more than 150 customers, which likely put revenue in the mid-single digits of millions of dollars. The acquisition should help Callidus in two main areas: in-application training and mobile learning.

In that way, Callidus’ move is unlike many of the other noteworthy deals over the past year in the LMS market, which has been dominated by talent management providers buying their way into the training and education space. Last September, for instance, Taleo picked up longtime partner Learn.com for $125m, while in April rival SuccessFactors paid $290m for Plateau Systems. Over the past year, we’ve tallied more than $1.8bn worth of spending on LMS deals.

Undoubtedly, the acquisition of Litmos won’t add much to the total spending in the sector. But the transaction is nonetheless significant for Callidus, particularly as more and more sales activity is done in the field. (Litmos can be used not only to update sales records and provide onsite sales coaching, but also to give training courses.) And Callidus may not be done buying. The company recently netted about $60m through a convertible offering, and we understand that it may well put some of those proceeds to work on another purchase in the next month or so

Heading toward an ‘Eloqua-ent’ IPO

Brenon Daly

Contact: Brenon Daly

A little more than a month after the strong IPO by a rival on-demand marketing vendor, Eloqua has taken its first significant step toward an offering of its own, according to market sources. We understand that the company has tapped J.P. Morgan Securities and Deutsche Bank Securities to lead the IPO, with a filing expected in a few weeks. Co-managers will be Pacific Crest Securities, JMP Securities and Needham & Co.

Eloqua has been positioning itself for an offering for the past few years, taking steps such as moving its headquarters from Canada to the Washington DC area, as well as hiring a raft of senior executives, most of whom have experience at public companies. Meanwhile, on the other side, Wall Street appears ready to buy off on marketing automation companies. At least the demand has been there for rival Responsys, which went public in late April and currently trades at a $750m valuation.

Responsys’ valuation works out to about 8 times 2010 sales and 6x 2011 sales at the on-demand company. Eloqua, which also sells its marketing automation software through a subscription model, is thought to be about half the size of Responsys. Assuming that Wall Street values the two rivals at a similar multiple, Eloqua could find itself valued at $350-400m when it hits the market later this year.

Demandware to test demand in public market?

Brenon Daly

Contact: Brenon Daly

After a pair of billion-dollar deals over the past half-year removed two old-line e-commerce vendors from the Nasdaq, an on-demand startup is rumored to be looking to replenish the ranks on the public market. Several sources have indicated that Demandware has picked underwriters and is set to file its IPO paperwork shortly, with Goldman Sachs & Co and Deutsche Bank Securities running the books. The filing, if it comes, would continue a trend of offerings by relatively small subscription-based companies. Demandware is expected to do about $40m in revenue in 2011.

Founded in 2004 and based near Boston, the company provides an e-commerce platform for more than 150 customers, including Barneys New York and The Jones Group. Demandware’s investors include local VC firms General Catalyst Partners and North Bridge Venture Partners.

The IPO for Demandware would come at a time of consolidation in the e-commerce industry, with big buyers paying big prices. Late last year, Oracle acquired Art Technology Group for $1bn, paying the highest price that ATG shares had seen since 2001. (ATG, which was founded in 1991, counted more than 1,000 customers.) And then earlier this year, eBay handed over $2.4bn for GSI Commerce. That stands as the largest Internet transaction since February 2008.

SuccessFactors pays a peak price for Plateau

Brenon Daly

Contact: Brenon Daly

Plateau Systems certainly got a peak price from SuccessFactors. At $290m, the cash-and-stock acquisition is the largest purchase of a privately held human capital management (HCM) vendor. In fact, the pending purchase of Plateau is larger than a half-dozen acquisitions of public HCM companies we have recorded in recent years.

Similarly, the deal – which is roughly three times more than SuccessFactors had spent, collectively, on M&A – also stands out when compared to the two most-significant transactions in the learning management software (LMS) market where Plateau does its business.

Earlier this year, private equity-backed SumTotal Systems paid an estimated $150m for GeoLearning while a half-year ago, SuccessFactors’ direct rival Taleo handed over $125m for Learn.com. Just as those two deals have a lower aggregate price than Plateau’s price, publicly traded LMS vendor Saba Software actually garners a lower valuation on the market ($270m) than Plateau is set to receive in its sale.

Another marketing maker heading to market?

Brenon Daly

Contact: Brenon Daly

Will Eloqua respond to Responsys? Does the rival on-demand marketing vendor perhaps have an IPO of its own planned? We couldn’t help but wonder that last Thursday as investors showed that they could hardly get enough of the Responsys offering, which priced above range and then tacked on another 28% in its first day of trading. The IPO created some $680m in market value for Responsys.

Responsys’ rather heady valuation (roughly 7x trailing sales and 5x projected sales) undoubtedly has to have generated more than a little interest from folks at Eloqua. And the company certainly has been taking steps in recent years that could indicate that it is eyeing the public market. For instance, three years ago it moved its headquarters from Canada to the Washington DC area while also hiring a raft of senior executives, most of whom have experience at public companies.

According to our understanding, Eloqua is a bit less than one-third the size of Responsys, which generated $94m in sales last year. Also, we gather that Eloqua lags a bit behind the 40% compound annual growth rate that Responsys has put up over the past half-decade. Still, the company offers a fairly compelling profile, with predictable subscription revenue flowing from its more than 800 customers. The strong debut from Responsys, plus the fact that shares of fellow on-demand marketer Constant Contact are trading around all-time highs, clearly suggest that Wall Street is in the market for marketing vendors.