Category: SaaS

A very happy birthday to LogMeIn

Brenon Daly

Contact: Brenon Daly

Exactly a year ago, LogMeIn hit the public market with an offering that has done what IPOs are generally expected to do. The debut priced at the top of its range ($14-16), raised a goodly amount of money ($107m, from 6.7 million shares at $16 each) and has held up solidly in the aftermarket. In its year as a public company, LogMeIn stock is up some 80% from its offer price, and more than 40% from its first-day close – twice the return of the Nasdaq over the same period. It currently sports an outsized market valuation of some $660m.

As we were wishing the on-demand remote connectivity vendor a happy birthday, we couldn’t help but be struck by the fact that if LogMeIn were trying to go public just a year later, the offering would almost certainly look less attractive. We’ve noted that three of the recent tech IPOs (Motricity, Convio and TeleNav) have all priced below their expected ranges. (The discounting was fairly dramatic in the case of Motricity, which ended up raising just half the amount that it originally planned.)

Also, as we discussed in a special report on the IPO market, offering sizes have been coming down. LogMeIn was able to raise more than $100m, despite finishing the previous year at about $50m. (Granted, looking at a subscription-based company in terms of revenue – rather than bookings – isn’t the most accurate financial picture.) In comparison, Tripwire, which recently put in its prospectus, is half again as big ($74m in 2009 revenue) as LogMeIn. But the security management provider is looking to raise just $86m.

Who’s calling on Callidus?

Brenon Daly

Contact: Brenon Daly

Annual shareholder meetings are typically uneventful affairs, mixing equal parts of corporate glad-handing and self-congratulatory pabulum. The few bits of business that do get done are generally little more than corporate housekeeping, such as electing board members and signing off on auditing firms. And while that’s probably how the annual meeting for Callidus Software will go next Tuesday, we have picked up on some rumblings of discontent from the shareholder base of the sales performance management (SPM) vendor.

Shares of Callidus have basically been changing hands in the $2.50-3.50 range for the past year and a half. (On Friday afternoon, the stock traded at $3.10.) After going public at $14 in November 2003, the stock spent the next four months at around that level before dropping into the single digits, where it has remained ever since. At current prices, the company sports a market cap of nearly $100m.

With shares having been basically dead money, even as the market rebounded, investors are growing impatient with Callidus’ still-incomplete switch from a license-based software vendor to an on-demand model. Undeniably, the company has made progress in that difficult transition, but it has come up short in both its emerging SaaS business and its old-line business, particularly services.

That inconsistency hasn’t won it many fans on Wall Street, which is reflected in Callidus’ valuation. On a back-of-the-envelope basis, the company is trading at basically a $70m enterprise value, or just 1.4 times its 2010 recurring revenue (roughly $50m total, with $20m maintenance fees and $30m subscription revenue). It seems we aren’t the only ones struck by the rock-bottom valuation of Callidus. Several market sources have indicated recently that at least one would-be suitor has approached Callidus about a deal.

Our understanding is that Callidus has retained a banker and is still in the early stages of an initial market canvass. Obviously, that’s a long way from a completed transaction, which is the outcome many Callidus shareholders are hoping for. It’s also worth remembering that the company itself has a spotty track record in M&A. In late 2008, Callidus was lead bidder for SPM startup Centive, and stood to substantially accelerate its transition to SaaS with the acquisition. Instead, Xactly – a startup that’s run by a number of former Callidus executives – snatched away Centive in early 2009.

CDC Software’s rollup is rolling along

Brenon Daly

Contact: Brenon Daly

Since being spun off from its parent company less than a year ago, CDC Software has been rolling along with its planned rollup. It has done a half-dozen acquisitions of small, on-demand software companies to help expand its portfolio of ERP, CRM and supply chain management offerings. (It got bigger eyes earlier this year, when it made a short-lived run at fellow public company Chordiant Software.) In general, the technology has come from startups that have been passed over by the market. That’s certainly the case in CDC Software’s latest – and largest – acquisition, the purchase of TradeBeam last week.

Ten-year-old TradeBeam had burned through a mountain of venture backing and had snatched up the assets of three other vendors, but had struggled to actually build its business. (We understand that the company generated only about $9m in recurring revenue in 2009, and that projections for this year called for $10m in recurring revenue. That got the target around $20m in its sale to CDC Software, according to our understanding.)

Still, TradeBeam was able to develop some fairly useful software, thanks to its generous VC subsidy, that should fit well inside CDC Software. The company had two main product lines, which each accounted for about half of overall sales. TradeBeam sold global trade management software, which helps customers handle regulatory compliance and other aspects of the import/export business, as well as supply chain visibility, which provides additional capabilities around forecasting and collaboration with suppliers.

CDC Software’s recent acquisitions are part of a larger plan to slowly but steadily transition its business from selling software licenses to ‘renting’ software through a subscription model. Recurring revenue will still be a small slice of the overall $220m or so of revenue that the vendor is expected to put up this year. But if CDC Software can pull off its SaaS rollup strategy – and couple that with even a smidgen of organic growth – it could very well see a bump in its valuation. The transition to SaaS has certainly put a shine on the valuation of Concur Technologies and, to a lesser extent, Ariba. For its part, CDC Software, which is still majority owned by CDC Corp, trades at basically 1 times sales and 4x EBITDA.

Social CRM: haves and have-nots

Brenon Daly1 Comment

Contact: Brenon Daly, China Martens

Even though social CRM is still an emerging market, the deals have been flowing. And it isn’t just one-off, conventional activity, but just about every conceivable type of transaction: public-to-private deals, private-to-private deals, a private equity-backed rollup and even (apparently) a wind-down. Among the more notable deals in this broadly defined space has been RightNow reaching for tiny startup HiveLive last September to add a community offering to its core CRM product and Attensity cobbling together the parts of three companies to form a European giant about a year ago. Attensity was back in the market last month, adding Biz360 to bolster its voice-of-consumer product.

Activity picked up again earlier this week, as Lithium Technologies confirmed that it had acquired Scout Labs for a reported $20-25m. As my colleague China Martens reports, the purchase adds Scout Labs’ social-media monitoring and analytics capabilities to Lithium’s management platform for customer communities. We would highlight the fact that Lithium’s buy comes just four months after the company raised its third round of funding, an $18m tranche that brought total funding to $39m.

While Lithium was raising fresh money – and putting it to work on an acquisition – it appears that another social CRM startup was coming up empty in its effort to get more cash and has pulled the plug. Helpstream, which apparently raised about $10m in two funding rounds from Mohr Davidow Ventures (MDV) and Foundation Capital, has shut its doors, the former CEO has written in a blog post. Helpstream’s website no longer works and MDV has erased Helpstream as a portfolio company, despite leading the vendor’s second round. (Calls to the VCs went unreturned.)

If indeed Helpstream has dried up (as it were), we might point to two reasons why the company struggled. For starters, it was basically a SaaS helpdesk provider that then tried to get into the online customer service community-building game. And if its customers were confused by that, they would have been additionally puzzled by Helpstream’s ‘freemium’ business model. In the end, Helpstream managed to land just 40 paying customers, compared to 200 customers using the free version of its product.

IPO woes

Brenon Daly

Contact: Brenon Daly

For the second straight time, a tech company hoping to come to market has scaled back the money it planned to raise. TeleNav, which started trading Thursday, originally planned to sell shares at $11-13. The mobile navigation service vendor then cut the range to $9-10 before ultimately pricing its seven-million-share offering at $8. The erosion on TeleNav’s terms comes two weeks after Convio also had to reduce the price tag on its IPO.

Of course, in the period between the two IPOs we saw an almost inconceivable market plunge that erased 1,000 points from the Dow Jones Industrial Average in just five minutes. (OK, the collapse might not be inconceivable, but it is proving to be inexplicable. Was it the black-box, high-velocity firms or just a bunch of ‘fat-fingered traders’ that bled the Dow last Thursday?) And while that uncertainty continues to weigh on the overall market, it’s basically stifling the IPO market. After all, if investors are fleeing from billion-dollar companies that are household names, are they really going to embrace unknown and unproven would-be debutants?

But as we note in a new report on the IPO market, Wall Street – as it often does – appears to have swung too far in its avoidance of risk. Investors have been demanding a ridiculously steep discount on the valuations of the companies that want to come public. Take the case of TeleNav, which closed its initial day of trading with a market cap of just $400m. If we back out the cash that TeleNav already held ($46m) along with the cash that it just raised ($45m), the company starts its life on Wall Street with an enterprise value of just $310m. By our back-of-the-envelope calculation, that’s just 2 times sales and 5 times cash flow – a slap-in-the-face valuation for a profitable company that’s growing sales at 50%.

When we look at the capital markets today, we aren’t particularly concerned with the day-to-day trading. Stocks go up and stocks go down, just as risk in the market (real or perceived) ebbs and flows. Nonetheless, it’s hard to look at the tech IPO market and not be struck by the fact that companies are putting together smaller offerings and debuting at notably lower valuations than they would have in the time before the US economy slumped into its worst decline since the Great Depression. And we don’t see that changing anytime soon.

Recent tech IPO events

Date Company Comment
May 2010 TeleNav Cuts expected range, and then prices below it
April 2010 Convio Prices below range, goes public at sub-$200m market cap
April 2010 SPS Commerce Debuts at sub-$200m market cap
April 2010 IntraLinks Files for $150m IPO, the third time it has filed an S-1
April 2010 QlikTech Files for $100m IPO
April 2010 Nexsan Postpones $55m IPO after setting initial range

Where might Symantec shop?

Brenon Daly

Contact: Brenon Daly

After its double-header encryption deals last week, Symantec appears set to return to M&A. Like a number of tech giants, Big Yellow largely shunned dealmaking last year. But the drop-off was particularly notable at Symantec: It spent more than $1bn on acquisitions in both 2007 and 2008, but less than $100m in 2009. We would hasten to add that in the fiscal year that just ended on April 2, Symantec generated $1.7bn in cash flow from operations. That brought its cash stash to more than $3bn.

As to where the company might be shopping, my colleague Paul Roberts in our Enterprise Security Program outlines five areas that make sense for Symantec to buy its way into – as well as who might be of interest in those markets. In a new report, Roberts looks for M&A activity from Symantec in the following areas: threat detection and reputation monitoring, SIEM and vulnerability management, enterprise rights management, database security and endpoint control. All of those areas are a long way from Symantec’s original market of antivirus software.

A final thought on Big Yellow and its possible shopping is that the company actually enjoys a fair amount of goodwill on Wall Street right now. Symantec’s fiscal fourth quarter, which it reported Wednesday, was surprisingly strong for many investors, particularly after rival McAfee had a less-than-stellar first quarter. In fact, on many trading screens Symantec was the only green stock Thursday on an otherwise blood-red day. Symantec shares closed up less than 2%, but that was on a day that saw the Dow Jones Industrial Average plummet almost 1,000 points, or 9%, in afternoon trading.

Tangoe lines up for IPO dance

Brenon Daly

Contact: Brenon Daly

Back in January 2009, Tangoe made a small acquisition on its way to what we expected would be an IPO. Of course, neither the telecom expense management (TEM) vendor nor any other company was going to make it public in the first few months of last year. But with the recovery in the capital markets, Tangoe has indeed filed for its IPO, looking to raise $75m. The 10-year-old company plans to trade under the ticker ‘TNGO’ on the Nasdaq. We expect a fairly strong offering from Tangoe, which nearly doubled sales to $37.5m in 2008, and pushed that up another 49% to $56m last year despite the recession. See our full report on the company and the planned IPO.

Tangoe focuses on lifecycle management for fixed and mobile communications and more recently mobile device management. As a TEM provider, Tangoe has more than 350 companies using its expense management tools and services. The Orange, Connecticut-based vendor has pushed into the mobile communications space with the purchases of Traq Wireless in March 2007 and InterNoded in January 2009. Traq provided wireless expense management, helping Tangoe expand its lifecycle management for mobile as customers moved more of their communications off fixed lines. Offering deeper management and monitoring of these mobile devices, InterNoded gave Tangoe the ability to provision, secure and remotely wipe devices used by its customers.

salesforce.com puts together pieces on Jigsaw

Brenon Daly

by Brenon Daly

Just three months after salesforce.com raised $575m in a convertible note offering, the CRM vendor is dipping into its treasury for the largest deal in its history. The $142m purchase price for Jigsaw Data is more money than salesforce.com spent, collectively, on its previous seven acquisitions. (Add to that, there’s a potential $14m earnout that Jigsaw could pocket.) Yet, even after it pays for this pickup, salesforce.com will still have more than $1bn in cash on hand. The transaction is expected to close this quarter.

We understand that Jigsaw finished up last year with about $18m in revenue, and salesforce.com indicated that it was expecting $17-22m in non-GAAP revenue from Jigsaw for the three quarters that the company will be on the books this fiscal year. According to our calculations, salesforce.com is valuing Jigsaw at roughly the same level that the target is currently valued by public investors, at least on one basis metric. Salesforce.com is paying about 7.9 times trailing sales for Jigsaw while its own market cap is about 8.3 times trailing sales. (Of course, shares of the on-demand CRM vendor are currently changing hands at their highest-ever level, having more than doubled over the past year.)

For Jigsaw, the sale to its longtime partner also represents a solid return for its backers, who wrote the checks that funded the company’s growth to 1.2 million members and more than 21 million contact records. Jigsaw’s three investors (El Dorado Ventures, Norwest Venture Partners and Austin Ventures) put in a total of $18m over the past six years. Strictly in terms of money in/money out, that means Jigsaw is returning almost eight times its investment. Not many startups have been able to deliver those kinds of returns recently because they’ve typically been overfunded and exit multiples have increasingly been under pressure.

Is third time a charm for IntraLinks?

Brenon Daly

Contact: Brenon Daly

Maybe the third time will be the charm for IntraLinks. The company, which is perhaps best known for its ‘virtual deal rooms,’ filed to go public late last week, the third time it has put in an S-1. It plans to raise $150m in the offering, which is being led by Morgan Stanley, Deutsche Bank Securities and Credit Suisse. IntraLinks had also been on file back in the Bubble Era, filing its IPO paperwork in mid-1999 only to pull it a year later, and again for a few months in late 2005.

To get a sense of just how much the company – and, by extension, Wall Street – has changed since the frothy time of the late 1990s, we went back and pulled IntraLinks’ original prospectus to compare it to the most-recent paperwork. It hardly seems like the same company.

In 1999, IntraLinks lost five times more money than it even brought in as revenue (a $21.3m net loss on just $4.1 in revenue for the year). The company even managed the highly impressive trick of running its business at a negative gross margin. The kicker on that upside-down business model is that it was actually pretty common back in the late 1990s. Plenty of companies running at even larger losses than IntraLinks made it public during that era.

Like a lot of us, IntraLinks seems positively grown up now compared to the time when companies were throwing equity around like it was funny money and stock prices only went up. It finished 2009 with $141m in revenue, meaning that it now generates more sales every two weeks than it did during the entire year that it first filed to go public. And while the vendor still hasn’t managed to hit profitability, it has narrowed its operating loss to just $3.4m last year. For the record, IntraLinks’ gross margin hit a respectable 65% in 2009, a sharp reversal from the Bubble Era, when it actually sank deeper into the red with every sale that it made.

A Coremetrics sale to salesforce.com?

Brenon Daly

Contact: Brenon Daly

Could this be a case of history repeating itself? A Web analytics vendor pulls out at the last minute of a technology conference at a boutique bank, and then announces that it has agreed to a richly priced sale of the company. That’s the way it played out last fall with Omniture at ThinkEquity’s conference. And at least part of that has happened with Coremetrics this week at Pacific Crest Securities’ Emerging Technology Summit. (Coremetrics was slated to present at the event Thursday morning, but canceled its appearance, officially because the presenter was ill.)

Of course, there’s been a lot of M&A buzz around Coremetrics in recent weeks, with at least two sources indicating that the company had retained Goldman Sachs to represent it. As to who might be a buyer for the Web analytics shop, we come back to one name: salesforce.com. We understand that the CRM giant was acutely interested in Omniture and, according to some sources, was the cover bidder in that process. (Omniture, of course, ultimately sold to Adobe in a somewhat puzzling pairing.)

Coremetrics’ analytics would fit neatly with salesforce.com’s sales and marketing offering. Both are also SaaS companies. And, as we noted last month, the profitable company, which has about $1bn in cash available, has announced plans to raise another $500m in a convertible offering. Altogether, that’s plenty of cash to cover a potential purchase of Coremetrics, which would probably go for several hundred million dollars. And if the Coremetrics sale parallels the Omniture sale in that the analytics company goes to a somewhat unexpected buyer, we might put forward Autonomy Corp as a possibility, as my colleague Nick Patience did in a recent report. The acquisitive British vendor also recently announced plans to raise a slug of money.