Category: SaaS

Latest deal takes SolarWinds into a new orbit

Brenon Daly

by Brenon Daly

A serial acquirer, SolarWinds looked outside its well-worn M&A playbook in its latest deal, the $120m purchase of N-able Technologies announced Tuesday afternoon. For starters, it’s the largest of the dozen transactions the IT management software vendor has done, about three times the size of its second-largest deal. And SolarWinds plans to run Ottawa-based N-able fairly autonomously rather than integrate it into the platform, as it has done in previous acquisitions.

SolarWinds will be largely taking a hands-off approach to N-able because the startup serves a much different market – and does so through a much different delivery model. N-able sells its remote monitoring and management software to MSPs, counting roughly 2,600 MSPs as clients. For its part, SolarWinds serves IT departments. Also, about one-third of N-able’s revenue comes from subscriptions, while SolarWinds sells perpetual licenses. The transaction is expected to close by the end of the month.

The dissonance spooked Wall Street, which clipped 14% from SolarWinds’ valuation on trading that was more than twice as heavy as normal. Investors may have felt stiffed by the lack of immediate ‘revenue synergy’ in the combination, which went off at a not unreasonable 5x trailing sales. (Never mind that in most acquisitions, the much-discussed cross-selling opportunities rarely show up on the top line.)

Beyond the immediate concerns, however, the acquisition can be viewed as a bit of a hedge by highly valued SolarWinds, which still trades at about $3.2bn, nearly 10x its projected sales of roughly $335m for this year. N-able allows SolarWinds to gain access to much smaller customers than it could typically reach through a channel (MSPs) that it didn’t serve. SolarWinds sized that opportunity at $2bn just in the US, with a similarly sized opportunity abroad. New growth and new markets is something that SolarWinds needs after an admittedly slow start to 2013 that saw Q1 revenue tick up just 22%, compared with 35% in 2012.

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An infrequent shopper, Box buys Crocodoc to spiff up documents

Brenon Daly

Contact: Alan Pelz-Sharpe, Brenon Daly

Though likely a small deal, Box’s acquisition of Crocodoc is nonetheless significant in that it underscores the heavily funded startup’s ambition to serve as an enterprise platform rather than just product. Crocodoc provides HTML5 (originally it was an Adobe Flash service) rendering, annotation and viewing functionality for the cloud. It’s a very commonly used OEM service boasting more than 100 customers to date, including Facebook, SAP, Yammer, LinkedIn and, intriguingly, Dropbox.

Originally the firm provided free stand-alone tools, but in the past few months began to offer an Enterprise API option that allows developers to embed Crocodoc into Web applications. Traditional rendering tools have been designed with small numbers of on-premises power users in mind. On the other hand, Crocodoc began with ambitions to be a commodity cloud service, making its technology – in theory, at least – a good fit for Box.

Box is one of the hottest startups around at the moment, with huge expectations attached to the eight-year-old company. (In a round of funding late last year, for instance, investors valued Box at $1.2bn, according to our understanding.) The expectations have been fueled in part due to the roughly $280m in funding the company has received to date.

For its part, Box is using the money to pivot from the rapidly commoditizing market of file sync/share to a broader enterprise collaboration platform. To date, Box has done most of that repositioning organically. The company hasn’t announced an acquisition since October 2009. For comparison, in that same three-and-a-half-year period, rival Dropbox has inked seven acquisitions. We’ll have a full report on the transaction in our next Daily 451.

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Cash may be king, but Trulia ‘papers’ its big deal

Brenon Daly

Contact: Brenon Daly

Cash may be king when it comes to M&A, but the currency got dethroned in Trulia’s blockbuster acquisition yesterday. The real estate website is covering almost half of its $355m purchase of Market Leader with stock. Few deals rely that heavily on paper. In fact, stock has accounted for only about 20% of total disclosed consideration in tech transactions so far this year, according to The 451 M&A KnowledgeBase.

A look at the performance of Trulia shares since the company’s IPO last September offers some explanation as to the structure. Recently, the stock has been changing hands at about twice the level the company initially priced them at for the offering. On the acquisition announcement, however, Trulia stock dropped about 8% to $31.68. (One concern on Wall Street? The size of the transaction: Market Leader will add about 60% to Trulia’s top line when the deal closes, which is expected in the third quarter of this year.)

Still, Trulia garners a market cap of about $890m, or an eye-popping 13 times 2012 revenue of $68m. We would note – on the same measure of equity value to last year’s sales – that Trulia is paying only 8x revenue for Market Leader. That bit of valuation disparity may also figure into why Trulia was so keen to put its (relatively richly) priced paper to work in M&A.

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Checking the pulse of health IT

Ben Kolada

Contact: Ben Kolada

Healthcare IT is alive and well, as evidenced by the emergence of new consumer technologies, exceptionally high valuations and investments by some of the largest old-line technology vendors. New regulations, advances in sensor technologies and ‘big data’ analytics are driving many aspects of this market for both consumers and enterprises.

New devices that track fitness, sleep and other personal health metrics are driving adoption of healthcare IT by consumers. Nearly every new wearable technology product being introduced offers some health-monitoring component. The consumer healthcare IT market is already moving from hopeful hype to valuable reality, with Jawbone recently reportedly paying more than $100m for BodyMedia. BodyMedia is Jawbone’s third acquisition; all were announced this year and all focused on healthcare.

For enterprises, Cerner’s $50m acquisition (excluding $19m earnout potential) of bootstrapped employee healthcare management software vendor PureWellness shows the variety of businesses that can make money in enterprise healthcare IT. And consolidation in the health information exchange (HIE) sector continues to go off for about 10x sales. Meanwhile, ad-supported electronic health record (EHR) startup Practice Fusion is widely expected to be considering an IPO soon. The company’s growth is attributed in large part by government initiatives incentivizing medical practices to adopt EHRs.

As for investments, Oracle recently participated in the $45m second tranche of Proteus Digital Health’s series F financing (which brought the round’s total to $62.5m). Proteus offers an ingestible sensor, used by patients to monitor internal health and by clinicians to monitor clinical trialists’ drug dosing. The plummeting cost of genome sequencing has led to a rise of big-data bioinformatics startups hoping to help make sense of the mountains of genetic data. Startups such as Bina and Spiral Genetics have recently raised capital from traditional VC firms.

To get social, salesforce.com buys and builds

Brenon Daly

Contact: Brenon Daly

Built on the back of its two largest acquisitions, salesforce.com on Tuesday unveiled Social.com. The offering, which is part of the salesforce.com Marketing Cloud, connects the company’s core CRM product with advertising on social networks. Doubling down on social ad campaign development and optimization is the latest move by the SaaS giant to step into faster-growing markets.

At the heart of the company’s Marketing Cloud business are the ad placement and publishing technology that salesforce.com picked up with Buddy Media last June and the social listening products from Radian6 that it acquired two years ago. Collectively, those purchases cost salesforce.com a cool $1bn.

While salesforce.com has announced a handful of acquisitions since Buddy Media, those deals have been small technology purchases, notably around collaboration. However, recently a number of signs have pointed to (perhaps) larger M&A aspirations. Last month, salesforce.com sold $1bn in debt, which could be used to go shopping. Additionally, the company is currently hiring for at least two positions in its corporate development office.

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Rackspace adds error monitoring with Exceptional buy

Ben Kolada

Contact: Ben Kolada, Agatha Poon

Rackspace has acquired developer-focused Web application error-monitoring and hosting startup Exceptional Cloud Services. The acquisition is meant to drive further adoption of Open Cloud. With Exceptional’s offerings, Rackspace is positioned to be a one-stop shop for developers with its cloud platform, network management and application performance monitoring.

Terms weren’t disclosed. Exceptional was founded in 2010 and had 10 employees at the time of its sale (the transaction closed last Friday). The company hadn’t taken outside funding. We’d note that Exceptional’s founder, Jonathan Siegel, already had experience with a company that sold to Rackspace. Siegel was an adviser to Cloudkick, which Rackspace bought in December 2010 for about $30m.

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Consolidating the Google Apps ecosystem

Ben Kolada

Contact: Ben Kolada

The Google Apps ecosystem saw continued consolidation on Wednesday as UK Google Apps developer and reseller Ancoris announced that it was acquiring Appogee for an undisclosed sum. Google and other enterprise apps providers are using resellers to target the SMB market, a strategy that has spawned a plethora of application systems integrators. Consolidation in this sector has taken off in the past few years and is providing extremely fast growth for some companies.

Application software OEMs, such as Google but also including salesforce.com, have focused their efforts on targeting the enterprise segment, and instead have used resellers to penetrate the SMB market. Meanwhile, cloud services are now affordable for SMBs, and millions have migrated away from their old premises-based systems to modern cloud services.

VARs like Ancoris and Cloud Sherpas add functionality to the apps they resell, such as multiple domain setup, administrative capabilities and more fleshed-out instant messaging capabilities. Essentially, they’re making paid Google Apps more suitable for SMBs by answering shortcomings not addressed by default by Google.

Increasing adoption of cloud services combined with consolidation has played out particularly well for Cloud Sherpas, which has acquired eight companies in the past two years, including two so far this year. The company’s CEO has publicly said he expects revenue to break $100m this year, up from about $75m last year and less than $1m in 2009.

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

Lexmark’s Perceptive continues its buying spree

Contact: Alan Pelz-Sharpe

Perceptive Software, the document and content management division of printer giant Lexmark, continued its M&A spree Tuesday with the acquisitions of San Francisco-based Twistage and Seattle-based AccessVia for a combined total of $31.5m. Lexmark has now spent more than $600m buying software companies since it started its M&A machine in May 2010 with the purchase of Perceptive Software.

Twistage provides a cloud-based video ingestion and management system, and AccessVia sells retail industry point of sale-focused printing (signage) software. Both acquisitions come as a bit of a surprise because, previously, Perceptive had focused on building out document-centric case management and pure-play document management functionality, which extends Perceptive’s own heritage of providing document and form management capabilities to legacy business applications such as JD Edwards, PeopleSoft and SAP.

Twistage and AccessVia appear to take the firm in very new directions because they both could be described as providing Perceptive with more input and output options. Quite how these will be integrated – and leveraged by the firm – is unclear right now. We believe that Twistage mainly brings technology and AccessVia a substantial customer base, and will watch closely to see how this all pans out. But it’s likely that new industry-focused applications and solutions will come from a combination of these and existing technologies.

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What else will VMware sell?

Contact: Tejas Venkatesh

VMware is selling SlideRocket, the presentation creation and collaboration startup it acquired two years ago, to ClearSlide as it refocuses on its core business. The deal comes at a time of refocus for the virtualization giant, which in 2012 saw its growth rate decline to 22% – a full 10 percentage points lower than the previous year. (It also recently revealed plans to lay off some 900 employees.) As VMware returns to its roots, other assets that it acquired in recent years could also end up on the chopping block.

The company’s focus in the near term is on its Pivotal Initiative, which brings together a number of ‘big data’ and cloud assets that EMC and VMware have acquired and developed to capitalize on the impact that cloud computing is having on emerging markets such as application development and big data.

Meanwhile, the focus placed here will come at the expense of some of VMware’s noncore assets. In its Q4 earnings call, the company said it would deemphasize SlideRocket as well as ‘other products’ not central to what customers value from VMware. That could mean that some outlier assets, such as Socialcast and Zimbra, may be available for sale. Any divestitures at VMware would also be eased, politically, by the fact that acquisitions were done during the tenure of former CEO Paul Maritz, who moved from the top spot at VMware to run the Pivotal Initiative last year.

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Taking advantage of the times

Ben Kolada

Contact: Ben Kolada

While the real estate industry overall is still hurting, M&A in the construction and facilities management software space is growing. Driving deal flow is the same factor that depressed the real estate market – the macroeconomy. Companies are continuing to seek new ways to cut costs, and increasing facilities’ efficiency is becoming a popular option. Growth, alongside fragmentation in the facilities management software sector, is leading to increasing consolidation.

Similar to trying to squeeze additional productivity out of employees, companies are now trying to squeeze additional efficiencies out of their facilities. In fact, as IBM stated in its acquisition of TRIRIGA, property and real estate are the second-largest costs to a business after employee compensation.

As a result, many vendors in the facilities and property management software segment are experiencing significant growth. Accruent, which claims to be the largest facilities management software provider, expects to grow revenue approximately 50% this year. (However, we’d note that M&A has helped the company’s upward revenue trajectory. Accruent has announced four acquisitions since 2011.)

The sector’s growth potential has even attracted some of the largest acquirers. IBM paid $108m for TRIRIGA in 2011 and last year Oracle acquired Skire’s assets. Beyond growth potential, vendors will consolidate the fragmented market, and acquire to add complementary offerings to their portfolios. Accruent, for example, bought Evoco in part to add construction management software to its existing facilities management software products.

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