Category: SaaS

An unhappy anniversary for Vocus

Brenon Daly

Contact: Brenon Daly

It’s been exactly a year since Vocus rolled the dice on its largest-ever acquisition, and in the view of Wall Street the company has come up snake eyes. The February 2012 purchase of iContact, which nearly cleaned out Vocus’ treasury and caused a bit of acquisition indigestion, spooked investors. Since the deal, shares of the marketing software vendor have been nearly cut in half.

The decline has left the company a relative bargain in a market that has seen platinum valuations, both in terms of trading multiples and M&A valuations. Vocus garners a market cap of $285m, or just 1.4x its projected revenue of about $200m in 2013. That paltry valuation comes despite an accelerating bookings rate of roughly 20% forecasted for this year, about $25m of free cash flow generation and a reengineered suite of offerings serving a neglected segment of the market (midsized enterprises).

The last point is a key one for Vocus, which went public in 2005 as a single-product company. In its initial years, Vocus sold to PR firms, primarily helping them distribute their releases. In 2011, the company began expanding its portfolio, both through internal development and M&A. It acquired two small companies that year that brought technology around marketing on Facebook and Twitter. By the end of 2011, it had integrated those deals along with internal efforts into a single marketing platform.

Early sales for the integrated suite were encouraging for Vocus, reflecting the fact that marketing automation requires a number of offerings. (Many other players in this space – including ExactTarget, Marketo and Constant Contact – have all used M&A to build out a suite.) It then reached for iContact to add the outbound marketing piece of technology.

The acquisition, which bumped up Vocus’ revenue by about one-third overnight, required a fair amount of integration. Vocus says that work is behind it, and it can focus on selling its marketing suite. Assuming the company does hit its guidance of 20% bookings growth this year, it will mark the first time since 2008 that it has grown at that rate. Of course, Vocus was only generating about one-third the amount of sales then that it expects this year. And even then, Vocus shares traded higher than they do today.

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IPO drought lifts, as Marin Software and Model N reveal their paperwork

Brenon Daly

by Brenon Daly

Both Marin Software and Model N revealed their IPO paperwork Wednesday evening, setting the pair up to be the first new technology companies to come to market since mid-November. Both planned offerings have a $75m cover raise, and given the new regulations around IPOs, won’t actually hit the market until mid-March at the earliest. But at least the end to the recent IPO drought is (apparently) near.

Although they share the same filing date, the two companies are very different. Model N sells revenue management software, primarily to the life sciences industry although it has also expanded to tech vendors recently. Model N, which is almost twice as old as Marin Software, sells both perpetual licenses and a subscription product. License sales and related maintenance account for the majority of Model N’s revenue, which totaled $89m in 2012. J.P. Morgan Securities and Deutsche Bank Securities are leading the offering.

Founded in 2006, Marin Software only really began selling its subscription-based digital advertising platform in 2009. Since then, the company has been growing quickly. Through the first nine months of 2012, it recorded $43m in sales, up 72% from the same period in 2011. Marin Software’s revenue retention rate has topped 100% in each of the past two years. Bookrunners are Goldman Sachs & Co and Deutsche Bank.

With the different vintages, business models and markets, Model N and Marin Software will undoubtedly appeal to different investor classes on Wall Street. Along with that, they will undoubtedly garner different valuations. Loosely, we figure Model N will debut at about a $400m valuation and Marin Software may come out at roughly $600m. After the dry spell that we’ve seen in the IPO market recently, $1bn or so of value creation from the two companies will be a welcome development in Silicon Valley.

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Go Daddy the trendsetter

Ben Kolada

Contact: Ben Kolada

Shortly after acquiring accounting startup Outright Inc, GoDaddy.com announced that it has picked up mobile website creation startup M.dot for an undisclosed amount. With these two deals, the domain name registration and Web hosting giant is becoming a bit of a trendsetter in its M&A strategy. We’ve been predicting a trend of mass-market hosting providers moving beyond providing simply Web hosting to offering more services for their small business customers.

M.dot provides a smartphone application that enables iPhone users to design and develop mobile websites without any coding. The company, less than a year old, had raised $700,000 in funding from Archimedes Labs, FLOODGATE Fund, SV Angel and angel investors. The deal makes sense since more and more people are more often accessing mobile, rather than fixed, websites.

With M.dot, Go Daddy further reinforces its desire to become a service provider, rather just another website hoster. Usually a pair of acquisitions of small startups wouldn’t merit much attention, but Go Daddy’s dealmaking sets the stage for a trend we expect to see more of – mass-market hosting companies buying their way into services. We’re working on a longer report on this trend that will be published soon.

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salesforce.com ‘connects’ with EntropySoft

Brenon Daly

Contact: Matt Mullen

Announcing its first acquisition in five months, salesforce.com has reached across the Atlantic for Paris-based startup EntropySoft. The eight-year-old target had raised just $3.5m in a single round of funding. EntropySoft produces perhaps the most complete set of enterprise system connectors in the marketplace. These bits of technology allow the interoperability of data between management platforms, and have found their way into many Web content management, enterprise content management and enterprise search platforms.

While connectors will never be seen as ‘sexy’ technology, they are a fundamental underpinning of many integration strategies for vendors and provide a stable income for those that create and maintain them. So why would salesforce.com, a company that will put up about $3bn in revenue this year, want a stable if unexciting income stream? The truth is that it doesn’t.

What it wants, from our view, is EntropySoft’s technology. Specifically, salesforce.com wants the ability to make greater inroads toward positioning CRM as the single repository for enterprise information. Having the predominant connectivity stack as part of its toolkit makes that process simpler. It allows, for example, much easier exposition of content from legacy systems to the CRM repository and the platform that salesforce.com has built atop it with Force.com and Site.com.

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DoJ raises its voice against Bazaarvoice deal

Brenon Daly

Contact: Brenon Daly

In a highly unusual move, the US Department of Justice (DoJ) filed a lawsuit Thursday afternoon against a company that has already closed an acquisition of a rival firm, alleging the deal is anticompetitive. The DoJ says Bazaarvoice did not report its $152m cash-and-stock purchase of fellow online customer review site PowerReviews to either the DoJ or Federal Trade Commission. The transaction was announced May 24 and closed quickly thereafter, on June 12.

The DoJ, which began investigating after the deal had already closed, didn’t specify exactly what part of the acquisition it would seek to unwind. The release said only that the lawsuit ‘seeks to restore competition’ in the marketplace, and DoJ representatives didn’t respond to requests for clarification.

For its part, Bazaarvoice said it spent six months explaining that there would be ‘robust and ample’ competition in the social commerce marketplace following the Bazaarvoice-PowerReviews combination. The company plans to fight the lawsuit and indicated it expects to be ‘fully vindicated.’

As we noted at the time of the acquisition – which was Bazaarvoice’s first purchase, coming just three months after its IPO – the deal represented a significant bet on being able to move down-market, expanding Bazaarvoice’s voice-of-customer platform to SMBs. At the time of the announcement, PowerReviews had more customers (1,100) than Bazaarvoice (737), but only slightly more than one-tenth the revenue.

Whatever the outcome, Wall Street’s reaction to the lawsuit was immediate. Bazaarvoice shares were unchanged at about $9 each for virtually the entire session Thursday. But when the DoJ announcement came out in the final hour of trading, the stock plummeted 15% to about $7.50. The selling pressure continued on Friday, with the stock dipping to $6.65 – the lowest level for the shares since their debut last February. All in, the DoJ’s lawsuit has trimmed $165m from Bazaarvoice’s market value.

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NetSuite shops for its retail platform

Brenon Daly

Contact: Brenon Daly

One year after Retail Anywhere released its point-of-sales SuiteApp for NetSuite, the startup has been rolled into the on-demand ERP giant. Terms of the deal, which is NetSuite’s first since mid-2009, weren’t released. However, we suspect the price is probably in the $20-30m range of NetSuite’s two previous acquisitions.

Entirely bootstrapped through its 18 years of incorporation, Retail Anywhere has about 30 employees, with CEO Branden Jenkins taking a general manager role at NetSuite. According to our understanding, Retail Anywhere was generating roughly $5m of sales. For its part, NetSuite will likely report more than $300m of revenue for 2012 when it releases its financial results in early February. The market currently values NetSuite at a stratospheric $5bn.

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Oracle pays up for an ‘Eloquent’ marketing platform

Brenon Daly

Contact: Brenon Daly

Two months ago, we noted that Oracle was rumored to be looking to acquire a marketing automation vendor. At that point, the buzz was that the acquisitive software giant, which has done social media-flavored marketing deals recently, was eyeing Marketo to be its platform. Instead, Oracle went with Eloqua, paying $956m for the company (on a fully diluted equity basis).

Eloqua, which went public in August but recently shelved a subsequent follow-on offering, had about $85m in cash, giving the proposed transaction an enterprise value of $871m. Using that figure, Oracle is valuing Eloqua at about 9.7x trailing sales – a valuation that’s about 50% higher than it paid in either of its acquisitions of fellow publicly traded SaaS application vendors over the past 14 months. (Both RightNow and Taleo went off at closer to 6.5x trailing sales.)

For Eloqua, the deal wraps a short – but rather profitable – stint on the public market. It only went public four months ago, but it is leaving the Nasdaq at twice the price it joined. Eloqua first sold shares to the public at $11.50, while Oracle is paying $23.50 for each share in the acquisition. The transaction is expected to close before mid-2013.

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The campaigning continues, at least on Wall Street

Brenon Daly

Contact: Brenon Daly

The election may be over, but some campaigns are continuing. At least that’s what’s happening on Wall Street, where two would-be buyers are trying to sway the electorate (directors and shareholders) in order to close acquisitions of two Nasdaq-listed tech companies. Whether or not either of these unsolicited efforts actually comes to a vote, well, that remains to be seen.

In the newest case, j2 Global earlier this week put a bear hug on Carbonite, pitching a (nonbinding, preliminary) offer of $10.50 for each share of the consumer-focused backup vendor. (J2 already owns almost 10% of Carbonite, having picked up the stake for about $20m in the open market in recent weeks.) Carbonite, which has traded mostly lower since its August 2011 IPO, rejected j2’s bid.

Meanwhile, Actian is not giving up on its two-month-old effort to land Pervasive Software. Earlier this week, it added 50 cents per share, or about $10m, to its original bid for the data-integration vendor. The $9-per-share offer from the buyout-backed company that used to be known as Ingres values Pervasive at its highest level in more than a decade.

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GFI may face IPO headwinds

Brenon Daly

Contact: Brenon Daly

Undeterred by a chilly reception to similar firms, GFI Software has put in its paperwork for a $100m IPO. The company, which is based in Luxembourg, sells a variety of infrastructure and collaboration services to the SMB market. GFI was originally founded in 1992 as an e-fax software vendor, and has steadily built out its portfolio through internal expansion and a handful of acquisitions.

However, it is still primarily known for its security offerings, with that product line accounting for about 60% of total revenue in 2010. Since then, the company has been rapidly expanding into other areas, most notably collaboration. In its prospectus, GFI said collaboration now generates almost one-third of all revenue.

Still, Wall Street may well put GFI into the bucket of ‘European IT security vendor.’ If that’s the case, it could hurt the company’s debut, because investors haven’t backed IPOs from other infosec firms from across the Atlantic. AVG Technologies, for instance, has never traded above its offer price since coming public in February. And AVAST Software had to pull its IPO paperwork in July.

Additionally, there are some concerns with GFI itself. The company’s growth rate has cooled so far this year, with revenue ticking up just 27% in the first half of 2012 after increasing 46% in 2011. (The falloff in billings growth has been even sharper.) Further, GFI is not profitable and has not been generating as much cash as it had been.

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A quickly to Z

Ben Kolada

Contact: Ben Kolada

Rather than go for the quick exit, Andreessen Horowitz’s investing thesis focuses on the long haul, investing in companies that have the potential to become tech giants. Its investment in anti-fraud startup Silver Tail Systems counters that thesis, but that’s what happens when the money comes knocking early.

Andreessen Horowitz first disclosed that it invested in Silver Tail in June 2011. The thought was that, like the malware wave, sophisticated fraud attacks would first hit the largest enterprises and eventually move downwind to SMBs. However, the market has greatly expanded, as a variety of fraud attacks are now hitting businesses of all sizes.

Noticing the market’s potential, EMC moved to take Silver Tail’s capabilities in-house. Terms were not officially disclosed on EMC’s acquisition of Silver Tail, although the price was reported to be in the $300-400m range.

As we understand it, though, Silver Tail was initially looking for the opposite of an exit. The story we’re hearing is that Silver Tail was out on the fundraising circuit, looking for upward of $30m, but EMC made a table-clearing offer. That reported price, if true, would have been about twice the post-money valuation Silver Tail was seeking in its round. As it is, the midpoint of the reported price is actually about five times the post-money valuation it took in its last round, according to our understanding.

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