Category: SaaS

Marketo in the market?

Brenon Daly

Contact: Brenon Daly

Although a couple of marketing automation vendors have, collectively, generated $2bn of market value in two recent richly priced IPOs, the next significant exit in the sector may be a trade sale. Marketo is rumored to be checking the market to gauge interest from buyers. High on that list of interested suitors, according to several sources, is Oracle.

A sale of Marketo, if it happens, would reverse the expected path of the six-year-old company. It doubled sales in 2011 and, we understand, will roughly double sales again this year to about $55m. That rapid growth helped push the company’s valuation in a round of funding in 2011 to about $500m, according to sources.

Obviously, a buyer would have to top that level to take home Marketo. In addition to Oracle, other companies that may have taken a look include salesforce.com and Intuit, market participants say. Some of the interest may have been spurred by ExactTarget’s recent purchase of Pardot.

Still, price may prove a snag for any acquisition of Marketo. Wall Street has given a warm embrace to two of Marketo’s rivals that have come public in the past six months or so. ExactTarget currently trades at about $1.5bn, or 5.3 times 2012 projected sales, while Eloqua garners a market capitalization of $650m, or 7.1 times this year’s sales. Of course, Marketo is growing much faster than either of its larger rivals.

A highly remunerative Workday

Brenon Daly

Contact: Brenon Daly

Apparently, the third time is the charm for second-chancers. Workday became the third significant tech IPO in 2012 headed by executives who previously ran similar companies in the Internet 1.0 era. And while each of the other ‘redo’ companies (ServiceNow and Palo Alto Networks) have created more than $4bn of market value since their IPOs last summer, Workday soared past that level. In fact, on a fully diluted basis, the human capital management vendor is valued at more than the two other earlier IPOs combined.

In its offering, Workday priced its 22.8 million shares at $28 each, raising an eye-popping $638m. That’s a mountain of money, roughly three times more than most other ‘big’ tech IPOs raise. But that was just the start for the company, which was founded in 2005 by executives from PeopleSoft after that ERP veteran was acquired by Oracle.

Once trading began on Friday, the stock continued to move higher, changing hands at $47 late in the session. With about 160 million shares outstanding (on a non-diluted basis), Workday is being valued at $7.5bn. That works out to 30 times this year’s expected sales of about $250m. For an indication of just how rich that is, consider that PeopleSoft garnered just 4x sales when it was snapped up in 2005. Or another way to look at the price: Workday is commanding three-quarters of the valuation of PeopleSoft while only putting up one-tenth the sales of the first-generation version.

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

Lithium buys partner Social Dynamx for social support

Ben Kolada

Contact: Martin Schneider, Ben Kolada

Social marketing and customer support vendor Lithium Technologies announced on Tuesday the acquisition of its young partner, Social Dynamx. In January, Lithium secured a $53m series D funding round (bringing total funding to $101m) and said it planned to use the funds for product development and hiring. Apparently, this acquisition serves a bit of both of those goals.

Terms of the deal weren’t disclosed, though we suspect the consideration was a small amount of cash and stock. Austin, Texas-based Social Dynamx employs about 25 people, and all regular employees are expected to join Lithium. The companies had been tightlipped about their partnership, though we did uncover the relationship and provide more detail in a report we published in May.

Lithium is doing a couple of things here with its pickup of Social Dynamx. First, the company has been looking to move from internal, community-based support models for some time. While Lithium did partner with Social Dynamx, and the Social Dynamx offering powers the Lithium Response social support tool, owning the product outright can lead to deeper, more process-driven integrations around externally sourced support requests. For example, a deeper integration can allow the tool to identify ‘calls for help’ in social channels outside of Lithium’s communities, such as Twitter, and pull that individual (and his question or issue) into either a structured agent-assisted channel or a community-based support network. The notion is to deeply embed the ability to identify and scale cross-platform support requests into the Lithium platform.

Secondly, the move to acquire seems somewhat defensive. As competitors like Jive Software look to move from internal social collaboration into other areas like marketing and support (like Lithium has been doing over the past several quarters), this acquisition knocks out a potential agnostic partner for other social players. Lithium not only adds features, but also takes an easier route to wresting them away from other enterprise social vendors.

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

Is Sucuri for sale?

Ben Kolada

Contact: Ben Kolada

Just a month after its newfound partner VirusTotal was scooped up by Google, antimalware detection and remediation startup Sucuri may be next on the auction block. Word has it that the two-year-old company is attracting takeover attention. That shouldn’t come as too much of a surprise, given the growth potential of the website antimalware monitoring market and the strategic importance companies are placing these days on their online presences.

Sucuri provides a website malware detection product and associated remediation service meant to prevent customers’ websites from being blacklisted by search engines, namely Google. The company’s software scans websites for malware infection and alerts the customer. Sucuri then provides a cleanup service to remove the malware. As businesses continue to transition from brick-and-mortar to e-commerce models, such services will become increasingly important to growing sales, especially during the upcoming holiday season. Given its short lifespan, we suspect that the company is currently generating less than $10m in revenue.

No word yet on which companies may be looking to acquire Sucuri, but the list likely includes mass-market hosting vendors and large security firms. Like its competitors, Sucuri’s go-to-market strategy so far has been partnering with hosting companies, though it also sells directly to customers. The company lists Web host ClickHOST as a partner, as well as a half-dozen WordPress hosting and site design vendors. As for possible security suitors, the most likely acquirers that immediately come to mind are Proofpoint, Kaspersky Lab, Websense, Symantec, AVG Technologies or AVAST Software.

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

Qualys looks to transition from a product to a platform

Brenon Daly

Contact: Brenon Daly

As it gets set to hit the public market later this week, the question for Qualys is whether the on-demand security vendor can make the transition from a product to a platform. The 13-year-old company is known primarily for its vulnerability management offering, which will account for the vast majority of the $100m or so of bookings it will generate this year.

But Qualys is acutely aware of the fact that it won’t get a premium valuation if it doesn’t expand beyond that. The company has already helped its own cause with the early steps it has made in expanding its portfolio. It recently noted that revenue growth is outpacing customer growth. (In the first half of this year it bumped up its overall top line by 22%, about 5 percentage points higher than its growth rate in 2011.)

Qualys has a number of advantages as it attempts to pull off the transition. For starters, the company sells its service entirely on a subscription basis, which makes it easier – both commercially and in terms of technology architecture – to add additional security offerings. Besides its vulnerability management product, Qualys already offers five other products around compliance, Web application security and other areas.

That approach has drawn in nearly 6,000 customers for the company, providing a broad base to sell new products into. Yet, as Qualys highlighted during its roadshow, the company has only begun its cross-selling efforts. Currently, only one out of five customers uses more than one Qualys product.

The underwriters for Qualys, led by J.P. Morgan Securities and Credit Suisse Securities, are likely to be conservative in their initial pricing of what would be the fourth information security vendor to go public in the past year. As it stands, the range is set at $11-13 per share. We expect Qualys to actually price above that on Thursday and then likely move higher in the aftermarket, as the previous trio of enterprise security offerings have done. Even with the expected bump, Qualys will likely only create about $500m of market value. However, if the company can emerge as a true platform, that will be just the starting point.

Oracle adds social-recruiting features through acquisition of SelectMinds

Contact: Thejeswi Venkatesh

The spree of HR software M&A continued on Monday with Oracle announcing the purchase of recruitment SaaS startup SelectMinds. The tuck-in acquisition adds social recruitment features to the core platform Oracle gained via its $2bn pickup of Taleo in February.

In the past few months, the same three firms that consolidated the top end of the BI market a few years ago (SAP, Oracle and IBM) have shifted their buying to the human capital management (HCM) market. Collectively, the trio has spent roughly $7bn on HCM providers. While SAP and IBM got social recruitment tools with their acquisitions of SuccessFactors and Kenexa, respectively, Oracle-Taleo was left with a hole in its portfolio. The reach for SelectMinds is meant to close that gap.

Twelve-year-old SelectMinds provides social media-recruiting SaaS, allowing companies and employees to distribute job openings via social media. The vendor says this targeted approach increases the quality of sourced job candidates. SelectMinds, which only raised $5.5m in venture funding, has marquee customers including eBay, McGraw-Hill, Qualcomm and Visa.

We’d note that the transaction comes barely a week after rival HCM vendor iCIMS announced a similar deal, acquiring its former partner and social media-recruiting firm Jobmagic. All of this points to increasing commoditization of the HCM market, where platform providers have to offer more features to compete effectively.

Qualys: a quality offering at a tough time

Brenon Daly

Contact: Brenon Daly

Continuing a run of enterprise-focused IT security IPOs, Qualys has set an initial range of $11-13 per share for its upcoming offering. The range would value the on-demand vulnerability management vendor a bit above $400m, a rather conservative valuation for a company that will record bookings of more than $100m this year. We understand that Qualys will price its offering in two weeks, and we wouldn’t at all be surprised to see it debut at a price in the mid-teens. J.P. Morgan Securities and Credit Suisse Securities are co-leading the offering.

The IPO of Qualys would mark the fourth enterprise IT security provider to hit the market in the past year, following Imperva, Proofpoint and Palo Alto Networks. That makes this particular slice of the tech landscape the most active – and most lucrative – area for IPOs. Collectively, the quartet – including the roughly half-billion-dollar initial market cap we project for Qualys at its debut – will have created about $6bn in market value.

Two-thirds of that amount comes from the wildly successful IPO of Palo Alto Networks. But we would note that Imperva and Proofpoint have been fairly well received on Wall Street, with both offerings trading above water. That stands in contrast to the loosely related consumer security companies and, even more broadly, the overall IPO market, which is highly skeptical of new offerings as a number of recent high-profile IPOs have turned out to be big money losers for investors.

For instance, shares of consumer Internet security provider AVG Technologies have broken issue and are currently changing hands at nearly their lowest level since the company debuted in February. AVG’s woeful performance contributed to the decision by AVAST Software, a similar consumer Internet security provider, to pull its IPO in late July.

Undoubtedly, the bearishness around the consumer security market is weighing on the offering from Qualys. However, we suspect that pressure will be relatively short-lived for Qualys, and the company will enjoy the same strong aftermarket performance of other recent enterprise security IPOs.

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

Co-founders set Workday IPO as ‘PeopleSoft 2.0’

Brenon Daly

Contact: Brenon Daly

Despite the initially abrupt and ultimately acrimonious end of PeopleSoft in the mid-2000s, many of the executives are back with another run at the public market. Workday put in its IPO paperwork late Thursday in what’s shaping up to be the most anticipated post-Facebook offering.

As a sign of that anticipation, Workday plans to raise $400m, nearly twice the amount of most ‘big’ tech IPOs and about four times more than the typical tech offering. To move all that paper, the human capital management (HCM) startup has enlisted no fewer than nine underwriters, led by Morgan Stanley and Goldman Sachs & Co.

Workday was founded in 2005 by Dave Duffield and Aneel Bhusri after Oracle pushed through its contentious $10.5bn deal for the first-generation ERP vendor. Perhaps conscious of how ‘their’ company got rolled into Oracle against their wishes, Workday’s two cofounders have concentrated ownership in their hands (collectively owning almost three-quarters of the company) and created two classes of stock. The structure effectively gives Duffield and Bhusri absolute control of all matters that go to a shareholder vote.

The rivalry with Oracle – and to a degree, SAP as well – also carries over into how Workday does its business. During pre-roadshow presentations, Workday executives noted that they typically pitched their on-demand product when enterprises were considering an upgrade of their current license-based ERP or HCM offering, such as Oracle’s PeopleSoft product. Workday has 325 enterprise customers.

So far, that approach has paid off in stunning growth for the company. It doubled revenue to $134m in the year ended January 31, and has more than doubled revenue in the two quarters since then: Workday recorded $120m, up from $55m in the year-earlier period. (It also has a mountain of nearly $250m in deferred revenue that it has piled up from its contracts that range from three to five years.)

The revenue growth so far in 2012 puts Workday loosely on track for revenue of about $250m. For comparison, that would make the fast-growing ‘redo’ about one-tenth the size of PeopleSoft when it was erased from the market.

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

HCM: When the buyers get bought

Brenon Daly

Contact: Brenon Daly

One of the knock-on effects of IBM’s purchase of Kenexa is that a whole swath of capable buyers in the densely populated human capital management (HCM) market has now been erased. We noted that Big Blue’s reach for the HCM vendor followed similar acquisitions by SAP and Oracle over the past nine months, pushing the collective value of the three deals to nearly $7bn.

The acquisitions of Kenexa, SuccessFactors and Taleo effectively take them out of the M&A market. Certainly, they won’t be nearly as active as they had been. Over the past six years, the trio had announced more than 20 transactions with an aggregate deal value of over $1bn. On average, the companies tended to buy about a company each year, adding technology in markets adjacent to core HR functions such as learning management, workplace collaboration and compensation. (For its part, Kenexa has been the most-active acquirer of the three HCM players in recent years.)

In addition to having demonstrated the institutional appetite for acquisitions, the three companies also had the money to do them. Collectively, Kenexa, Taleo and SuccessFactors held more than $400m in their treasuries at the time of their takeout.

And while the remaining publicly traded HCM providers may, likewise, have plenty of cash to go shopping, not one of them has been anywhere near as active as their three rivals that have been snapped up. In fact, if we look at the M&A activity of the next three HCM midcap vendors we see that they have spent, collectively, less than $100m – or less than one-tenth the amount spent by the trio of now-acquired HCM firms.

Saba Software has done just one deal this year, after being out of the market entirely since 2005. Cornerstone OnDemand has only announced a single transaction (a $14m acquisition earlier this year) and Ultimate Software hasn’t printed anything since a $6m purchase in 2006. And a company executive recently indicated at the Canaccord Genuity tech conference that Ultimate didn’t expect to do any deals – certainly nothing sizeable – in the coming months.

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

Accounting for M&A

Ben Kolada

Contact: Ben Kolada

As accounting software giant Intuit buys beyond its traditional roots, it is leaving the door open for competition from a new breed of accounting startups. A handful of accounting companies have popped up over the past few years in the US and abroad to target consumers and SMBs, some with freemium models. These Davids are walking in Goliath’s giant footsteps, and are announcing a number of their own expansion plays.

Over roughly the past year, accounting startups Wave Accounting (based in Toronto), Xero (based in New Zealand) and FreeAgent (based in the UK) have each announced at least one acquisition. For the most part, these companies’ purchases have been done to expand beyond their core accounting focus. Wave, for example, recently announced the pickup of small stock analysis startup Vuru.

Xero has been particularly acquisitive, announcing four acquisitions since its founding in 2006. The company, publicly traded on the New Zealand Stock Exchange, has been doing deals to both complement its products and expand geographically. Its purchase of PayCycle in July 2011 helped the company enter the nearby Australian market. Through organic and inorganic growth, Xero has grown its revenue to about $16m in its 2012 fiscal year, which ended in March.

Beyond M&A, some companies have developed new products as an offshoot to their businesses. Ruby on Rails developer LessEverything, based in Fort Lauderdale, Florida, is now offering LessAccounting. And Toronto-based invoice vendor 2ndSite now offers FreshBooks.

Meanwhile, Outright Inc was recently acquired by Go Daddy Group. Though, if you ask LessEverything, it could have very well been its LessAccounting product. The company purported on its blog that Go Daddy approached it two years ago with interest in buying its LessAccounting product.

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