Category: technology stocks

A monster May for M&A

Brenon Daly

Contact: Brenon Daly

All three segments of tech, media and telecom (TMT) put up gigantic prints in May, pushing spending in the just-completed month to a level we’d typically see tallied over a half-year period in most post-recession years. The record monthly spending of $122bn was boosted by the largest-ever cable deal as well as the biggest pure tech transaction since the bubble burst. Both Charter Communications’ $56.7bn reach for Time Warner Cable and Avago Technologies’ $37bn purchase of Broadcom figure into the 10 largest TMT deals since 2002, according to 451 Research’s M&A KnowledgeBase

Undeniably, the two blockbuster prints dominated last month’s M&A, accounting for roughly three-quarters of the total spending. But even backing out those two acquisitions, spending came in at a robust $29bn, which is higher than the typical post-recession monthly average. More importantly, the activity spread to a broad number of markets, with billion-dollar-plus deals announced in May by hosting provider Equinix, ambitious telco Verizon and even EMC, which has found itself under scrutiny by activist shareholders, among others.

Last month’s astonishing level of spending – the only time in the past 13 years that monthly spending has topped $100bn – pushes total receipts for TMT M&A this year to $286m. That means that in just five months so far in 2015, acquirers have already spent more money on deals than they did for the entire year for every single year except one from 2009-14, according to the KnowledgeBase.

The one surprise from May, however, is the relatively shallow flow of deals. We tallied only 270 transactions, which stands as the lowest total for May since 2009. That’s down about 20% from the average of the preceding four months of 2015, and marks the first time in more than three years that we’ve seen a month-over-month decline in the number of prints.

2015 monthly deal flow

Period Deal volume Deal value
January 2015 357 $11bn
February 2015 332 $48bn
March 2015 336 $61bn
April 2015 358 $44bn
May 2015 270 $122bn

Source: 451 Research’s M&A KnowledgeBase

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Webinar: 451 Research and Morrison & Foerster M&A Leaders’ Survey

Brenon Daly

Contact: Brenon Daly

Even as tech dealmaking clips along at a post-bubble record rate in 2015, the overwhelming view from the M&A Leaders’ Survey from 451 Research and Morrison & Foerster is that business is expected to get even more brisk as the year progresses. To find out more about the forecast, as well as how the survey sentiment maps to both the current M&A market and current M&A practices, join 451 Research and Morrison & Foerster on Tuesday, May 19 at 1pm EST (10am PST) for an information-packed webinar. Click here to register.

The webinar will cover not only the forecast for acquisition activity for the next six months, but also what buyers expect to have to pay to cover their purchases and what strategies will be driving those deals. Additionally, Morrison & Foerster will provide real-world insight on some of the key findings around recent trends in structuring transactions and other practical M&A considerations. To register for the complimentary webinar, simply click here.

M&A activity forecast for the next six months

Survey date Increase Stay the same Decrease
April 2015 61% 30% 9%
October 2014 48% 36% 16%
April 2014 72% 24% 4%
October 2013 50% 43% 7%
April 2013 54% 27% 19%
October 2012 49% 34% 17%
April 2012 59% 33% 8%

Source: M&A Leaders’ Survey from 451 Research / Morrison & Foerster

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Exclusive: An IPO in the works for Dell SecureWorks?

Brenon Daly

Contact: Brenon Daly

When Michael Dell pulled his company off the Nasdaq two years ago, he had very few good things to say about being a public business. Dell first listed his company back in 1988, but as its PC-dominated business fell out of favor among investors, he blasted the ‘short-term thinking’ of most money managers and engineered a $24bn take-private of his company. Now, it seems he’s looking to make a return trip to Wall Street, at least with a portion of his business.

Rumors are now swirling that Dell is planning to sell a minority stake in SecureWorks, a managed security service provider (MSSP) that Dell acquired in January 2011 for $612m. As we understand it, the plan is to sell about one-third of the SecureWorks division in an IPO later this year. We estimate revenue at SecureWorks at just under $300m, with the business running right about breakeven. Assuming it gets a valuation comparable to what has been handed out in recent MSSP transactions, SecureWorks could be valued at roughly $1bn.

Dell was rumored to be a bidder for Trustwave, an MSSP that sold to Singtel for $810m in April. (SecureWorks is roughly one-third larger than Trustwave.) Market sources have also suggested that Dell has looked at smaller regional MSSPs. Raising money through selling a minority stake to the public would give SecureWorks additional currency to pursue acquisitions.

MSSPs have been around in various forms since the late 1990s, but have recently come into favor amid a shortage of skilled infosec workers and IT security technology that hasn’t kept pace with threats. The market appears to have a fair amount of growth in front of it. In a recent study by The InfoPro, a service of 451 Research, slightly fewer than four out of 10 respondents indicated that they were currently using an MSSP.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Ciena expands SDN palette with $400m Cyan acquisition

Brenon Daly

Contact: Brenon Daly Jennifer Clark

After being out of the M&A market for more than a half-decade, Ciena has stepped back in with the equity-heavy $400m purchase of Cyan. Under terms, Ciena will hand over roughly $365m of its stock along with $44m in cash for fellow networking equipment and software vendor Cyan. (The purchase price includes $50m in convertible notes that Cyan sold last December.)

Cyan focuses on packet optical products, and its Blue Planet software is an SDN/NFV platform built to provide service orchestration, automation and SDN control in a multivendor network and to manage the lifecycle of virtualized services across datacenters and the WAN. Blue Planet contributed less than 10% to Cyan’s revenue in fiscal 2014, yet Ciena was attracted to the deal by the offering, which it thinks represents the next stage of multivendor management software.

Ciena’s bid values Cyan at $4.75 per share, which represents a 30% premium to the target’s previous closing price but is less than half the level of the company’s IPO just two years ago. Still, Cyan is getting a decent valuation, certainly compared with other recent networking transactions. Ciena indicated that its net cost for Cyan would be $335m, meaning it is effectively paying 3.3x the target’s 2014 revenue and roughly 2.4x projected 2015 revenue. In the sector’s recent blockbuster deal, Nokia has agreed to buy Alcatel-Lucent for $16.5bn in an all-stock transaction, valuing its French rival at basically 1x sales. (Of course, comparing that consolidation with the Ciena-Cyan pairing is a bit flawed, given that Cyan, while growing quickly, generates less revenue in a year than Alcatel-Lucent posts in two business days, on average.) Similarly, Ciena currently trades at essentially 1x sales.

Ciena expects the transaction to close before the end of its current fiscal year, which wraps in October. Morgan Stanley advised Ciena, while Jefferies banked Cyan. We’ll have a full report on this acquisition in tomorrow’s 451 Market Insight.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Growth gets a premium at soon-to-be-private Informatica

Brenon Daly

Contact: Brenon Daly

A buyout group is taking Informatica private for $5.3bn, a full $1bn more than the middleware vendor’s primary rival got in its LBO just a half-year earlier. Private equity (PE) shop Permira, along with Canada Pension Plan Investment Board, says it will pay $48.75 in cash for each share of Informatica, or $5.3bn in total. That’s the highest price for the stock in two years but only a slight closing premium for Informatica, which had been under pressure from a hedge fund to sell. The deal is expected to close by Q3 2015.

At an equity value of $5.3bn, Informatica is the largest company to be erased from a US exchange by a PE firm since BMC went private in May 2013 for $6.9bn. More importantly, Informatica is getting a much richer sendoff than either comparable multibillion-dollar enterprise software LBOs or, more specifically, the take-private of rival TIBCO.

Debt-free Informatica’s cash holding of $722m lowers the enterprise value of the proposed transaction to $4.6bn. That works out to 4.4x Informatica’s trailing revenue. For comparison, other significant recent software LBOs have gone off at least a full turn lower (Compuware at 3.1x trailing sales, BMC at 3.2x), while TIBCO garnered 3.8x in its take-private by Vista Equity Partners last September. (Informatica is also getting a richer valuation than the other relevant – if a bit dated – middleware deal: Ascential Software, which was only one-quarter the size of TIBCO and Informatica, got 3.6x in its sale to IBM in 2005.)

What did Informatica do to get a premium, relative to other software hawkers, from its buyout buyers? In a word: growth. While virtually all of the other software providers that have gone private recently have struggled to bump up their top line, Informatica has posted mid-teens-percentage revenue growth over the past half-decade. (The company cracked $1bn in sales in 2014, a significant step up from the $650m it posted in 2010.) Yet even with sales increasing, Informatica still drew the attention – and agitation – of activist hedge fund Elliott Management.

Significant middleware transactions

Date announced Acquirer Target Deal value Enterprise value/trailing sales valuation
April 7, 2015 Permira, Canada Pension Plan Investment Board Informatica $5.3bn 4.4x
September 29, 2014 Vista Equity Partners TIBCO $4.2bn 3.8x
March 14, 2005 IBM Ascential Software $1.1bn 3.6x

Source: 451 Research’s M&A KnowledgeBase

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

An imbalance in the market for unicorns

Brenon Daly

Contact: Brenon Daly

The herd of unicorns gets bigger every day. But as the supply of these startups valued at more than $1bn continues to swell, we can’t help but note that on the other side of the equation, the demand isn’t really keeping pace, at least not outside a handful of elite investors. For the most part, the broader market hasn’t opened the exits for these unicorns to realize the value that’s being lavished on them.

So far this year, for instance, we haven’t seen any sales of VC-backed startups for more than about a half-billion dollars, according to 451 Research’s M&A KnowledgeBase. Further, in a 451 Research survey last December, four out of 10 (42%) corporate M&A executives told us they expect the M&A valuations for privately held companies to actually decline in 2015 compared with their valuations last year. That was the most bearish forecast for exit values of startups from their would-be buyers since the recession year of 2009.

Meanwhile, the IPO market isn’t particularly rewarding these days, either. Box – a unicorn that had been a darling of the late-stage investment community through nearly a dozen rounds of funding – hasn’t created any additional value as a NYSE-listed company than it did as a private company. (And based on the fact that an astounding 40% of Box’s shares are sold short, Wall Street is very clearly betting that its flat-lined valuation is still too high.)

Despite the recent muted returns for VCs, unicorns continue to get fed. For instance, Slack, a collaboration tool that’s less than two years old, has reportedly doubled its valuation since previously notching a $1.2bn price in an October funding.

Obviously, we’re looking at an extremely short exit period of just the first quarter of 2015. And we’re conscious that in most cases, investors are placing bets today that they hope will pay off maybe a half-decade from now. But for right now, when we look at both ends of the market for highly valued startups, we can see how you buy a unicorn but we wonder how you go about selling it.

Projected change in private company M&A valuations

Period Increase Stay the same Decrease
December 2014 for 2015 29% 29% 42%
December 2013 for 2014 29% 55% 16%
December 2012 for 2013 28% 39% 33%
December 2011 for 2012 35% 26% 39%
December 2010 for 2011 71% 20% 9%
December 2009 for 2010 58% 36% 6%
December 2008 for 2009 4% 9% 87%
December 2007 for 2008 39% 28% 33%

Source: 451 Research Tech Corporate Development Outlook Survey

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Lexmark doubles down on software

Brenon Daly

Contact: Brenon Daly

A half-decade into a software shopping spree, Lexmark has announced its largest consolidation, dropping $1bn on Kofax. The price roughly equals the total amount the company has spent on a dozen software firms since it established a software platform with the $280m purchase of Perceptive Software in May 2010. (Lexmark still refers to its software unit, which generated slightly less than a dime of every dollar of overall sales last year, as ‘Perceptive Software.’)

The Kofax buy, which is slated to close next quarter, would essentially double Lexmark’s software business. In 2014, that division generated $313m of sales, a touch more than the amount Kofax put up. However, the vast majority of Lexmark’s growth in software has come through M&A. On an organic basis, Lexmark has indicated that software revenue increased just 3% last year. For its part, Kofax has been growing at about twice that rate, although that has also been boosted by acquisitions. (Kofax announced four deals over the past two years.) Still, both companies are lagging the roughly 10% overall growth rates in the ECM and BPM markets that they serve.

At $1bn enterprise value, Lexmark is valuing Kofax at about 3.3x trailing sales. That’s exactly the multiple it paid for Perceptive but a full turn higher than its other significant deal, the $264m pickup of ReadSoft last May. To pay for its baker’s dozen of software transactions, Lexmark has funneled off cash from its legacy printer business. It plans to cover about $700m of the purchase of Bermuda-domiciled Kofax with offshore cash and borrow the remaining $300m at slightly more than a 1% rate. Goldman Sachs & Co advised Lexmark, while Lazard banked Kofax.

Like other hardware – and specifically, printer – providers, Lexmark has looked to buy its way out of that declining and low-margin market. (Its software business runs at a gross margin in the high-60% range, a full 30 basis points higher than the rest of the company.) Lexmark has been relatively focused in its M&A, targeting two core markets, while HP, for instance, has bought across a broad swath of the enterprise software sector, including application and data management, information security and datacenter technology. However, the Kofax acquisition is much larger and broader than any business Lexmark has nabbed so far.

We’ll have a full report on this transaction in tomorrow’s 451 Market Insight.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Telcos get busy again with M&A in February

Brenon Daly

Contact: Brenon Daly

Massive acquisitions by telcos, which pushed M&A spending to a recent record in 2014, once again helped to inflate the value of deals announced in the just-completed month of February. Overall, tech and telco acquirers spent $48bn on transactions across the globe, according to The 451 M&A KnowledgeBase. However, the three largest deals, which were all telco-related purchases, accounted for $30bn, or 60%, of the total spending in February.

Last month’s big-ticket acquisitions by BT Global Services, Frontier Communications and American Tower revived the telco shopping spree from 2014. Last year, telco and media purchases accounted for roughly half of the $439bn we tallied in M&A spending – the highest level in 14 years. (See our full report on M&A last year, as well as the outlook for this this year.) There were no significant telco transactions in January, which is one of the main reasons why M&A spending for the first month of 2015 was just one-fifth the amount spent in the second month of 2015.

Beyond the telco consolidation, there are clear indications that the broader tech M&A market is picking up the pace after the slow start. Expedia did its largest-ever deal last month, announcing the $1.4bn pickup of Orbitz Worldwide. And Canon, an infrequent acquirer, inked a $2.8bn buy. Even excluding the trio of telco deals, there were four transactions in February valued at more than $1bn – twice as many 10-digit acquisitions announced in January.

Additionally, the overall volume of M&A remained high in February. We tallied 331 transactions announced last month. That’s nearly one-third more than February 2014 or February 2013. Shoppers included Check Point Software, which announced its first acquisition in more than three years; four purchases by the insatiable acquirer Google; and a double-barrel set of deals by Under Armour.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

After a high-water mark, tech M&A spending ebbs

Brenon Daly

Contact: Brenon Daly

After a recent record run, tech M&A spending started slowly in 2015. Acquirers across the globe announced deals valued at just $10bn in January, only one-third the amount they dropped in January 2014 as they started a shopping spree that pushed last year’s total spending to a 14-year high. More broadly, January’s total is the lowest monthly M&A spending level since mid-2013.

While last month’s deals may not have been big, there were a lot of them. With deal volume topping 350 transactions, activity in January came in at one of the highest levels we’ve seen since the end of the recession. Buyers who rang in the new year with an announced acquisition included AT&T, Citrix, Dropbox, BMC and Demandware.

The activity, particularly by acquirers that have been largely absent from the M&A market recently, help to ease two primary concerns about the outlook for the rest of 2015. First, the recent flash of volatility hasn’t necessarily derailed deals. Wild swings and downward pressure in the US equity markets in January obviously make pricing acquisitions much more difficult. (US equity indexes fell about 3% last month alone.) But the uncertainty doesn’t appear to have eroded buyers’ confidence, which is a key component of M&A.

Additionally, coming into 2015, a number of market participants indicated that deals were getting ‘pulled through’ back in late 2014. In other words, acquirers were worried about the direction of the global economy, equity market performance and interest rates in 2015, so they pushed to get transactions done during the relatively supportive times of 2014. (It’s worth remembering that overall, deal volume last year hit its highest level in eight years. See our full M&A Outlook.) At least in early 2015, the M&A pipeline doesn’t appear to be dried up. There may not be as many big prints, but deals are still flowing to start the year.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Webinar: What to expect in tech M&A in 2015?

Brenon Daly

Contact: Brenon Daly

With a record-breaking year in tech M&A behind us, what’s in store for 2015? Join 451 Research on Tuesday, January 27 at 1:00 PM EST for a look ahead on where acquirers are likely to be looking to do deals, and what they’re likely to pay. The webinar, which highlights the analysis and forecasts in our 2015 M&A Outlook, is free to attend – register here.

We’ll start with a look back at 2014 to highlight some of the trends and big-ticket transactions that helped push tech M&A spending to its highest level since the Internet bubble burst. What had buyers spending freely last year – including 75 transactions valued at more than $1bn – and will that carry over to this year?

Then, we’ll address other timely topics, including:

  • What does the data from our surveys of corporate acquirers and bankers, as well as insight from our analysts, tell us to expect for tech M&A in 2015?
  • Specifically, what sectors of the IT landscape will be active this year – and why? We will highlight trends from a handful of major markets (mobility, cloud, security, networking) that are likely to drive deals.
  • Private equity firms announced more tech acquisitions in 2014 than in any other year, often paying prices they would not have paid in the past. Is this the start of a new aggressiveness by financial acquirers?
  • What’s the outlook for the IPO market, and which startups might be ready to go public this year?
  • Startups may be pulling down sky-high valuations in recent funding, but the forecast among corporate buyers for the exit valuations of startups isn’t nearly as bullish. How big is the bid/ask spread likely to be this year?

The webinar draws from both the qualitative insight of more than 100 analysts at 451 Research, as well as a number of quantitative resources to get a sense of the broad influences that are shaping M&A in 2015. To register for the webinar, click here.