Category: technology stocks

Did SAP exercise an an opportunistic option for OpTier?

Brenon Daly

-by Brenon Daly

Despite raising more than $100m in backing, OpTier quietly wound down this summer after a dozen years in business. Even more quietly, some of the assets from the formerly highly valued startup may have been snapped up on the cheap by SAP.

That’s according to several market sources, and an opportunistic purchase would certainly make sense. SAP licensed a fair amount of OpTier to monitor its cloud software internally, so it could have simply brought the technology in-house. Although a deal hasn’t been announced (much less terms for any transaction), we understand SAP paid $10-20m for much of OpTier’s IP.

Assuming our understanding is correct, it would mark a sharp comedown for OpTier. As recently as three years ago, the Israeli startup was reported to be seeking an exit of up to $300m in a process run by Morgan Stanley, which is also an investor in OpTier.

Although OpTier grew quickly through much of the past decade with its business transaction monitoring product, it was slow to step into the more valuable market of code-level application performance monitoring (APM). (See our 2012 report on the ‘pivot’ at OpTier .) For comparison, at least two APM startups founded after OpTier – AppDynamics and New Relic – are both valued in the neighborhood of $1bn and are expected to go public in 2015.

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

Its IPO stuck, Box is no longer the upstart startup

Brenon Daly

Contact: Brenon Daly

This year’s Burning Man and BoxWorks have more in common than just a spot on the calendar. The two festivals have grown far beyond the original events, both in terms of scope and attendees. In fact, both the bacchanal in the desert and the Box user conference, in their own ways, have grown so much from their anti-establishment roots that they’ve now become part of the establishment. The onetime fringe events have gone mainstream.

While the Burners debate whether the festival ‘sold out’ its founding principles, the Boxers have posed a similarly existential question: What are we now?

Throughout its three-day conference for developers and customers, which wrapped Thursday, Box took great pains to show how much it has grown up in its nine years in business. For the first time ever, BoxWorks was held at an actual convention center (the same location Oracle will use later this month for its user conference and salesforce.com will use next month). And more than ever before, Box populated its panels and presentations at the event with big company representatives, consciously underscoring just how far it has come since its fabled ‘pivot’ away from the consumer business.

But the clearest indication of the change at Box came from the very top of the company. CEO Aaron Levie, who normally freewheels through speeches, sounded much more measured. The 20-something-year-old CEO dialed down his snark and couched some remarks in language that read like it came from an SEC filing. (Maybe filing an S-1 does that to a chief executive?)

As an example of this new business-like attitude, consider the shift in Box’s relationship with onetime nemesis Microsoft. At previous BoxWorks, Levie thrived by bashing Microsoft, positioning the company as a lumbering dinosaur that had been outflanked by the nimble startup, Box. And yet, one of the key features for Box that Levie played up during his keynote was the fact that Box now partially integrates into Office 365. (For the record: It’s in beta, and comes more than three years after Microsoft launched Office 365 and Levie blogged that Box ‘would love’ to connect with the offering.)

With Box likely to put up about $200m in sales this year, it’s clearly no longer a startup. But what was made equally clear at BoxWorks this year is that the company is no longer an upstart, either. It’s turning into another enterprise software vendor, whether it likes it or not.

In our opinion, it is that realization that makes it more likely that Box will be sold or, at the least, be a more willing seller. In the consolidated, mature market of enterprise software – where a company like Microsoft puts up more revenue each day than Box does in a year – scale is an advantage. Despite all of its marketing spending and a more grownup user conference, Box still doesn’t have scale, and can likely only obtain that by getting acquired. So which company is likely to pick up Box? Hewlett-Packard is our top pick, followed by Cisco.

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VMware needs more ‘Know Limits’, less of ‘No Limits’

Brenon Daly

Contact: Brenon Daly

As VMware lowers the curtain Thursday on its annual gathering of customers and partners, we have a suggestion for planning VMworld 2015: come up with a better tagline than this year’s conference. The slogan ‘No Limits’ was inescapable at this week’s confab, graffitied onto walls and parroted by most VMware executives. Undoubtedly, the focus-grouped message was meant to convey the image of VMware standing as a central provider in an IT landscape of boundless resources, all flowing together seamlessly.

The reality, of course, is not quite so idyllic. (Just ask anyone at VMworld who has gone hand to hand in the past with some of the company’s management products, which have now been further complicated by being bundled together in vRealize Suite.) Enterprise technology is messy and prone to breaking down. The solution to that complexity isn’t to add more.

Rather than pushing the idea of No Limits, VMworld would have been more responsibly taglined ‘Know Limits.’ We acknowledge that our tweak on the slogan knocks some of the enthusiasm out of it. And when a company needs to come up with $1bn of net new revenue next year (taking the top line from basically $6bn in 2014 to $7bn in 2015), enthusiasm is a key selling point.

The kicker on VMware’s selection of No Limits as its central message to the 22,000 attendees of its annual confab is that the company should know that there are indeed limits to technology. In fact, at last year’s VMworld the company was only just dusting itself off after having hit some limits of its own. It found out, for instance, that it wasn’t an application software vendor, so it divested SlideRocket and Zimbra as part of a larger reorganization in the first half of 2013.

There’s no doubt that VMware is a far healthier company at this year’s VMworld than it was at last year’s event. (For the record, the 2013 VMworld tagline was ‘Defy Convention.’) We would argue that the company is healthier because it replaced its freewheeling, expansive operations with a more focused and disciplined approach to business. (In other words, VMware imposed some limits on itself.) Strategically, it pared down its portfolio and simplified it into three distinct offerings. The net result? VMware is growing 50% faster in the two quarters leading into this year’s VMworld than in the two quarters heading into last year’s confab.

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With one divestiture done, will Juniper cut the cord on Trapeze, too?

Brenon Daly

Contact: Brenon Daly

Having largely worked through an internal cleanup of its operations, Juniper Networks is now looking to shed some of those operations. The networking gear provider recently divested its Junos Pulse to private equity newcomer Siris Capital, pocketing an unexpectedly rich $250m for its mobile and network security division. With Junos Pulse off the books this quarter, we suspect that Juniper will now turn its attention to cutting the cord on Trapeze Networks.

The rumored divestiture of Trapeze (if it indeed comes to pass) would unwind Juniper’s $152m purchase of the WLAN gear provider back in November 2010. (Ironically, Juniper picked up Trapeze when it was divested by Belden.) Although Belden actually turned a (slight) profit on its ownership of Trapeze, we doubt that Juniper will come out ahead on any divestiture because Trapeze has lost much of its standing in the WLAN market. (Even Juniper seems to have acknowledged this, inking a rather involved partnership with WLAN rival Aruba Networks last month.)

Juniper’s moves come as the 18-year-old company faces pressure from activist hedge funds to pick up its performance. (Juniper shares have basically flatlined over the past decade, and have underperformed rival Cisco Systems more recently.) So far, Juniper has focused its efforts on its cost structure, cutting more than 400 jobs over the past year and consolidating its real estate holdings, for instance.

Fittingly for a company under scrutiny from Wall Street gadflies, Juniper’s cost savings have been put toward ‘shareholder friendly’ expenses, such as funding an increased share buyback as well as a newly announced dividend program. We would add that Juniper’s cash, which totals almost $4bn on hand, isn’t going toward M&A. The company hasn’t announced an acquisition in 2014. As things stand now, given Juniper’s focus on its financial operations, we could well imagine that the company will be a net seller – rather than buyer – of businesses this year.

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

For tech M&A, fortune favors the bold

Brenon Daly

Contact: Brenon Daly

So far in 2014, the top end of the tech M&A market has been a little barren for the buyout barons. In fact, there’s been only one private equity-backed deal among the 20 largest transactions this year, according to The 451 M&A KnowledgeBase. For comparison, in 2013, three of the 10 largest acquisitions involved PE shops.

In most years, financial acquirers generally account for roughly one out of every five dollars spent on tech M&A. But this year, the buyout shops are increasingly finding themselves elbowed aside by corporate shoppers. These newly confident strategic acquirers are (for the most part) enjoying lofty valuations on Wall Street, while also rolling around in the richest treasuries they’ve ever had. (And the debt market stands ready and willing to fund bigger acquisitions, if companies want to draw on that.)

We often say that to do deals, all that’s required is currency and confidence. Both are plentiful for most corporate buyers, which is helping to put overall spending on tech, media and telecom (TMT) transactions on track for record levels. (See our full report on TMT dealmaking in Q2 and the outlook for the rest of 2014.)

The emboldened corporate acquirer is probably best exemplified by Zebra Technologies and its mid-April reach for the enterprise business being spun off of Motorola Solutions. In years past, it wouldn’t have been uncommon for a divested business like this to land in a PE portfolio for a year or two of ‘rehabilitation’ before flipping back to a strategic buyer.

Instead, Zebra – an infrequent acquirer that had never spent more than $150m on a single transaction – decided to step in and buy the business directly. (Never mind the fact that Zebra has to borrow virtually all of the $3.45bn to cover the purchase, or the possible difficulties of integrating and operating a businesses that is about 2.5x the size of Zebra’s existing business.) And how has Wall Street reacted to the uncharacteristically bold dealmaking at Zebra? Shares have tacked on about 25% in value from pre-announcement levels and currently change hands at their highest-ever level.

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

Big money for little companies

Brenon Daly

Contact: Brenon Daly

With Wall Street continuing to look like forbidding territory to most IPO candidates, where are money-burning companies going to restock their treasury? Increasingly, hedge funds and mutual fund giants are providing, collectively, the hundreds of millions of dollars in financing that might have otherwise come through IPOs.

This, of course, isn’t an entirely new phenomenon. But we can’t recall a time that has seen more late-stage funding than the just-completed second quarter. Okta, Atlassian, New Relic, Pure Storage and others all drew in financing during the past three months from investment firms that have historically only purchased shares in public companies. In many ways, it’s a wonder that it took the recent chill in the IPO market to spur this ‘crossover’ activity to new levels. (We’ll have a full look at the recent IPO market – as well as the other exit, M&A – in our report on Q2 activity available later today on 451 Research.)

From the money managers’ perspective, these investments in private companies offer a bit of portfolio diversification, as well as the opportunity to outpace the returns of the broader equity market, which has registered a mid-single-digit percentage gain so far in 2014. And on the other side of the investment, the late-stage companies stand to receive tens of millions of dollars from a single investor without all the SEC rigmarole and other public company exposure.

Further, with billions of dollars to put to work, the mutual funds and hedge fund giants haven’t shown themselves to be as ‘price sensitive’ as other traditional late-stage funders. (The discrepancy between valuations of illiquid private shares and freely traded public stock stands out even more now, as new issues are being discounted heavily in order to make it public at all. For instance, Five9 stock has never even reached the minimum price the company and its underwriters thought it should be worth, and currently trades at just 3.5 times this year’s revenue. Meanwhile, MobileIron shares have dropped almost uninterruptedly since the company’s IPO, falling back to only slightly above their offer price. MobileIron is currently valued at only about half the level that a direct rival received when it sold earlier this year.)

Like life, markets are cyclical and IPOs will undoubtedly come back into favor on Wall Street at some point. But in the meantime, many late-stage companies are calling on the big-money investors to keep the lights on. We would include Box in that category. The high-profile company, which has been on file publicly since March, has found its path to the public market a rather rocky one. Having already raised more than $400m in backing, we could well imagine the money-burning collaboration software vendor crossing off an IPO (at least for now) and going back to a crossover investor for cash later this summer.

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

ECM consolidators clash

Brenon Daly

Contact: Brenon Daly

The gloves are coming off in the latest consolidation in the enterprise content management (ECM) market. Just a month after accepting a $195m offer from the ever-acquisitive Lexmark, old-line Swedish ECM vendor ReadSoft has found itself in the center of an unusual public bidding war. On Wednesday, PE-backed Hyland Software topped the bid by a few million dollars.

The brawl over ReadSoft pits two able acquirers – one strategic, one financial – against each other. Collectively, Lexmark and Hyland have done 16 deals over the past half-decade alone. But looking inside those transactions, we can see differences between the buyers, which may help indicate how the fight for ReadSoft will play out. On paper, it would appear that Lexmark needs ReadSoft more than Hyland does.

For starters, Lexmark has been a more active acquirer than Hyland. Since the printer company established its ECM unit in mid-2010 with the $280m purchase of Perceptive Software, it has shelled out an additional $600m on another nine targets, according to The 451 M&A KnowledgeBase . In comparison, Hyland has announced just six deals since PE shop Thoma Bravo acquired a majority stake in July 2007.

Further, Lexmark has been more deliberate in buying larger companies, while Hyland has targeted smaller bolt-on acquisitions that typically bring either technology (document capture, for example) or vertical market specialization (e.g., healthcare) to its flagship OnBase product. In short, Hyland’s M&A approach – including playing the spoiler against Lexmark – appears more opportunistic than the systematic drive for scale at Lexmark.

In our initial analysis of Lexmark’s reach for ReadSoft, my colleague Alan Pelz-Sharpe noted that while the transaction would bring a new customer base and about $120m in revenue to Lexmark, there was a fair amount of technology overlap. (451 Research subscribers can click here for the full report.) But for Lexmark, it has little choice but to buy in bulk.

Because of the declines in its legacy core printer and ink business, overall revenue at Lexmark will drop again this year. While its software business is the fastest-growing division at the company, it can’t make up for the drop-off in printers. Lexmark has set the goal for its software unit hitting about $500m in revenue in 2016, which would be about twice the revenue it generated in 2013. To get there, Lexmark will have to continue to rely on M&A, which just may include countering for ReadSoft.

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

Tech M&A spending rolls along at record rate

Brenon Daly

Contact: Brenon Daly

Tech M&A spending continued its record pace in April, putting 2014 on track to top a half-trillion dollars worth of deals. Assuming the pace holds, this year would mark the highest level of spending on tech transactions since the Internet bubble burst a decade and a half ago.

For the just-completed month of April, tech acquirers around the world announced some 302 deals valued at $48bn, a stunning six-fold increase over the same month last year and more than three times the level of April 2012. Consolidation last month in the old-line telco and cable industries led the parade of blockbuster transactions, which included five acquisitions valued at more than $1bn.

The spending in April actually accelerated what has already been a record start to 2014. (See our full Q1 report.) Through the first four months of this year, tech M&A spending has soared to $178bn. To put that amount into perspective, consider this: January-April spending has already exceeded the full-year totals of every year except one since the recession ended in 2009. More dramatically, year-to-date spending has even eclipsed the previous record of $166bn for the first four months of the go-go year of 2006.

Further, dealmakers don’t really see a slowdown in the frenetic pace. As part of our semiannual Tech M&A Leaders’ Survey , done in part with Morrison & Foerster, we noted that activity is currently running at a record level and asked respondents for their outlook on the overall tech M&A market for the rest of 2014. Nearly one-third (31%) projected an increase in activity, 41% said the pace is likely to hold steady, and 28% predicted a decline.

With more than seven out of 10 respondents forecasting that the broad tech M&A market will hold – or even accelerate – its current unprecedented activity, the outlook for dealmaking is more bullish than it has been in years. 451 Research and Morrison & Forrester will be holding a complimentary webinar to discuss the survey, which also includes a number of key findings around deal structures and valuations. To join the webinar, which will be held next Tuesday, May 6 at 10:00am PST, simply register here.

Monthly deal flow, 2014

Month Deal value Change vs. same month in 2013
January 2014 $30bn 168% increase
February 2014 $73bn 51% increase
March 2014 $27bn 391% increase
April 2014 $48bn 508% increase

Source: The 451 M&A KnowledgeBase

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Intralinks tracks down docTrackr

Brenon Daly

Contact: Brenon Daly

After opening up its M&A account last April with an opportunistic acquisition, Intralinks has followed that up with the somewhat more strategic $10m purchase of docTrackr. The purchase of the three-year-old digital rights management startup is significant because it shows Intralinks playing both offense and defense with M&A. Neither side used an advisor.

On the defense side, the deal ‘boxes out’ Box. The high-profile file-sharing company – which is likely to go public in the next few weeks and be valued in the billions of dollars – had licensed docTrackr for at least two years. As my colleague Alan Pelz-Sharpe notes in our report , there might not be much impact to Box’s business with docTrackr off the table, but Intralinks will mint some PR around the move, nonetheless.

In terms of building its business, docTrackr will slot into Intralinks’ enterprise business. That division, which generates nearly half the company’s overall revenue, is forecast to be the main growth engine at the company in the coming years. But for now, the enterprise division is basically flat. (All of Intralinks’ growth in 2013 – a year in which it increased total revenue 8% to $234m – came from its M&A-related business.)

Longer term, Intralinks has indicated it expects to grow its enterprise business 25-30% per year. That seems ambitious for a company that has seen sales there flat-line for two straight years. (Some of that performance is simply a function of accounting, with revenue lagging the actual subscriptions that Intralinks sells.) But even adjusting for that and looking at billings, the growth rate for Intralinks’ enterprise business has lagged that of rival collaboration vendors. The addition of DRM technology from docTrackr into the company’s platform hits a key point for customers, particularly those in the regulated industries that Intralinks has targeted.

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

IBM finds a bargain in Silverpop purchase

Brenon Daly

Contact: Brenon Daly

Fittingly enough for an acquisition to bolster its Smarter Commerce portfolio, IBM appears to have smartly picked up a bargain in its purchase of marketing automation (MA) vendor Silverpop. Big Blue didn’t release terms of the deal, but reports put the transaction value at roughly $250m-300m. Assuming that’s roughly accurate, it would value Silverpop at only about half the valuation that other significant MA providers have received in recent exits.

According to our understanding, Silverpop put up about $80m in sales last year. However, several industry sources have indicated that the Atlanta-based startup was only growing at about 10-15%. Other similar-sized MA firms are vastly outstripping that rate. For instance, Marketo boosted its top line almost 70% in 2013, and we estimate that HubSpot was right in that neighborhood, too. More broadly, a recent report from 451 Research’s MarketMonitor service forecasted 22% CAGR for the overall MA industry over the next four years.

Silverpop’s sluggish growth would appear to have put pressure on its valuation, with IBM paying 3-4x trailing sales for the company. Meanwhile, rivals such as Oracle, Adobe and salesforce.com have paid multiples ranging from roughly 6-10x trailing sales. Overall, the shopping spree has topped $7bn in spending for MA vendors.

Select marketing automation deals

Date announced Acquirer Target Price to sales ratio Deal value
December 20, 2013 Oracle Responsys 7.7x $1.6bn
June 27, 2013 Adobe Systems Neolane 8.6x* $600m
June 4, 2013 salesforce.com ExactTarget 7.6x $2.5bn
December 20, 2012 Oracle Eloqua 9.7x $956m
April 27, 2012 Intuit Demandforce 11.4x* $423.5m
December 22, 2010 Teradata Aprimo 6.3x $525m
August 13, 2010 IBM Unica 4.4x $523m

Source: The 451 M&A KnowledgeBase *451 Research estimate