Category: technology stocks

With $2.7bn at stake, how will Cisco handle red-hot Sourcefire?

Brenon Daly

Contact: Brenon Daly

In one big roll of the dice, Cisco Systems has nearly matched the entire spending on all information security deals across the globe in each of the past two years. The networking giant announced Tuesday that it plans to hand over $2.7bn in cash for Sourcefire. That single transaction, which gives the network security vendor a platinum double-digit valuation, barely lags the aggregate value of 2012 ($3bn) and 2011 ($3.2bn) infosec deals.

So what is Cisco getting in its big bet on security? Sourcefire is a solid mid-20% grower and has consistently ranked well in terms of stickiness with customers. TheInfoPro, a service of 451 Research, surveyed Sourcefire customers in late 2011 and found that not a single one was planning to switch from Sourcefire to another provider. Sourcefire was the only infosec vendor among the 15 companies surveyed to receive unanimous support from its customers.

The growth and positive sentiment around Sourcefire goes some distance toward balancing the concerns that this mega-transaction brings, both specific and general. For starters, Cisco has struggled with many of its purchases outside its core market of enterprise networking gear (witness its divestiture of consumer brand Linksys earlier this year). Further, the company’s security business in the most-recent quarter shrank 4%, compared with a 5% increase in overall revenue at Cisco.

More broadly, many of the multibillion-dollar acquisitions of other infosec providers have only delivered so-so results for the buyers. In some cases, rumors have pointed to acquirers looking to unwind their purchases. For instance, we’ve heard in the past that IBM has considered shedding the Internet Security Systems business it bought in mid-2006 for $1.3bn. Additionally, EMC was rumored to be exploring alternatives for RSA Security, which it picked up in a competitive process for $2.1bn seven years ago.

And then there’s the cautionary tale provided by a directly comparable transaction in early 2004. In that deal, Cisco rival Juniper Networks decided that it wanted to make a play for the convergence of networking and security, announcing a $4bn stock swap for NetScreen Technologies. That deal dragged on Juniper’s results for years, and was one of the primary reasons why Juniper was out of the M&A market entirely for a half-decade (2005-2010). We would note that during that five-year period with its rival sidelined, Cisco was incredibly active, spending more than $20bn on 40 acquisitions.

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

Schneider reaches for Invensys with $5bn proposal

Contact: Andy Lawrence, Tejas Venkatesh

In what could be its largest acquisition in seven years, energy management giant Schneider Electric is proposing to acquire Invensys for $5bn. Although as old as the railways, the industrial automation equipment and software vendor has modernized its product portfolio through divestitures and investment in growing markets, making it a prized target for bidders with deep pockets.

Schneider’s interest in Invensys is mostly about scale, filling out its product lines, and helping build up a base of offerings for its growing interest in software and services. The acquisition of Invensys would bolster its products in monitoring, metering and control software – products that Schneider could deploy across its divisions. Invensys generated $2.7bn in revenue for the year ended March 31.

The offer comes a year after Schneider Electric indicated that it would step up acquisitions to fill out its product portfolio. Although Schneider has been relatively quiet on the M&A front in recent years, the company has a successful history of inorganic growth. Invensys could be another feather in its cap, provided rivals like Emerson Electric don’t get into a bidding war. Siemens, Emerson, ABB and GE are all considered potential suitors for Invensys.

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

SanDisk gets enterprise SMART with $307m buy

Contact: Tim Stammers

To bolster its enterprise business, flash giant SanDisk is acquiring enterprise flash drive specialist SMART Storage Systems for $307m in cash. SanDisk first entered the market for enterprise flash drives in 2011, with the purchase of SSD maker Pliant Technology for $327m. The pickup of SMART Storage should increase SanDisk’s SSD sales and bring the company revenue and OEM relationships, as well as intellectual property.

SMART Storage Systems generated sales of $25m for the quarter ended May 31, 2013. SanDisk indicated that the company was on a rapid growth trajectory. At a revenue run rate of $100m, the $307m price may seem low for a company that is growing quickly, owns competitive technology, and is operating in a fast-growing market. However, the company is operating in a very competitive sector that is heading for commodification, and as a result its prospects as a small, independent supplier are tentative at best.

We do not believe that the deal will significantly alter the landscape of the SSD market. Currently, that market is small and growing, but it is also crowded. This deal will, however, bring SanDisk increased visibility in the enterprise sector, as well as access to technology that it will be able to incorporate into its future products. For a full report on the transaction, subscribers can click here.

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

Dialog Semiconductor pays $310m for iWatt

Contact: Tejas Venkatesh

A year after attempting to go public, iWatt has opted for the other exit, selling to fellow power management chip vendor Dialog Semiconductor for $310m in cash (plus contingent consideration of up to $35m). The deal should bolster Dialog’s product portfolio and expand its addressable market.

IWatt designs AC-DC converter chips and LED ICs. While iWatt’s AC-DC chips are used in portable chargers, Dialog’s power management ICs are embedded in mobile devices themselves. The target has grown at a healthy clip recently, wrapping up 2012 with $74m in revenue. That’s a 46% increase from the previous year.

The acquisition values iWatt at 4.1 times last year’s sales. That’s a premium valuation compared with the 3.4x sales valuation its chief rival Power Integrations currently garners in the public markets. IWatt’s superior growth definitely played into its higher valuation (Power Integrations grew just 2.2% last year).

IWatt tried to go public last summer, but the offering never made it to market. (The company even swapped out its lead underwriter – trading Deutsche Bank for Barclays – which is never a good sign.) It would have been fighting against a strong downdraft in the recent IPO market. The last three tech offerings have either priced below expectations or traded down significantly in the aftermarket.

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

A return to the ‘new normal’ for tech M&A in Q2

Brenon Daly

Contact: Brenon Daly

After two straight quarters that each featured a single blockbuster transaction, tech M&A spending in the just-completed Q2 settled back into a more representative level for the post-recession era. Spending on acquisitions of tech, telecom and Internet companies around the globe from April to June totaled $46bn – essentially matching the value of deals in Q2 of last year as well as the quarterly average from 2010-2012. (Look for our full report on the Q2 M&A totals and trends later today on our website and in our next Daily 451.)

However, Q2 spending comes in about one-third lower than both the first quarter of this year and the final quarter of last year. The decline from mid-$60bn in both of those quarters to mid-$40bn in the just-completed quarter stems primarily from the fact that Q2 didn’t see a mega-transaction like the one that boosted totals in the other two quarters.

Both Q4 2012 and Q1 2013 featured single deals valued at more than $20bn, roughly the equivalent to the aggregate total of the four largest deals announced in Q2 2013. The $24bn proposed Dell buyout, announced in February, and Softbank’s $20bn reach for Sprint Nextel last October are the two largest transactions of the past half-decade.

Turning to deal volume, we would note that even as tech M&A spending returned to more representative post-recession levels in Q2, the number of transactions didn’t keep pace. In fact, overall quarterly deal flow plunged to its lowest level since the recession. From April to June, dealmakers announced just 751 transactions, a sharp 18% year-over-year decline. (Again, we’ll have a full report on Q2 M&A activity available later today on our website and in our next Daily 451.)

Recent quarterly deal flow

Period Deal volume Deal value
Q2 2013 751 $46bn
Q1 2013 785 $64bn
Q4 2012 851 $64bn
Q3 2012 912 $39bn
Q2 2012 916 $44bn
Q1 2012 918 $34bn
Q4 2011 904 $44bn
Q3 2011 969 $64bn
Q2 2011 980 $76bn
Q1 2011 919 $45bn

Source: The 451 M&A KnowledgeBase

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

Adobe back in the market for marketing, drops $600m on Neolane

Brenon Daly

Contact: Brenon Daly

In its second-largest acquisition for its Marketing Cloud, Adobe Systems says it will hand over $600m in cash for marketing automation (MA) vendor Neolane. The purchase of Neolane, which is expected to close in Q3, trails only Adobe’s pickup of Omniture for $1.8bn in 2009 in terms of spending on deals to build out its Marketing Cloud. Collectively, these transactions have cost Adobe more than $3bn.

Although Adobe declined to discuss Neolane’s financials, the Paris-based startup has said it generated 2012 revenue of $58m, which would put it at roughly the same size as rivals Marketo and HubSpot. In terms of valuation, however, Neolane is a good bit off of Marketo’s market cap of some $870m.

We would chalk up the disparity in valuation to two main reasons. First, Neolane’s on-premises business is about as large as its subscription business, while Marketo is a pure SaaS company. Further, we understand that Neolane grew about 40% last year, which is a solid rate but just half the pace of the free-spending – and deeply unprofitable – Marketo. Through midyear, we would pencil out that Neolane generated roughly $70m in trailing 12-month revenue.

Adobe’s MA move comes after many other tech giants have already snapped up MA vendors, including salesforce.com paying a record $2.5bn for ExactTarget earlier this month. Other tech giants that have made significant MA acquisitions include IBM (Unica), Teradata (Aprimo), Oracle (Eloqua) and Intuit (Demandforce). Valuations for those transactions have ranged from 4.4x trailing sales to 11x trailing sales.

Select marketing automation transactions

Date announced Acquirer Target Deal value Price-to-sales valuation
June 27, 2013 Adobe Neolane $600m 8.6x*
June 4, 2013 salesforce.com ExactTarget $2.5bn 7.6x
December 20, 2012 Oracle Eloqua $956m 9.7x
April 27, 2012 Intuit Demandforce $424m 11.4x*
December 22, 2010 Teradata Aprimo $525m 6.3x
August 13, 2010 IBM Unica $523m 4.4x

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

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

IPO candidates feel the tremor

Contact: Tejas Venkatesh

Over the past few weeks, it appears sentiment on Wall Street has soured significantly. With the US Federal Reserve planning to wrap up bond purchases, the broader stock market volatility as represented by the CBOE volatility index hit its highest level all year earlier this week. As a result, unknown and unproven IPO candidates are bearing the brunt of that market uncertainty. That was evident today when both IT retailer CDW and video advertising network company Tremor Video priced below their indicated range. In CDW’s case, that came after the company had already cut the number of shares on offer by 16%.

For its part, Tremor Video sold 7.5 million shares for $10 each, below its indicated range of $11-13. In the process, the company raised $75m and debuted at an (undiluted) market cap of $485m. By midmorning, the stock headed further south and was changing hands on the NYSE at $9.50.

Tremor Video analyzes in-stream video content, detects user attributes and uses that information to optimize video ad campaigns for marquee brands like Procter & Gamble, Ford Motor and Walt Disney. The eight-year-old company, which raised about $120m in total funding, generated $113m in revenue for the year ended March 2013.

The sudden souring of sentiment is leading to a difference in expectations between investors and issuing companies. Tremor Video is the first advertising technology (adtech) IPO to price below its expected range. In its case, the performance of recent adtech IPOs didn’t help. Both Millennial Media and Marin Software are trading about 30% below their IPO price.

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

For Keynote’s new owners, it’s been buy-and-build buyouts

Brenon Daly

Contact: Brenon Daly, Dennis Callaghan

Sometimes it’s just easier to go shopping behind closed doors. We were reminded of that as Keynote Systems indicated that it plans to go private in a $395m sale to private equity (PE) firm Thoma Bravo. As we look at the PE shop’s portfolio companies, it’s striking how quickly the M&A pace has picked up once the companies can reach into the deep pockets of their new owner, and do so out of the glare of Wall Street.

Consider the M&A activity of Blue Coat Systems. The security company averaged about one acquisition every other year in the decade leading up to its December 2011 take-private by Thoma Bravo. So far in 2013, Blue Coat has already done two outright acquisitions, including paying what we hear is a double-digit multiple for Solera Networks. (451 M&A KnowledgeBase subscribers can see our estimates for terms of the Blue Coat-Solera pairing by clicking here.) Thoma Bravo also rolled Crossbeam Systems, which it already owned, into Blue Coat last December.

Similarly, Tripwire had done only one deal in the nearly decade and a half before it sold to Thoma Bravo in mid-2011. (And the security firm’s sole foray into M&A was a tiny asset purchase that only set it back $3m.) Earlier this year, it made a significant bet of more than $100m on nCircle, which bumped up total revenue by about one-quarter. And based on the early progress on that transaction, we understand that Tripwire may be looking to make another similarly sized acquisition in the coming quarters.

The Keynote leveraged buyout (LBO) isn’t expected to close until fall, and even after that the company’s new owners will probably want some time to more deeply understand and take some preliminary steps to get the test and measurement vendor growing again. Revenue has been flat so far this fiscal year as some customers have recently narrowed Keynote projects or put them off.

But once business is shored up, we could imagine Keynote returning to the M&A market, from which it has been absent since October 2011. My colleague Dennis Callaghan speculated in a report on the LBO that Keynote may also look to expand its capabilities in pre-deployment testing or even add content delivery network technology through acquisition.

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

Thoma Bravo hopes to unlock value from Keynote in LBO

Brenon Daly

Contact: Brenon Daly

After focusing its recent M&A activity on rounding out existing portfolio companies, buyout shop Thoma Bravo made another ‘platform play’ on Monday, offering $395m for Keynote Systems. Under terms, the private equity firm will pay $20 per share, or a total of $395m, for the 18-year-old testing and measurement vendor.

The deal, which is expected to close by September, comes at a time when Keynote is struggling to put up growth. Business across its two operating units – the core Internet measurement products as well as the newer mobile testing offerings – have both been flat so far this fiscal year. Further, the company has seen its operating and net income drop this year as some customers have recently narrowed Keynote projects or put them off.

The price Thoma Bravo is paying reflects the operating challenges at Keynote, which traded above the $20 bid for much of 2011. The dividend-paying company holds nearly $60m in cash and short-term investments. Backing out that amount from the $395m equity value for Keynote gives an enterprise value of $335m, or about 2.7 times the $125m in trailing sales the company has put up.

Keynote’s valuation of 2.7x sales is almost exactly the midpoint of Thoma Bravo’s two previous take-privates, the $195m buyout of Mediware Information Systems last September and the $1bn acquisition of Deltek in August. Since those LBOs, the buyout shop has been busy doing deals to bulk up its portfolio companies, including two follow-on acquisitions for Mediware as well as recent bolt-on deals for Blue Coat Systems, LANDesk Software and Tripwire.

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

Marketing automation overshadows Web content management

Contact: Alan Pelz-Sharpe

The marketing automation industry is upending the Web content management (WCM) space. Our research tells us that pure-play WCM technology is unlikely to continue to grow as a market in any substantial way. We believe that going forward, the technology is likely to be bundled along with marketing automation platforms, rather than sold as stand-alone WCM systems. That prognosis is reflected in the pattern of M&A activity in the two sectors.

The critical fact missed by the WCM market was that the central content repository was not the be-all and end-all that it was claimed to be – certainly not for all organizations. While having marketing collateral in a single ordered, managed system is important, it is only when that content is connected to a chain of events that it results in a transaction of any value.

The last WCM acquisition of note was that of Day Software by Adobe in July 2010 for $243m. In sharp contrast, the marketing automation sector has been a hotbed of M&A and IPO activity. In the first week of June, salesforce.com announced the purchase of marketing automation provider ExactTarget for $2.5bn. A few weeks prior, rival Marketo came public in a well-received IPO and currently garners a market cap of $750m. Subscribers can click here for a full report on the WCM industry and prospects for existing players.

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