Category: technology stocks

Action in API management

Contact: Carl Lehmann, Tejas Venkatesh

The API management market has been bustling, with three acquisitions and one notable funding round announced just in the past week. APIs and their development, management and integration have become important amid the Internet of Things environment, in which a multitude of connected points communicate via the Web.

The recent acquisitions of Mashery by Intel and Layer 7 Technologies by CA Technologies signal the opening round for an API land grab by all IT vendors that rely on integration to add value to their respective offerings. Players likely to seek similar deals include Software AG, TIBCO, Information Builders, Informatica, Fujitsu, Talend and OpenText. Oracle and SAP could also benefit from having API management capabilities as part of their integration technology portfolios.

In the future, successful API management providers will possess tools and techniques that simplify and automate how APIs are designed, coded and documented, and will also control distribution and use by a community of developers. In addition, these companies will allow existing APIs to be customized, thereby extending their value without having to design new APIs.

The week in API management

Date Company Event
April 24 3scale Networks Raises $4.2m in funding from Javelin Venture Partners and Costanoa Venture Capital
April 23 ProgrammableWeb Acquired by MuleSoft
April 22 Layer 7 Technologies Acquired by CA Technologies
April 17 Mashery Acquired by Intel

Source: Source: The 451 M&A KnowledgeBase, 451 Research

To get social, salesforce.com buys and builds

Brenon Daly

Contact: Brenon Daly

Built on the back of its two largest acquisitions, salesforce.com on Tuesday unveiled Social.com. The offering, which is part of the salesforce.com Marketing Cloud, connects the company’s core CRM product with advertising on social networks. Doubling down on social ad campaign development and optimization is the latest move by the SaaS giant to step into faster-growing markets.

At the heart of the company’s Marketing Cloud business are the ad placement and publishing technology that salesforce.com picked up with Buddy Media last June and the social listening products from Radian6 that it acquired two years ago. Collectively, those purchases cost salesforce.com a cool $1bn.

While salesforce.com has announced a handful of acquisitions since Buddy Media, those deals have been small technology purchases, notably around collaboration. However, recently a number of signs have pointed to (perhaps) larger M&A aspirations. Last month, salesforce.com sold $1bn in debt, which could be used to go shopping. Additionally, the company is currently hiring for at least two positions in its corporate development office.

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

Big Blue gets deeper into devops with UrbanCode buy

Contact: Jay Lyman, Tejas Venkatesh

IBM has announced the acquisition of release automation vendor UrbanCode. The deal helps Big Blue gain new ‘devops’ capability and audience as mainstream enterprise verticals embrace the trend of faster, more automated software releases.

Terms of the transaction were not disclosed, but we understand that UrbanCode had about 55 employees. The startup did not raise any institutional funding in its 17-year history. While IBM certainly has similar capabilities in its Tivoli systems management software, many organizations are using automation and orchestration suites on top of or integrated with their systems management. UrbanCode gives Big Blue a better story for the last mile of software releases.

The deal follows similar moves by IBM’s competitors. Just last night, during the opening session of CA World, CA Technologies announced that it had picked up UrbanCode rival Nolio. Similarly, BMC grew its devops capabilities through the acquisitions of StreamStep in October 2011 and VaraLogix in August 2012.

The rapid-fire pace of M&A indicates the growing importance of the devops trend, which represents a departure from traditional, organizational silos for development and IT operations. Devops continues to grow beyond technology and Web 2.0-type customers to more mainstream enterprise verticals such as financial services, insurance, retail, healthcare, media and entertainment, all of which are represented among UrbanCode’s clients.

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

From partner to parent

Contact: Tejas Venkatesh

Intel has quickly moved from Mashery’s partner to its parent, buying Mashery just six months after entering into a reseller relationship with the API management startup. The deal could help further propel growth of Intel’s datacenter group, one of the company’s growth centers.

Contrasting total revenue in the first quarter, which declined 4%, Intel’s datacenter group saw its revenue grow 7% compared with the year-ago period. Its datacenter business makes semiconductors and software to be used for servers and storage inside datacenters.

APIs expose information and data to customers and partners where and when it is needed via applications, websites and any number of on-premises or mobile devices. The proliferation of SaaS offerings and the need to link them with on-premises software has caused an explosion in the number and type of APIs. Thus, managing them while ensuring security and scalability is becoming extremely important. The API management market is relatively new, and Mashery was one of the first out of the blocks. With Mashery’s assets, Intel now has API management technology, which is required for both cloud and mobile device integration.

Intel already sells a combined product, Intel Expressway API Manager (EAM), which combines Mashery’s API management technology with its own security capabilities for API execution. Intel’s EAM can securely expose and scale APIs by enabling the controls needed for compliance and data protection.

This isn’t Intel’s first acquisition in this sector, but is likely its largest. Though financial details were not disclosed, we understand that Mashery generated about $10m in revenue last year, and was set to double this year. We haven’t yet pinned down the price paid, but rumors so far peg the deal value at north of $100m. Intel had previously picked up API security capabilities with the small acquisitions of Sarvega in August 2005 and Conformative Systems in February 2006, yielding software designed to take better advantage of its multicore processor architecture.

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FireEye eyes an IPO

Brenon Daly

Contact: Brenon Daly

Many tech IPO underwriters are spending this week trying to catch the eye of FireEye. The advanced anti-malware vendor is currently baking off for an offering later this year that will likely create the next publicly traded information security company valued at more than $1bn.

FireEye has been tracking to the public market for some time, making moves earlier this year – such as adding several executive heavyweights and raising a ‘top-off’ $50m round of funding – that indicated an IPO may be close at hand. Further, it has the financial profile that will undoubtedly find buyers on Wall Street. According to our understanding, FireEye generated some $130m in bookings in 2012, about double its bookings from the previous year.

The company, which has more than 1,000 customers, has made huge strides since it emerged from stealth in mid-2006. It has pivoted from its initial focus on the network access control market to botnets to a broader advanced anti-malware platform. Along the way it has raised some $95m in backing from investors including DAG Ventures, Goldman Sachs, Jafco Ventures, Juniper Networks, Norwest Venture Partners and Sequoia Capital, which incubated FireEye.

However fitful FireEye’s evolution has been, the company has drawn fans in the information security market. According to a late-2012 survey by TheInfoPro, a service of 451 Research, FireEye was ranked as the second ‘most exciting’ infosec company. It trailed only Palo Alto Networks, which went public last summer and currently commands a $3.5bn market capitalization.

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

Will Sprint side with strategy?

Ben Kolada

Contact: Ben Kolada

DISH Network’s $25.5bn offer for Sprint Nextel represents a 13% premium to SoftBank’s October bid, but its lack of mobile experience may ultimately cause the company to lose the deal. Stock plays a major component of both transactions (32% for DISH versus 30% for SoftBank), meaning the future value of either deal will be dependent on which company – SoftBank or DISH – will be able to better execute in the mobile market. Arguably, the answer is SoftBank.

Without a doubt, SoftBank understands the mobile market, and therefore would understand Sprint’s business more than DISH. Mobile is an entirely new arena for DISH. SoftBank, on the other hand, generated some $22bn in mobile revenue alone last year. To put that in perspective, that’s nearly double the total revenue DISH generated over the same period.

Meanwhile, we’d also point out that DISH’s investors already have doubts about the deal. Following the announcement, the company’s shares fell more than 5% throughout the day, though they did recoup some of the losses by midday.

Although Sprint hasn’t yet provided an official response to the DISH bid, we expect that it will staunchly defend itself against DISH, much like it is defending Clearwire against a DISH takeover.

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

A big market for small IPOs

Brenon Daly

Contact: Brenon Daly

The IPO market is getting bigger by going smaller. Investors have shown they are ready to step in and buy shares of unprofitable companies that are still only generating revenue in the tens of millions of dollars. That has drawn a number of companies onto the IPO path that might have been termed ‘sub-scale’ in the recent past.

Consider the offerings – both planned and actual – from Rally Software Development, Marketo and ChannelAdvisor. All three companies finished 2012 with less than $60m in sales. Further, all three companies continue to run in the red – deeply in the red. (For instance, Marketo lost $34m in 2012 on sales of $58m. Rally doesn’t even turn an operating profit and ChannelAdvisor still runs at a negative ‘adjusted’ EBITDA.)

Not that the diminutive size or red ink hurt Rally on its Friday debut. The agile software development shop not only bumped up the size and price of its offering, but then shares, well, ‘rallied’ in the aftermarket. The stock changed hands at about $18 in mid-session trading, after pricing at $14 each.

When Rally set its range last week, we noted that the small-cap company wouldn’t necessarily be trading at the discount that typically gets assigned to that class of stocks. On a back-of-the-envelope (not fully diluted) basis, Rally has secured a valuation of roughly 6x trailing sales and 4x forward sales. With a healthy multiple like that, it’s small wonder that other small companies are lining up to hit Wall Street.

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

Going mobile

Ben Kolada

Contact: Ben Kolada

In the past few years, mobile marketing M&A and IPO activity has been dominated by firms that pushed out ad impressions to consumers. The purchases of Quattro Wireless and AdMob more than three years ago were the most notable examples, with the two deals combining to create more than $1bn of M&A value. Turning to the other exit, the IPO last year of Millennial Media briefly created nearly $2bn of market value for that company. With these transactions, mobile ad publishing became an accepted form of mobile marketing.

But mobile advertising isn’t only about pushing ads out to consumers. In fact, this model may not even be the most effective. (That may be underscored by the performance of Millennial Media on the NYSE. Shares have lost about three-quarters of their value since the debut, and are now valued at just $500m.)

At the ad:tech conference, which wrapped up Wednesday in San Francisco, we noticed the emergence of a handful of startups attempting new ways to enable businesses to advertise themselves on smaller, mobile screens.

Rather than pushing out ad impressions, DudaMobile, for example, helps businesses ‘mobilize’ their own websites. Its software requires no coding knowledge. The company apparently has proven itself enough to recently expand its series B financing from $6m to $10.3m. In a similar vein, we’ve heard that bootstrapped Bizness Apps, which provides a template for small businesses to easily build custom-made apps, is experiencing considerable growth.

To our subscribers: What do you think is the next big trend in mobile advertising? Which companies or mobile advertising markets do you think are most valuable? Let us know @451TechMnA or anonymously at kb@the451group.com.

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

Ripe time for spoiled fruit

Ben Kolada

Contact: Ben Kolada

While we’re in a season of slim pickings for tech M&A, one market that’s ripening is the sale of spoiled fruit. Major tech companies such as Microsoft and VMware are now selling flagging businesses at an unusually quick clip.

There are a variety of reasons why companies would sell assets during every part of the economic cycle. But right now, as growth slows across much of the established tech markets, companies are increasingly focusing on the relatively few areas that are recording sales increases. (To continue our gardening metaphor, it’s similar to a person cutting off a dying bulb so that the rest of a plant can flourish.)

Microsoft, for example, announced its second asset sale in as many months, selling its Mediaroom IPTV distribution platform to Ericsson. (Last month, Microsoft sold its Atlas Advertiser Suite assets to Facebook.) Mediaroom was part of Microsoft’s Entertainment and Devices Division (EDD), which includes Xbox, Skype and Windows Phone assets. EDD revenue rose in FY 2012 primarily due to Skype and Windows Phone revenue, but has declined 8% in the two quarters since as Xbox sales sank.

And in the case of VMware, the sizzling growth of its core virtualization software in previous years allowed it to expand into new markets. But as the company’s top-line expansion dipped to 22% in 2012 from 32% in 2011, it announced a refocus of its business. VMware sold its SlideRocket assets in March, and may consider selling other noncore businesses.

Select asset sales in 2013

Date announced Target – asset Acquirer Deal value
April 8 Microsoft – Mediaroom assets Ericsson Not disclosed
April 3 Google – 3LM BoxTone Not disclosed
April 1 IBM – ShowCase software division Help/Systems Not disclosed
March 14 TeleNav – enterprise mobile business FleetCor Technologies $10m
March 5 VMware – SlideRocket business ClearSlide Not disclosed
February 25 HP – webOS assets LG Electronics Not disclosed
February 19 Oracle – Lustre assets Xyratex Not disclosed
February 5 United Business Media – data services businesses Electra Partners $251m
February 4 News Corp – IGN Entertainment j2 Global/Ziff Davis $50m
January 28 Sierra Wireless – AirCard business NETGEAR $138m
January 24 WebTech Wireless – NextBus business Cubic $20.9m

Source: The 451 M&A KnowledgeBase

 

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Low and slow is the tempo for tech deal flow

Brenon Daly

Contact: Brenon Daly

Even with a few blockbuster deals, we’re starting off 2013 at a low level in the tech M&A market. Not only did the number of first-quarter transactions sink to its lowest quarterly total in more than three years, but the deals that did get done went off at a lower median valuation. (See our full report on Q1 M&A activity.)

The downtick was particularly pronounced at the top end of the market, which stands out all the more because of the record levels for the US equity markets. For the 50 largest transactions announced so far in 2013, as listed in The 451 M&A KnowledgeBase, we calculated the median price-to-trailing-sales valuation at just 1.9x. That’s a full turn lower than the full-year 2012 ratio and just half the level we saw in the prerecession year of 2007.

A number of low-value deals have been putting pressure on the overall multiple. For example, the proposed buyout of Dell is valuing the PC maker at just 0.4x trailing sales. Even a combination of a higher bid, which is possible, and shrinking sales at Dell, which appears inevitable, won’t change the multiple much.

Additionally, a steady stream of low-value divestitures has also contributed. United Business Media, Checkpoint Systems, Sierra Wireless, Harmonic and TeleNav are among the tech firms that have sold off parts of their business in divestitures valued at less than 1x trailing sales so far in 2013.

Valuations of significant* tech transactions

Year Equity value-to-sales ratio
Q1 2013 1.9x
2012 2.9x
2011 3.2x
2010 3.4x
2009 2.6x
2008 2.4x
2007 3.8x

Source: The 451 M&A KnowledgeBase *Median multiple in 50 largest acquisitions, by equity value, in each of the periods.