Category: technology stocks

IntraLinks finally gets to use its deal room

Brenon Daly

Contact: Brenon Daly

Although IntraLinks is well-known for its ‘virtual deal rooms,’ the company itself hasn’t spent much time in them. That changed on Thursday. After being out of the market for more than a decade, IntraLinks announced a double-barreled deal, picking up two online deal-sourcing platforms, MergerID and PE-Nexus. (And yes, the company did use its own deal room to run the process.)

The addition of the two sourcing platforms makes sense as a way to increase the number of transactions that get executed in IntraLinks’ core deal room. In fact, the company had added sourcing and networking features around the end of 2011, but had only attracted a few hundred users. MergerID and PE-Nexus dramatically increase the number of potential participants, with the two firms having attracted, collectively, some 5,000 firms representing about 7,200 total users.

Further, the two platforms serve very different markets. MergerID – divested by the FT Group’s Mergermarket division – focuses on midmarket deals, primarily in Europe and Asia. Meanwhile, PE-Nexus (as its name implies) largely targets US private equity shops from its Florida headquarters. IntraLinks has indicated that it will pick up 11 employees from the two firms, and we understand that very little revenue will be added from the two subscription-based services.

More broadly, IntraLinks’ move fits with the strategy and recent performance of its business. The M&A unit, which represented 42% of total revenue in 2012, was the only one of the company’s three divisions to post growth last year. The 9% increase in its M&A-related revenue in 2012 helped bump up the overall top line at IntraLinks during what was – by design – a year of stabilization and investment.

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Tableau’s IPO ‘book’ is tech’s next bestseller

Brenon Daly

Contact: Brenon Daly

The prospectus a company files with the SEC in order to go public is nothing more than a book. And like other books, some of them languish on the shelves, collecting dust. Most attract only a little interest, with a handful of curious readers cracking open the covers. But every once in a while, a book so compelling comes along that it literally flies off the shelves. Readers can’t wait to get their hands on it.

Tableau Software, which revealed its IPO paperwork on Tuesday afternoon, is the tech industry’s next bestseller.

The data-visualization vendor had been expected to put in its prospectus about now. If anything, however, the anticipation has increased for Tableau’s offering because of the financials in its filing. The company doubled revenue in 2012 to $127.7m. Last year’s growth rate is notably higher than the mid-80% range Tableau put up in the two previous years, even though it is operating on a much larger revenue base. Its sales in 2012 were nearly 10 times higher than in 2008.

And unlike other hyper-growth tech vendors, Tableau turns a profit. Even on a GAAP basis, the company has been in the black since 2010. It has an accumulated deficit of just $1.5m. That’s pocket change compared with most other IPO wannabes, some of which have burned through tens of millions of dollars – or even more than $100m – to make it to the public market.

When Tableau does hit the market in about a month, we figure it will command a valuation of roughly $2bn. That would put it, rightfully so, on the same shelf as the bestselling IPOs from 2012: Workday, Splunk, Palo Alto Networks and ServiceNow. On average, those companies trade at about 20x trailing sales.

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Rally Software prices itself out of ‘purgatory’

Brenon Daly

Contact: Brenon Daly

It appears that Wall Street is ready to play small ball in the IPO market. Rally Software Development has set the range for its upcoming offering, which will land it squarely in the realm of small-cap stocks. The agile software development shop put its expected pricing at $11-13. Assuming Rally does come to market at that level, it will debut at a valuation of less than $300m.

Typically, companies that garner valuations in the low hundreds of millions of dollars on the market get overlooked by most institutional investors. Without big-money buyers on Wall Street, small-cap companies often trade at a discount to their larger brethren. (Some executives of smaller companies, frustrated by the valuation disparity, jokingly describe their place on Wall Street as ‘purgatory.’)

However, it doesn’t appear that Rally will necessarily be starting life at a discount. The company generated some $57m of revenue in the year that ended in January, meaning it will likely be trading at about 5-6x trailing sales and maybe 4x this year’s sales. (Rally has increased sales roughly 39% in each of the past two years. Assuming that rate ticks down slightly this year, the company could still put up about $75m of sales.)

Clearly, Rally – along with its five underwriters, led by Deutsche Bank Securities and Piper Jaffray – has done a good job telling its story to investors. And it certainly doesn’t hurt that both the broader equity markets are at all-time highs and the tech IPO market has been rewarding new issues. Both of the two previous tech IPOs (Marin Software and Model N) priced above their expected ranges and have traded up in the aftermarket.

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Cashing in on CDW

Contact: Tejas Venkatesh, Ben Kolada

Although CDW was taken private at the height of the prerecession bubble, when valuations were on the rise, its private equity (PE) owners, led by Madison Dearborn Partners and including Providence Equity Partners, may still profit handsomely from their investment. Based on our assumptions, the PE pair could record a profit of nearly $4bn on their investment. CDW filed its IPO paperwork last week.

Madison Dearborn announced that it was taking CDW off the Nasdaq in May 2007, at a valuation of about 1x trailing sales. At that time, the company was debt-free and generated $7bn in revenue in the preceding 12 months.

At the time of the take-private, CDW indicated that it expected $4.6bn of debt to be outstanding after the $7.3bn deal. Assuming all of that debt was used to finance the deal would mean that Madison Dearborn and Providence Equity would have invested just $2.7bn in equity.

If CDW reenters the public arena at the same valuation it was taken off (1x sales), then Madison Dearborn and Providence Equity’s investment will more than double. If CDW goes public at an enterprise value of $10.1bn (1x sales), backing out its $3.7bn of net debt would mean that the PE shops’ equity would have grown from $2.7bn at the time of the take-private to $6.4bn today.

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Checkpoint’s deeply discounted divestiture

Brenon Daly

Contact: Brenon Daly

In one of the more financially lopsided divestitures we’ve seen in some time, Checkpoint Systems says it will be pocketing just $5.4m for its North American CheckView business, which is being picked up by buyout shop Platinum Equity. The electronic security unit generated roughly $77m of revenue in 2012, although it did run slightly in the red.

Following a review of its businesses last year, Checkpoint set aside CheckView as a discontinued operation and broke out some of the division’s financials. (We confirmed that Platinum will be acquiring the whole CheckView unit.) At the time of the sale, CheckView employed some 225 people.

Checkpoint’s divestiture comes as the latest bit of portfolio pruning by tech companies so far this year. Similar moves include Oracle shedding the Lustre business it obtained with its acquisition of Sun Microsystems to Xyratex in mid-February and Microsoft, which had already written down much of its aQuantive acquisition, flipping the Atlas Advertiser Suite to Facebook a month ago.

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

The gains — and declines — in the tech IPO market

Brenon Daly

Contact: Brenon Daly

After a four-month drought, the enterprise tech IPO market saw its first new debutants warmly welcomed onto Wall Street this week. Both Model N and Marin Software priced above their expected ranges and traded higher in the aftermarket. Collectively, the two offerings created almost $1bn in market value.

While the strong debuts by Model N and Marin Software may help draw other companies – and their underwriters – to the public market, the IPO market is still running behind where it was at this time last year. In the first three months of 2012, we saw five enterprise tech vendors go public, including ExactTarget, Demandware and last year’s unexpected top-performing offering, Guidewire Software. Altogether, the class of early 2012 is now valued at about $5.5bn on the public markets.

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

Springtime stirrings in tech IPO market

Brenon Daly

Contact: Brenon Daly

With US equity markets hitting all-time highs and volatility sinking to post-recession lows, Wall Street appears ready to embrace new issues. Even the fitful offering of smart grid vendor Silver Spring Networks, which had been collecting dust as the company’s revenue declined over the past year, found buyers earlier this week. However, few observers would put Silver Spring forward as a ‘tech’ IPO, much less an offering that should necessarily be emulated.

But we won’t have to wait long for a bellwether for the sector. Both Model N and Marin Software are expected to price their IPOs next week, a pair of offerings that could create a cool $1bn in market value. And coming behind those debutants are a host of companies hoping to hit the market this summer, including Violin Memory, SilkRoad Technology and Tableau Software. (Of the trio, data-visualization provider Tableau looks to be the next ‘hot’ enterprise IPO, and will almost assuredly command a double-digit valuation when it begins trading.)

The rumored offerings by all three of those enterprise tech vendors have come through a so-called ‘confidential filing,’ a recent regulatory change by the SEC that allows companies to put in their IPO paperwork – and work through the inevitable revisions – without disclosing the filing until they are ready to hit their roadshow. Most companies are opting to file on the quiet – but not all of them. Somewhat confusingly, for instance, Marketo publicly announced that it had privately filed. And earlier this week, agile development shop Rally Software Development put in its paperwork for all the world to see.

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

Silver Spring (finally) makes it to Wall Street

Contact: Tejas Venkatesh

A year and a half after first filing its IPO papers, Silver Spring Networks has finally debuted on the public markets. The smart grid network company sold 4.75 million shares at $17 each, raising $81m and creating $750m in market value. The stock then promptly surged about 30% in its first hour of trading today.

The amount raised is only half the amount Silver Spring originally planned to raise when it filed its S-1 in the summer of 2011. It also pales in comparison to the money the company had already raised in the private markets. In its 11-year history, Silver Spring previously raised $330m in equity and debt capital from Foundation Capital, Kleiner Perkins Caufield & Byers and other firms.

Despite the first-day pop in trading, Silver Spring has attracted some bearish sentiment. For starters, the company, which has a high degree of customer concentration, reported that revenue actually declined 17%, year over year, to $197m in 2012.

Nonetheless, the offering valued Silver Spring at 3.8x trailing sales. That appears to be a fairly rich valuation, at least compared with recent acquisitions and even current trading multiples in the sector. In May 2011, Toshiba acquired energy management systems provider Landis+Gyr for $2.3bn, or 1.4x sales. Energy control networking platform vendor Echelon currently garners a market valuation of less than 1x sales. However, when we compare the three vendors, Silver Spring is the only pure-play smart grid network company.

Silver Spring’s valuation is also a recognition of the business opportunity in front of it. The company’s business rationale is straightforward: energy is an expensive and essential resource, for which demand is rising and supply is constrained. Silver Spring offers an IP-based network infrastructure that connects devices on a power grid, providing timely information to utilities and helping reduce energy costs and waste. Its hardware and software also allows utilities to bill consumers in an automated fashion, eliminating the need for manual reading of meters. Goldman Sachs and Credit Suisse, which also advised Landis+Gyr on its sale, led the offering, with Silver Spring trading under the ticker ‘SSNI’ on the NYSE.

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

Cadence bulks up IP business with $380m Tensilica buy

Contact: Thejeswi Venkatesh, John Abbott

Cadence Design Systems on Monday reached for configurable silicon intellectual property vendor Tensilica for $380m in cash. Not only is this Cadence’s biggest acquisition, it is also paying the highest valuation in its M&A history. Tensilica generated $44m in sales in 2012, valuing the company at 8x trailing sales. The purchase bulks up Cadence’s IP business, pushing it over the $100m mark. Previous IP acquisitions include Denali Software in May 2010 (for verification IP) and Cosmic Circuits just last month (for silicon IP).

Its exit did not come easy for Tensilica. The IP core vendor raised roughly $100m in six funding rounds in its 16-year history. Investors include Foundation Capital, Altera and Cisco, among others. Tensilica makes money through license fees for its IP and also via royalties on unit volumes its customers sell. The company’s client list includes marquee tech names such as Intel, Broadcom, Cisco and Samsung. Qatalyst Partners advised Tensilica on the transaction.

Tensilica’s data-plane-processing units are programmable and allow customers to develop customized system on a chips (SoCs) and differentiate themselves in the mobile and wireless network infrastructure markets. These IP cores are complementary to standard processor architectures from companies like ARM Ltd, a fact highlighted by a quote in the PR from the microprocessor provider itself. Potential overlap between ARM and the EDA giants as they move further into the silicon IP and SoC business is a sensitive point.

The deal comes just four months after rival MIPS Technologies sold itself to Imagination Technologies and Allied Security Trust for a combined $450m. CEVA, which unsuccessfully bid for that business against Imagination, is now the last remaining stand-alone company. Its revenue for 2012 dipped to $54m, down 11% compared with $60m in 2011. Cadence’s larger competitor Synopsys has been buying into silicon IP steadily since the acquisition of Virage Logic for $315m in June 2010. Virage had previously acquired ARC International for its configurable IP, a more direct rival to ARM. Both Cadence and Synopsys are looking to take advantage of faster growth rates beyond their mature EDA tools businesses.

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JDSU buys Arieso for location-specific telecom network intelligence

Contact: Tejas Venkatesh, Ben Kolada

JDS Uniphase has acquired UK-based Arieso, a provider of location-based telecom network intelligence software. The transaction is meant to help carriers alleviate bandwidth constraints caused by limited spectrum capacity.

Arieso provides location intelligence software that produces maps showing network traffic down to building-level resolution. This information, based on actual measurements from consumer devices, allows mobile operators to deploy small cells strategically or even offload traffic to Wi-Fi networks.

JDSU is paying $85m in cash for Arieso, which put up $27m in bookings last year. Assuming actual revenue is slightly below bookings, the deal probably values Arieso in the upper end of 3-5x revenue. That valuation is about one-quarter of what we estimate Intucell received in its sale to Cisco, but that valuation was certainly an outlier.

Perhaps a closer comparable would be Optimi’s sale to Ericsson in 2010 for $99m. We’ve previously heard the Optimi deal was valued at roughly 2-3x sales. Arieso raised $14.5m in funding from Add Partners Ltd and Qualcomm, among others. The company has marquee customers including AT&T, Telefónica and Vodafone. Arma Partners advised Arieso on its sale.

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