Category: technology stocks

NetApp drops a bit of cash on CacheIQ

Brenon Daly

Contact: Brenon Daly, Simon Robinson

Tucked into NetApp’s fiscal second-quarter release Wednesday afternoon was the company’s first acquisition in about a year and a half. The storage giant reached for NAS acceleration startup CacheIQ, bringing more technology for its flash fight with rival EMC. The deal is being positioned as an IP play, and although NetApp doesn’t plan on developing CacheIQ’s existing product line, the technology looks set to add crucial performance capabilities to its emerging scale-out clustered storage strategy.

The fact that CacheIQ’s technology is key to NetApp is reflected in the price that we understand the company paid for the Austin, Texas-based startup. The valuation didn’t quite make it to the gravity-defying level that EMC paid for pre-revenue, all-flash array startup XtremIO back in May, but CacheIQ did more than OK on its exit. (Subscribers to The 451 M&A KnowledgeBase can click here to see our official estimate on terms of the transaction.)

A restart that emerged from stealth only about a year ago, CacheIQ had drawn in just $10m in funding from angels. The company actually traces its roots back to another startup, StorSpeed, which first emerged in 2009 with a very similar value proposition around NAS acceleration, but then buckled as investors lost interest. CacheIQ acquired StorSpeed’s IP and a small number of its developers in July 2010. According to our understanding, Cache IQ had just started selling its products, with revenue still at only about $1m. We’ll have a full report on the deal in our next Daily 451.

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

Priceline gets KAYAK for a good price

Ben Kolada

Contact: Ben Kolada, Brenon Daly

For a price comparison website, KAYAK.com appears to be settling for a relatively low price in its purchase by online travel giant Priceline.com. At first glance, Priceline’s offer for KAYAK appears respectable. The $40-per-share bid is the highest KAYAK’s shares have seen in its short life on the Nasdaq. Using an enterprise value of $1.65bn, KAYAK is being valued at 5.8 times trailing revenue and about 5.6x full-year 2012 revenue.

But as we look closer, we see that KAYAK is being valued only slightly higher than Priceline’s current trading valuation, and that’s excluding any takeout premium for the acquirer. With an enterprise value of roughly $28bn, Priceline trades at about 5.5x trailing revenue and 5.3x 2012 revenue. (Priceline shares, which have tacked on roughly 15% so far this year, were unchanged on the news of its largest-ever acquisition.)

Valuation – especially for the acquirer – is a key concern in this transaction because unlike most tech deals, Priceline is covering almost three-quarters of the cost of its purchase with equity. Under terms, Priceline will hand over $1.3bn in stock and $500m in cash for KAYAK. As mentioned, paying with paper is relatively rare these days, because cash is king when it comes to M&A. In fact, according to The 451 M&A KnowledgeBase, Priceline’s acquisition of KAYAK is one of only 12 deals done by US public acquirers so far this year where stock has accounted for more than half the total consideration.

Despite faster growth, KAYAK’s valuation is only slightly above Priceline’s

Company EV EV/2012 projected revenue 2012/2011 revenue growth
Priceline $28.03bn* 5.3 21%
KAYAK $1.65bn 5.6 31%

Source: The 451 M&A KnowledgeBase, 451 Research estimates. *Calculated as of 11/8/12.

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

The campaigning continues, at least on Wall Street

Brenon Daly

Contact: Brenon Daly

The election may be over, but some campaigns are continuing. At least that’s what’s happening on Wall Street, where two would-be buyers are trying to sway the electorate (directors and shareholders) in order to close acquisitions of two Nasdaq-listed tech companies. Whether or not either of these unsolicited efforts actually comes to a vote, well, that remains to be seen.

In the newest case, j2 Global earlier this week put a bear hug on Carbonite, pitching a (nonbinding, preliminary) offer of $10.50 for each share of the consumer-focused backup vendor. (J2 already owns almost 10% of Carbonite, having picked up the stake for about $20m in the open market in recent weeks.) Carbonite, which has traded mostly lower since its August 2011 IPO, rejected j2’s bid.

Meanwhile, Actian is not giving up on its two-month-old effort to land Pervasive Software. Earlier this week, it added 50 cents per share, or about $10m, to its original bid for the data-integration vendor. The $9-per-share offer from the buyout-backed company that used to be known as Ingres values Pervasive at its highest level in more than a decade.

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

Talking M&A, once again

Brenon Daly

Contact: Brenon Daly

It’s hard to get a read on the M&A market right now. For instance, many companies are struggling to put up any growth – and yet are still getting rewarded with above-market valuations. Meanwhile, overall M&A spending is currently running about one-quarter below last year, but we just recorded the single largest tech deal in a half-decade.

To get a view on the M&A market – from the actual participants in it – please join us Thursday, November 8 at 1:00pm EST for our semiannual webinar on the M&A Leaders’ Survey, a joint survey from 451 Research and law firm Morrison & Forrester. (451 Research subscribers can also see our full report on the recent survey.) To register for this free webinar, click here.

In the webinar, we’ll cover what’s happening in the market right now as well as the outlook for the next half-year, both in terms of M&A activity and valuations. We’ll also have specifics on where deals are getting hung up. In addition to the broad market overview from 451 Research, Morrison & Foerster will offer insight on key findings about term sheets, escrow and other fundamental parts of M&A agreements. Please join us for the webinar on Thursday at 1:00pm EST by registering here.

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

GFI may face IPO headwinds

Brenon Daly

Contact: Brenon Daly

Undeterred by a chilly reception to similar firms, GFI Software has put in its paperwork for a $100m IPO. The company, which is based in Luxembourg, sells a variety of infrastructure and collaboration services to the SMB market. GFI was originally founded in 1992 as an e-fax software vendor, and has steadily built out its portfolio through internal expansion and a handful of acquisitions.

However, it is still primarily known for its security offerings, with that product line accounting for about 60% of total revenue in 2010. Since then, the company has been rapidly expanding into other areas, most notably collaboration. In its prospectus, GFI said collaboration now generates almost one-third of all revenue.

Still, Wall Street may well put GFI into the bucket of ‘European IT security vendor.’ If that’s the case, it could hurt the company’s debut, because investors haven’t backed IPOs from other infosec firms from across the Atlantic. AVG Technologies, for instance, has never traded above its offer price since coming public in February. And AVAST Software had to pull its IPO paperwork in July.

Additionally, there are some concerns with GFI itself. The company’s growth rate has cooled so far this year, with revenue ticking up just 27% in the first half of 2012 after increasing 46% in 2011. (The falloff in billings growth has been even sharper.) Further, GFI is not profitable and has not been generating as much cash as it had been.

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

Tech M&A spending doubles in October

Brenon Daly

Contact: Brenon Daly

Boosted by the largest technology deal in more than a half-decade, spending on tech M&A around the globe more than doubled in October from the previous year.

The whopper deal, of course, was Softbank’s $20bn purchase of a majority stake in Sprint Nextel, which accounted for nearly two-thirds of last month’s spending. Without that one transaction – the largest tech deal since Alltel went private in a $27.5bn buyout in mid-2007 – the total spending would have come in basically where it has in October in each of the past three years.

Overall, acquirers spent $32.6bn on 285 transactions in October, compared with $14.5bn spent on 342 deals in October 2011. The 125% spike in aggregate deal value in October marks only the third month in 2012 where spending has increased, year over year.

In addition to the blockbuster telco transaction, noteworthy deals last month included ASML Holding’s $2.5bn purchase of Cymer, a transaction that featured a 70% premium; the $1.6bn take-private of Ancestry.com; and Riverbed Technology’s $1bn acquisition of OPNET Technologies, a gamble on portfolio expansion that Wall Street didn’t particularly like.

Even with those big-ticket deals in October, however, M&A spending in the first 10 months of 2012 is running one-quarter lower than where it was in 2011.

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

RedPrairie makes a land grab, spends $2bn on SCM rival JDA Software

Brenon Daly

Contact: Brenon Daly

Not only did RedPrairie not make it public, but now the supply chain management vendor is erasing a fairly big name off the market. The private equity-backed consolidator, which filed for an IPO three years ago, said Thursday that it is paying roughly $2bn for rival JDA Software. It would be about the third-largest software deal of 2012, according to The 451 M&A KnowledgeBase.

RedPrairie had the misfortune to put in its IPO paperwork right as the world’s economy slid into the worst recession in a generation. That showed up in the company’s financials, with overall revenue declining 12% in the first three quarters of 2009, according to its SEC filing. On the other side, RedPrairie put up roughly $15m in ‘adjusted’ EBITDA each quarter, so it wasn’t too surprising when it got flipped from buyout shop Francisco Partners to fellow buyout shop New Mountain Capital rather than go public.

Since New Mountain picked up RedPrairie two-and-a-half years ago, it has rolled up a half-dozen other companies. JDA Software is, by far, the largest acquisition. Under terms, New Mountain will hand over $45 for each share of JDA Software. That’s the highest-ever price for the company and about five times the split-adjusted price it first sold shares to the public, back in 1996.

The transaction, which is expected to close before the end of the year, values JDA Software at nearly 3 times sales and roughly 16x trailing EBITDA. (At least according to JDA Software’s calculation of $122m in EBITDA, on an unadjusted basis for Q3 2011-Q3 2012.) For comparison, we understand that RedPrairie traded at closer to 2x sales and about 9x EBITDA back in February 2010, although terms weren’t officially released.

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

Riverbed looks to extend to application management with OPNET acquisition

Brenon Daly1 Comment

Contact: Brenon Daly

Looking to extend its network performance optimization business into application management, Riverbed Technology said Monday, October 29, that it will spend $1bn in cash and stock for OPNET. Riverbed will roll OPNET into its nascent Cascade business line, offering deeper application monitoring and end-user experience to its existing network-focused product portfolio.

While there certainly is a logical extension between the network and the applications that run on it, the transaction brings a number of risks to Riverbed. For starters, it is by far Riverbed’s largest acquisition – almost ten times bigger than its second-largest deal. While Riverbed said the OPNET transaction is expected to close this year, it indicated the financial ‘synergies’ probably wouldn’t show up until 2014.

Further, the formerly debt-free company will take on debt and issue new equity to cover its purchase of OPNET. According to terms, Riverbed will pay $43 for each OPNET share, composed of $36.55 in cash, and the rest in Riverbed equity. That means Riverbed will have to issue seven million shares and take out a $500m term loan.

Beyond the financial impact, there are also questions about the business it is acquiring. Riverbed is focused on the application performance management (APM) portion of OPNET, but that business only accounts for about half of the company’s overall sales. The other half is network performance management (NPM), which is what Riverbed already sells.

Riverbed highlighted the fact that OPNET’s APM business is growing at more than 30%. However, because of the sluggish growth in the company’s legacy NPM business, OPNET’s overall revenue is only increasing in the mid-teens. (In the first two quarters of its current fiscal year, OPNET has bumped up the top line only 11%.) That’s an acute concern for Riverbed, which will only grow in the mid-teens in 2012 – half the level it expanded at in 2011.

‘Dual track’ an empty threat as IPO window closes

Brenon Daly

Contact: Brenon Daly

If not shut, the tech IPO window is too narrow for most would-be debutants to get through right now. It’s been two full weeks since Workday soared onto the market in one of the hottest offerings in recent times. But since that IPO, there’s been nothing but crickets in the tech sector.

Perhaps that shouldn’t be surprising, given that the equity market has ticked lower while volatility has ticked higher over the past two weeks. In any case, the IPO drought certainly isn’t surprising to any of the respondents of the semiannual M&A Leaders’ Survey, which we sent out earlier this month and wrote up earlier this week.

Of the dozen reasons why deals aren’t getting done, survey respondents ranked ‘competition from IPOs’ dead last. (Not only that, the response also showed the single biggest decline since our earlier survey in April.) Fully seven out of 10 respondents said the IPO market isn’t really having an impact on M&A activity, up from 51% who said that back in April.

Competitive impact of IPO market on M&A

Survey period Strong Neutral Weak
April 2012 24% 25% 49%
October 2012 12% 18% 70%

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

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

Will TeleNav be a buyer or a seller?

Ben Kolada

Contact: Ben Kolada

TeleNav’s revenue is expected to decline significantly in 2013, but the company is making attempts to expand into growth markets, as evidenced by its recent acquisition of local mobile advertising startup ThinkNear. With its shares continuously battered on the public market, could TeleNav spurn public scrutiny and seek a private equity buyer? Its mountain of cash could enable the company to go in either direction – buyer or seller.

TeleNav stumbled onto the Nasdaq in May 2010. After repeatedly issuing guidance below analysts’ estimates, the company’s shares are currently trading nearly one-third below their IPO price. Revenue for its fiscal 2013, which ends in June, is expected to decline 13% to $190m. The company’s revenue primarily comes from providing GPS navigation software to wireless carriers, though it also serves the automotive vertical and enterprises, and recently began targeting the local advertising market.

Although TeleNav is rarely an acquirer, its $22.5m ThinkNear pickup could be the beginning of a buying spree meant to propel growth in its local mobile advertising business. The mobile advertising market is in hyper-growth mode, and TeleNav has an audience of 34 million users accessing its services that it hasn’t yet materially targeted for advertising purposes.

Meanwhile, the debt-free company is sitting on nearly $200m of cash and short-term investments that it could use to fuel its M&A machine and inorganically grow this business segment, which represents less than 10% of its fiscal 2012 revenue.

Conversely, though, TeleNav’s treasury could attract buyout bidders. Its market value is currently about $260m, but its cash and short-term investments reduce its enterprise value to just about $60m. A lofty 30% per-share premium would give the company an enterprise value of less than half projected fiscal 2013 revenue. However, we expect that if the company is taken private, its newfound parent would continue to invest in its mobile advertising business because of that market’s growth potential. TeleNav reports fiscal 2013 first-quarter results after the bell tomorrow.

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