Category: technology stocks

Qualys eyes an IPO

Brenon Daly1 Comment

Contact: Brenon Daly

Late last year and even into this year, there were rumblings that Qualys may get taken out before it could get out. Rumors were flying that the vulnerability management vendor had attracted M&A interest from two well-heeled shoppers that have both done large information security acquisitions: Check Point Software and Dell.

A pairing with either of the rumored suitors would have made a great deal of sense, adding threat scanning and analysis capabilities to the would-be buyer’s existing portfolio. Check Point needs vulnerability management capabilities as a way to add more information about what happens inside the firewall. Meanwhile, Dell, through its SecureWorks acquisition, not only integrates Qualys’ reports, but also offers Qualys as a managed service.

According to our understanding, interest from both would-be suitors diminished as Qualys held out for a price approaching $1bn. (That would represent a valuation of about 10 times this year’s bookings for Qualys.) So Qualys is now tracking to an IPO, where it is probably likely to debut at a $600-700m valuation but could well grow into a billion-dollar valuation on its own. (See our full report on the Qualys IPO.)

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

Spurred by JOBS Act, iWatt puts in its paperwork

Contact: Thejeswi Venkatesh

Taking advantage of the newly enacted JOBS Act, iWatt recently filed its IPO paperwork in an effort to raise $75m. The power management semiconductor designer has been around since 2000 and has raised more than $50m in venture funding over five rounds. For its next funding, it’s looking to be among the first wave of companies to make it to the public market under the new federal legislation, which lowers the disclosure requirements, among other changes, for IPO candidates. Barclays Capital and Deutsche Bank Securities are co-leading the IPO.

The company has grown at a healthy clip recently, with revenue nearly tripling from $18m in fiscal 2009 to $57m in the 12 months ending March 2012. However, that may not be enough to ensure a warm reception from investors. The concern? Competition. More than 80% of iWatt’s revenue comes from the highly fragmented AC/DC conversion market, where it competes with bigger players such as Power Integrations and Fairchild Semiconductor. The company, which counts Philips and Apple among its customers, says its product has better form factors and lower cost compared to its rivals.

Its chief rival, Power Integrations, currently garners an enterprise value-to-revenue multiple of just over three in the public markets. Slapping the same multiple on iWatt means that the company will debut with a meager market cap of $175m. (Of course, iWatt may well enjoy a premium over its main rival because of its growth rate. Power Integrations flatlined last year and is projected to only grow about 10% this year, while the much-smaller iWatt has bumped up sales more than 60% in each of the past two years.) On the other hand, Wall Street – particularly the big institutional investors – hasn’t shown much demand for any equities lately, much less a new offering from a tiny, unproven startup in a hotly competitive market.

Renewed rumors have BMC reaching for AirWatch in MDM play

Brenon Daly

Contact: Brenon Daly

The on-again, off-again rumors surrounding BMC and AirWatch are on again. Early word of the talks surfaced about a half-year ago, but we understand that a number of events may have interrupted discussions between the IT management giant and the mobile device management (MDM) startup.

For starters, BMC printed two transactions in January, including the purchase of Numara Software, a $300m acquisition that was the company’s largest deal in nearly four years. Additionally, Numara brought some rudimentary MDM capabilities from a tiny startup that it had acquired a couple of months before selling to BMC. Our understanding is that BMC is looking for more robust MDM technology than what it picked up with Numara, as well as its own purchase of tiny Aeroprise.

On the other side, valuations of MDM vendors have been skyrocketing. It was recently reported, for instance, that rival MobileIron raised its latest round at a valuation in the half-billion-dollar neighborhood. There was no word on what AirWatch would be going for.

However, any high-multiple acquisition could pose challenges – at least in terms of perception – for BMC, which has been under fire on Wall Street recently for its relatively paltry valuation. Last week, hedge fund Elliott Management bashed what it called ‘poor management execution’ at BMC, and renewed its call for a sale of the company. Elliott noted that BMC stock has underperformed both its rivals and the broader market recently.

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

Google takes another swing at Office

Brenon Daly

Contact: Brenon Daly

Google has reached for the popular maker of mobile software suite Quickoffice, the fourth notable acquisition the company has made in its effort to take on Microsoft Office. Each of the purchases has given Google specific pieces of technology that have helped draw users away from Office, which stands as the dominant desktop productivity suite and has generated tens of billions of dollars of sales for Microsoft over the past two decades.

Looking to siphon off some of those incredibly high-margin sales, Google has scooped up startups offering online word processing (Upstartle with its Writely program), spreadsheet programs (iRows), as well as collaboration and sharing of Office documents (DocVerse). As it built on those deals over the past six years, Google has always pitched its offering – first in Google Docs, then in Google Apps and now in Google Drive – as a Web-based alternative to the largely desktop-based Office franchise. (Of course, Microsoft also offers a hosted, or cloud, version of its popular suite in the form of Office 365.)

With Quickoffice, Google is shoring up the technology around a productivity suite for the post-PC era, as Quickoffice is installed on more than 400 million devices. In addition to the broad user base, Google also gets some much-needed technology that should help iron out some of the wrinkles that can pop up when converting Microsoft Office documents to Google formats. Additionally, Quickoffice can run Office apps on the iPad, while Microsoft has yet to release an official version of Office for the rival tablet. (It is rumored to be working on one, however.)

While terms of the acquisition weren’t released, we would note that Quickoffice has a rather compelling business model, with an extremely low cost of customer acquisition. It gets paid by licensing its software suite to device makers and then generates business on top of that by upselling customers to subscription offerings. (We understand that ‘aftermarket’ business was running at about $5m a quarter recently.) Not bad for a business that was founded in 1996 inside the recently disappeared Palm Inc. For the record, Google has now acquired pieces of two wireless pioneers: Palm and Motorola Mobility.

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

Salesforce.com puts $1bn to work to buy parts of its Marketing Cloud

Brenon Daly

Contact: Brenon Daly

Salesforce.com has now shelled out a cool billion dollars to acquire the makings of its Marketing Cloud. The marketing offering, which is built on the back of the company’s two largest acquisitions, represents the most significant push to grow beyond the on-demand sales force automation product that it’s primarily known for. At stake: billions of dollars of market value for the richly valued SaaS kingpin.

On Monday, the company announced that it will pay $689m in cash and stock for Buddy Media, a social media marketing platform that counts 8 of the 10 largest advertisers as clients. The business, which should officially become part of salesforce.com by the end of October, will be combined with Radian6, a social media monitoring startup that salesforce.com picked up a little over a year ago for $326m.

Both transactions valued the target companies at a double-digit price-to-trailing-sales multiple. Buddy Media is being valued at an eye-popping 27 times 2011 revenue, roughly twice the valuation that Radian6 garnered. For its part, salesforce.com trades a little above 7x trailing sales.

Salesforce.com has shown through its M&A program – where it has acquired core parts of not only its Marketing Cloud, but also its Service Cloud offering – that the company is acutely aware that it can’t sustain an above-market valuation on a single product. With its platform being built on ever-pricier acquisitions, salesforce.com is gambling that it can use M&A to pull off a portfolio expansion that precious few software vendors have done successfully. To date, it’s been hard to bet against the company: Since its shares came public almost eight years ago, salesforce.com is up more than 700%, compared to a flatline S&P 500 over that same period.

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

A not-so-merry month of May for M&A

Brenon Daly

Contact: Brenon Daly

Spending on tech deals in the just-completed month of May fell by half from the same month in the previous year, amid renewed concerns about US growth and European economic stability. Overall, the total value for all tech acquisitions announced around the globe last month hit just $15.3bn, with the number of transactions dipping 10% (year over year) to 302. The aggregate value of deals stands as the lowest total for the month of May in eight years.

The weakness in May means that spending has now dropped in four of the five months in 2012, compared with 2011. That has dragged down the total value of transactions announced so far this year to just $64bn – one-third below the first five months of 2011.

The growing economic worries also weighed on Wall Street, with the major stock indexes dropping about 7% last month. Specific to tech companies, bellwethers such as Cisco Systems, Dell and NetApp all reported weaker-than-expected quarterly results in May. Of those three tech giants – all of which lost about one-fifth of their market value in May – only Cisco announced an acquisition last month.

CGI growing globally with acquisition of Logica

Ben Kolada

Contact: Ben Kolada

Consolidation in the IT services segment took a leap forward today, as Canadian systems integrator CGI Group announced that it would pay £1.7bn (about $2.7bn), or £2bn when including net debt, for British counterpart Logica. We’ve already written about IT services deals happening on a smaller scale in the US, but this transaction takes the cake as being the largest cross-border deal since NTT bought Dimension Data in July 2010 for $3.2bn.

Specific to CGI, this is its largest acquisition on record, and comes almost two years to the day after it announced its previous high-priced transaction, the nearly billion-dollar purchase of systems integrator Stanley Inc. The Stanley buy itself was a geographic play, meant to expand CGI’s footprint in the US. The rationale for today’s reach for Logica is no different.

CGI is buying Logica as a pure geographic move meant to diversify its revenue globally. Currently, CGI’s revenue is split about half and half between the US and Canada, with only 6% coming from Europe. Logica, on the other hand, generates almost no revenue from North American operations. Its revenue mix is heavily slanted toward Western Europe, with its top three markets by country being France, the UK and Sweden. If and when the deal closes, the combined company will have a presence in 43 countries. The transaction will also more than double CGI’s revenue, creating the sixth-largest IT services provider worldwide.

Diversification is so key to CGI’s strategy that it is tapping nearly every possible outlet to pay for its larger rival. CGI will issue 46.7 million subscription receipts (exchangeable into new Class A shares), secure a £1.25bn term loan from CIBC, National Bank of Canada and Toronto-Dominion Bank, and draw down £405m from its existing credit facility.

Although dilutive, CGI’s shareholders so far approve of the acquisition. Shares of the Canadian company, which trade on the NYSE, were up 12% at midday. Although the deal would seem to undervalue Logica by one metric, its shareholders have reason enough to approve of the acquisition. While the transaction values Logica at about half times sales (the two most recent billion-dollar-plus IT services acquisitions, both announced last year, were done for 1x sales), CGI’s offer represents a heady 60% premium to Logica’s closing share price on May 30, and a 50% premium over the average closing share price for the prior month. Bank of America Merrill Lynch advised Logica on the deal.

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

Making sense of the M&A market

Brenon Daly

Contact: Brenon Daly

It’s been tough to read the markets in 2012. On Wall Street, although all of the major US equity market indexes are still in the green for the year, uncertainty has been ticking steadily upward, with the CBOE VIX recently touching a high for the year.

Those crosscurrents are also being seen in the M&A market: In the recent M&A Leaders’ Survey from 451 Research and Morrison & Foerster, more than half of the respondents said they are busier with activity such as networking, meetings and negotiations around deals so far this year than in either of the two previous years. (That was twice as high as the percentage that said general activity has tailed off.) Yet in terms of actual M&A spending, the total for January-May 2012 is lower than the same period in both 2011 and 2010.

To help decipher the market and – more importantly – get a sense of where it’s heading for the rest of 2012, please join Brenon Daly, 451 Research’s head of M&A, and Robert Townsend, co-chair of Morrison & Foerster’s Global M&A Practice, for an exclusive webinar on Thursday, May 31 at 1:00pm EST/10:00am PST. Register now for this free webinar.

Bazaarvoice buys a down-market voice with PowerReviews

Brenon Daly

Contact: Brenon Daly

Having just minted its public market shares three months ago, Bazaarvoice put them to use in a big way on Thursday. The company, which provides an online customer review platform, announced plans to acquire smaller rival PowerReviews in a deal valued at $152m – $121m of the consideration coming in stock, with the remaining $31m in cash. Terms give PowerReviews control of roughly 10% of Bazaarvoice’s total equity.

The transaction represents a significant bet on being able to move down-market, expanding Bazaarvoice’s voice-of-customer platform to SMBs. To get a sense of the discrepancy in size, consider this: PowerReviews has more customers (1,100) than Bazaarvoice (737), but only slightly more than one-tenth the revenue.

As with any platform, the value increases as the number of users increases. So the play for scale is a relatively sound motivation for Bazaarvoice’s first-ever acquisition. But we would have to add that the scale isn’t necessarily coming cheap. Bazaarvoice is valuing each dollar that PowerReviews generated last year at about $13, while the public market values each dollar that Bazaarvoice generated at roughly $9. Obviously there are differences in the size of the businesses – not to mention the takeout premium – but it’s worth noting the valuation gap nonetheless.

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

SAP’s platinum payouts

Brenon Daly

-Contact: Brenon Daly

Even though SAP has historically been a reluctant buyer, it hasn’t hesitated to throw around big numbers as it has picked up its M&A pace over the past half-decade. The German giant announced its latest top-dollar acquisition on Tuesday, paying roughly $4.5bn for Ariba (on an equity value basis). The supplier relationship management vendor hasn’t traded that high in more than a decade, as the first Internet bubble was deflating.

The purchase of Ariba continues SAP’s practice of paying high prices to clear deals. For instance, its offer for SuccessFactors last December matched the highest level that company’s shares had ever hit, and likewise, when it erased Sybase in 2010, it did so at a high-water mark for that stock. (Incidentally, the collective bill for those three transactions, which have been done in just two years, is more than $14bn.)

In terms of valuation, Ariba basically splits the difference between SAP’s two recent big software deals. Based on SAP’s valuation of Ariba at $4.3bn, the German giant is paying 8.6 times the roughly $500m that Ariba generated over the trailing 12 months (TTM). In comparison, it valued SuccessFactors at 11.3x TTM revenue and Sybase at 4.8x TTM revenue. (The relative valuation of each of those vendors primarily reflects their growth rates: Sybase was growing at a single-digit percentage, while Ariba is clipping along at nearly 40% and SuccessFactors was topping 50%.)

Select SAP transactions

Date announced Target Deal value Enterprise value/TTM sales multiple Bid
May 22, 2012 Ariba $4.5bn 8.6x $45 per share, highest price in 11 years
December 3, 2011 SuccessFactors $3.6bn 11.7x $40 per share, matching highest-ever price
May 12, 2010 Sybase $6.1bn 4.8x $65 per share, highest-ever price

Source: The 451 M&A KnowledgeBase

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