Category: technology stocks

Persistence may not pay off for Vodafone

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

After three deadline extensions and interest from competitor Tata Communications, Vodafone Group announced on Monday its latest attempt to acquire Cable & Wireless Worldwide (CWW). Vodafone is offering £1bn, or approximately $1.7bn, to buy CWW. However, its offer has already hit a roadblock. CWW’s largest shareholder, Orbis, which owns 19% of the company, has rejected the bid on the grounds that it undervalues CWW. Vodafone initially expressed interest in acquiring CWW on February 13.

Orbis’ argument does hold some ground. Although Vodafone’s offer represents a 92% per-share premium to when the deal was originally announced, it still values CWW below some precedent transactions. Vodafone is valuing CWW at half times revenue and just 2.7x EBITDA for the 12 months ending September 30, 2011. In comparison, US cable company Knology recently sold to WideOpenWest for 2.8x sales and 8x EBITDA, while SureWest Communications was valued at 2.2x revenue and 6.8x EBITDA in its sale to Consolidated Communications in February. For more business-focused comparisons, PAETEC was valued at 1.3x sales and 8.4x EBITDA in its sale to Windstream Communications in August 2011. Level 3 Communications paid 1.1x revenue and 7.3x EBITDA for Global Crossing in April 2011.

Given the strategic significance of this deal to Vodafone, we expect that the company could appease Orbis with a higher bid. We’ve previously written that Vodafone, which is light on its fixed-line capacity in the UK, would likely use the acquisition to enable more bandwidth availability for its mobile users. The UK wireless operator will be able to take advantage of CWW’s vast infrastructure to backhaul its own cellular services, rather than rely on third-party operators. Throughout the wireless industry, cellular operators are increasingly feeling their networks squeezed as users consume more and more high-bandwidth data. Further, with £7.7bn ($12bn) of cash and marketable securities in its treasury, Vodafone could certainly afford a higher offer.

Splunk soars in rip-roaring IPO

Brenon Daly

Contact: Brenon Daly

In a rip-roaring debut, Splunk soared onto the public market Thursday in an IPO that created more than $3bn of market value for the data analytics vendor. That’s a heady, double-digit valuation for a company that’s likely to generate only about $200m in sales this year. (Just as we predicted in last week’s special IPO report, the company has captured the attention of Wall Street. Subscribers can click here to read what else we see coming in the IPO pipeline in the next few months, and how the offerings are likely to fare.)

But Splunk’s rich pricing simply reflects the tremendous opportunity that the company has in front of it. If the name ‘Splunk’ conjures up images of exploring a cave, or ‘spelunking,’ we might suggest that a more accurate way to view the company is one ready to run – and run quickly – into a wide-open greenfield.

The company, which has already garnered 3,700 customers across a broad number of industries, makes the pitch that any company with large amounts of data is a potential customer. Splunk’s core offering is a search product that helps users make sense of the ever-increasing volumes of data, much of it machine-generated.

After it got going in 2003, Splunk had most of its use cases around IT operations and security. However, the company has expanded its product to also cover application performance management, online customer experience monitoring, marketing and beyond.

Originally, Splunk’s seven underwriters set a range of $8-10 for each share, but then ended up pricing at double that level at $17 each. In the aftermarket, the stock nearly doubled again, changing hands in the low $30s in mid-Thursday trading on the Nasdaq. (It trades under the ticker SPLK.)

A final interesting little market anecdote about the offering: With roughly 100 million shares outstanding, Splunk is starting its life as a public company at almost exactly the same amount ($3.3bn) that Hyperion Solutions finished its life as a public company. Splunk’s current CEO Godfrey Sullivan was previously CEO at Hyperion, which sold to Oracle five years ago.

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

Marketo buys into social marketing with Crowd Factory

Brenon Daly1 Comment

Contact: Brenon Daly

Announcing its first-ever acquisition, Marketo said Wednesday that it is picking up Crowd Factory. The deal adds Crowd Factory’s social campaign management technology to Marketo’s marketing automation platform, expanding the distribution of marketing pitches to social channels such as Facebook pages and Twitter.

Although terms weren’t disclosed, we imagine that this was a small technology tuck-in. As we understand it, Crowd Factory was planning on raising a new round of financing of about $10m, but instead took the offer from Marketo. (Crowd Factory had already raised money from Storm Ventures, Hummer Winblad Venture Partners and Peninsula Ventures.) Our understanding is that Crowd Factory generated a little more than $1m in 2011 (with just two sales people) and was planning on tripling revenue this year.

For Marketo, this purchase rounds out its platform, adding cross-channel capabilities as well as bringing analytics to measure returns on the sharing of social campaigns, such as sweepstakes pages. The technology additions should help the company compete in the red-hot marketing automation space, which has seen significant moves by rivals recently. ExactTarget went public last month, creating some $1.6bn in market capitalization, while Eloqua has been on file since last summer. We could certainly envision Marketo following with an IPO of its own, but probably not until it tops $50m in revenue next year.

Columnar database provider SAND Technology puts itself up for sale

Contact: Matt Aslett, Thejeswi Venkatesh, Ben Kolada

Following years of flat revenue and attempts at realigning its business, Canadian columnar database dinosaur SAND Technology has announced that it is exploring strategic alternatives, including an outright sale. The announcement comes barely six months after SAND sold its SAP Information Lifecycle Management product line to Informatica for $8m.

That divestiture was part of the company’s attempt to refocus its core business on its massively parallel columnar database technology, which it acquired back in 1993 with its Nucleus International acquisition(SAND itself was founded nearly a decade earlier, in 1982). However, SAND has long struggled to grow revenue and has been consistently running deeply in the red. Revenue for the Pink Sheets-listed company has hovered at about $7m for the past five years and it suffered a net loss of $2m in its latest fiscal year.

SAND’s prospects for a sale look dim, however. In the past two years, most of the big database vendors have either acquired or developed their own massively parallel columnar technology. In the off chance that SAND does find an interested buyer, it shouldn’t hope for a high valuation. Most precedent M&A transactions in the data-warehousing space were done for rich multiples, including Teradata’s takeout of Aster Data in March 2011 for an estimated 13.6 times sales, HP’s pickup of Vertica in February 2011 for 11x sales and EMC’s reach for Greenplum in July 2010 for an estimated 14x sales. But SAND’s sale would probably be best compared to Kickfire’s sale to Teradata in August 2010, which we suspect was done for scraps.

IBM reaches into the app layer for Varicent

Brenon Daly

Contact: Brenon Daly

IBM has mostly stayed away from acquiring application vendors, reaching instead for companies that typically either bolster its sprawling Global Services division or infrastructure software business, particularly in the management layer. Big Blue stepped a bit out of its regular acquisition area on Friday with the purchase of sales performance management (SPM) vendor Varicent Software. IBM is adding Varicent, which helps companies manage quotas and incentives for sales agents, into its Smarter Analytics division.

Although IBM didn’t disclose terms of the deal, we estimate that nine-year-old Varicent was generating about $35m in sales, give or take a few dollars. That would make it less than half the size of its publicly traded SPM rival, Callidus Software, which increased revenue 18% in 2011 to $84m. Callidus currently trades at slightly north of 3 times trailing sales. Slapping that multiple on Varicent gives a price in the neighborhood of $100m, which is probably a reasonable starting point for valuation.

Of course, Callidus’ current valuation doesn’t reflect any acquisition premium that an acquirer would have to pay. Also, we would probably make the case that Callidus has a more valuable revenue stream, given that more than half of its revenue comes from subscriptions. (Last year, Callidus reported that SaaS revenue hit $45m of the $84m in total sales. More importantly, the subscription business grew twice as fast as the company’s overall revenue.) Varicent was more of a traditional software provider, with license and maintenance plus a bit of consulting. Finally, one other SPM vendor to keep an eye on is Xactly. We understand that company, which has raised roughly $70m in venture backing, may be looking to go public in 2013.

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

Tech IPO market looks to next week’s triple-header

Brenon Daly

Contact: Brenon Daly

Although the US equity market has been a bit choppy over the past week or so, shares are still generally inching higher. Sure, it hasn’t necessarily been the uninterrupted ascent of the Nasdaq that we saw in the first quarter, which recorded the strongest start to a year in two decades. But the sentiment – despite renewed concerns about the economies of Europe as well as the quality of some Q1 results, which will begin trickling in over the coming weeks – has been bullish. That goes double for the newest entrants into the equity markets, IPOs.

We have already highlighted the warm reception that Wall Street has given the companies that have come to market so far this year. We expect that to continue next week, which is shaping up to the busiest week in tech underwriting in a long time. Splunk, Infoblox and Proofpoint are all scheduled to price their offerings next week. (The trio set preliminary ranges earlier this week. A fourth tech company, Envivio, also set its range this week but will likely be heading out later in the month.) Of the IPOs on the calendar, Splunk is all but certain to capture a disproportionate amount of attention as it steps onto Wall Street.

Splunk, which plans to trade under the ticker SPLK on the Nasdaq, will almost certainly be valued at more than $1bn on its debut. (This week, it set the range for its 13.5 million shares at $8-10 each, although we suspect that the actual price will be north of that range.) Splunk finished its most recent fiscal year (ending January 31) with $121m in sales, an 83% increase over the previous year. The growth rate for the second half of the year actually accelerated at the company, so it will hit the market with a lot of momentum. (And with four bulge-bracket bookrunners, Splunk’s performance will be trumpeted loudly across Wall Street.)

We’ll have an in-depth look at Splunk and next week’s other two IPO candidates in tonight’s Daily 451. Additionally, the report will look ahead to what’s coming in the pipeline after this trio hits the market. If anything, the second round of IPOs this year will be even hotter than this current round. Look for the special IPO report tonight.

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

Citrix consolidates collaboration

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

In its third collaboration deal in the past 18 months, Citrix Systems said Wednesday that it will acquire small Copenhagen-based startup Podio. The target provides team collaboration SaaS for SMBs, apparently mostly through a ‘freemium’ model. Its product is used for project management, social information sharing, sales lead management and employee recruitment management. It also provides related Apple iPhone and Google Android applications. But Citrix isn’t the only company consolidating in the collaboration market – its Podio buy comes at a time of record interest in this sector.

While there are many collaboration vendors in the market, Podio has a different approach – it enables users to create their own applications to carry out specific tasks. This allows teams to tweak the platform to cater to their specific needs. Citrix will integrate Podio into its GoTo cloud services suite, making it easy for existing customers to adopt the platform. Podio already integrates with Dropbox, Google Docs and Box.

Citrix isn’t disclosing terms of the acquisition, but we suspect that the three-year-old firm probably generated less than $5m in revenue. Podio claims tens of thousands of customers in 170 different countries, but the majority of them are likely only using its free product. If our revenue assumption is correct, then this deal should be considered more of ‘tech and talent’ play than anything else. Citrix traditionally pays above-average valuations, but we doubt that it paid more for Podio than the $54.2m it forked over in its last collaboration acquisition – ShareFile. The 27-employee firm had raised a total of $4.6m from Sunstone Capital, CEO Tommy Ahlers and private investors Thomas Madsen-Mygdal and Ulrik Jensen.

Beyond Citrix’s recent consolidation, the collaboration market is seeing increasing interest overall. The 451 M&A KnowledgeBase shows 79 collaboration acquisitions in 2011 – nearly double the volume in 2010 and an all-time record. Throughout the collaboration sector, some of the most notable transactions since the beginning of 2011 include Yammer buying oneDrum (announced just today), salesforce.com reaching for Manymoon and Dimdim, Citrix competitor VMware acquiring Socialcast and SlideRocket, and Jive Software picking up OffiSync (click on the links for disclosed and estimated valuations). Jive itself made its own splash in social collaboration when it went public in December. The company hit the Nasdaq at $850m and has since seen its market cap balloon to nearly $1.6bn, or 14 times projected 2012 revenue.

Citrix’s collaboration acquisitions

Date announced Target Collaboration sector Deal value
April 11, 2012 Podio Team collaboration Not disclosed
October 13, 2011 Novel Labs (aka ShareFile) File sharing & team collaboration $54.2m
December 17, 2010 Netviewer AG Web conferencing $115m

Source: 451 Research M&A KnowledgeBase; Click on the links for disclosed and estimated valuations

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

Palo Alto puts in its paperwork

Brenon Daly

Contact: Brenon Daly, Thejeswi Venkatesh

Long rumored to be an IPO candidate, Palo Alto Networks has finally filed its paperwork for a $175m offering. The application-level firewall security vendor has put up astonishing growth in recent quarters, but unlike other early-stage companies, Palo Alto has been running in the black recently. But the real story – and one that will certainly draw interest on Wall Street – is Palo Alto’s astonishing growth. From essentially a standing start in 2007, the company has racked up more than 6,650 customers.

On the top line, Palo Alto has grown tenfold since 2009, recording sales of $185m over the past four quarters. In its most recent quarter, which ended January 31, the company more than doubled sales to $57m. While Palo Alto is obviously just getting started, it’s nonetheless worth considering how the startup is growing relative to the firewall industry’s stalwart, Check Point Software. That vendor, which crossed over the $1bn mark in 2010, expanded revenue about 13% last year.

Off a revenue base that’s counted in the billions of dollars, Check Point’s growth rate is actually fairly impressive. To put that another way, Check Point generated an additional $149m in revenue in 2011, which is less than Palo Alto generated but a level that’s still respectable. (And we should note that Check Point increases sales at a level of profitability that most other tech companies can only envy: For every dollar it books as sales, more than 40 cents of that drops straight to the bottom line.)

Wall Street certainly is bullish on Check Point, having driven the company’s shares to their highest level in 11 years. It currently garners a market cap of $12.8bn, a full 10 times trailing sales. We would expect Palo Alto to at least trade at that multiple when it comes to market later this summer. That could put its valuation above $2bn. Not a bad bit of value creation for a company that raised just $65m in venture backing. Greylock Partners and Sequoia Partners are Palo Alto’s biggest shareholders, with each firm owning 22% of the startup.

Dell picks up the pace

Brenon Daly

Contact: Brenon Daly

As a relative latecomer to the M&A market, Dell is making up for lost time. The company on Thursday announced its third acquisition of the week, reaching for Vancouver-based Make Technologies. Both Make and Clerity Solutions, which Dell picked up on Tuesday, produce migration software and will be slotted into the services division. Dell’s other purchase of the week was thin-client technology vendor Wyse Technology.

The recent frenetic M&A activity by the Austin, Texas-based company represents a dramatic reversal from its historic practice. For the first 30 years of its life, Dell rarely acquired anything. It only really started its M&A program in mid-2007 – a point by which many rivals already had consolidated broad patches of the tech landscape. While Dell sat out of the market, IBM, for instance, had already purchased more than 60 companies, buying its way into storage, document management, security and other areas. In the same period, Oracle gobbled up some 40 companies.

But it’s a different story so far this year. With five deals notched already in 2012, Dell has more transactions than IBM and Oracle combined. The contrast is even sharper with Dell’s nemesis Hewlett-Packard, which has yet to print a deal in 2012. In fact, just looking at the acquisitions that Dell has inked recently, many of them appear designed to bolster offerings where Dell goes up against its reeling rival, such as networking, security and storage.

Dell deals

Year Number of transactions
2012, YTD 5
2011 3
2010 7
2009 4
2008 1
2007 6
2006 2
2005 0

Source: The 451 M&A KnowledgeBase

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

HomeAway finds its way back into the market

Brenon Daly

Contact: Brenon Daly

As a private company, HomeAway was a steady buyer. Founded in 2005, the vacation rental website had notched 11 transactions through last year. When it went public last June, the company raised $216m. With the new cash – not to mention shares that, at least initially, were richly valued – HomeAway had plenty of resources to continue its shopping. But that’s not the way it played out for the consolidator.

The company only stepped back into the M&A market earlier this week, reaching for Top Rural, a Madrid-based site that offers vacation rentals in small towns and the countryside in Europe. (The purchase comes roughly 11 months since HomeAway’s previous acquisition, the second-longest M&A dry spell at the company.) What’s more, it’s a rather small step back into the market. HomeAway, which held some $184m in cash and short-term investments at the end of December, is handing over just $19m for Top Rural.

With Top Rural, HomeAway returns to an acquisition strategy it has frequently used: geographic expansion. The Austin, Texas-based company has reached for similar rental sites in Australia, Brazil, France and the UK. (Currently, HomeAway has listings in some 168 countries.) In its other international shopping trips, HomeAway has paid between $2m and $45m for the sites.