Category: unsolicited deals

Is Sucuri for sale?

Ben Kolada

Contact: Ben Kolada

Just a month after its newfound partner VirusTotal was scooped up by Google, antimalware detection and remediation startup Sucuri may be next on the auction block. Word has it that the two-year-old company is attracting takeover attention. That shouldn’t come as too much of a surprise, given the growth potential of the website antimalware monitoring market and the strategic importance companies are placing these days on their online presences.

Sucuri provides a website malware detection product and associated remediation service meant to prevent customers’ websites from being blacklisted by search engines, namely Google. The company’s software scans websites for malware infection and alerts the customer. Sucuri then provides a cleanup service to remove the malware. As businesses continue to transition from brick-and-mortar to e-commerce models, such services will become increasingly important to growing sales, especially during the upcoming holiday season. Given its short lifespan, we suspect that the company is currently generating less than $10m in revenue.

No word yet on which companies may be looking to acquire Sucuri, but the list likely includes mass-market hosting vendors and large security firms. Like its competitors, Sucuri’s go-to-market strategy so far has been partnering with hosting companies, though it also sells directly to customers. The company lists Web host ClickHOST as a partner, as well as a half-dozen WordPress hosting and site design vendors. As for possible security suitors, the most likely acquirers that immediately come to mind are Proofpoint, Kaspersky Lab, Websense, Symantec, AVG Technologies or AVAST Software.

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

After failed sale, T-Mobile returns as buyer

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

After failing to sell its T-Mobile USA subsidiary last year to AT&T for $39bn, Deutsche Telekom has pivoted from trying to exit the T-Mobile business to pushing it even deeper into the US market. The company announced on Wednesday that T-Mobile USA has reached a merger agreement with low-cost competitor MetroPCS in an intricately structured deal.

MetroPCS’s shareholders will receive $1.5bn in cash and 26% of the combined company. While that looks straightforward at first glance, the deal is structured as a reverse acquisition.

MetroPCS will pay its shareholders $1.5bn in cash (it ended the second quarter with $2.3bn in its treasury) and halve the number of shares outstanding by performing a 1-2 reverse stock split. MetroPCS will then acquire all of T-Mobile’s stock in exchange for a 74% stake in the combined company, leaving MetroPCS’s shareholders with a 26% holding. Though MetroPCS is technically the surviving entity, it will assume the T-Mobile name and will continue to trade publicly in the US.

The combined company is projecting 2012 pro forma combined revenue of just shy of $25bn. For comparison, the US’s third-largest cellular provider, Sprint, is expected to put up about $35bn in sales this year.

A bit of irony here is that analysts expected that the previously planned AT&T-T-Mobile merger would reduce competition and increase prices. However, in announcing their merger, T-Mobile and MetroPCS repeatedly claimed that the combined company would be a ‘value-focused’ provider – a pretty way of saying that it would be a low-cost carrier.

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

Accounting for M&A

Ben Kolada

Contact: Ben Kolada

As accounting software giant Intuit buys beyond its traditional roots, it is leaving the door open for competition from a new breed of accounting startups. A handful of accounting companies have popped up over the past few years in the US and abroad to target consumers and SMBs, some with freemium models. These Davids are walking in Goliath’s giant footsteps, and are announcing a number of their own expansion plays.

Over roughly the past year, accounting startups Wave Accounting (based in Toronto), Xero (based in New Zealand) and FreeAgent (based in the UK) have each announced at least one acquisition. For the most part, these companies’ purchases have been done to expand beyond their core accounting focus. Wave, for example, recently announced the pickup of small stock analysis startup Vuru.

Xero has been particularly acquisitive, announcing four acquisitions since its founding in 2006. The company, publicly traded on the New Zealand Stock Exchange, has been doing deals to both complement its products and expand geographically. Its purchase of PayCycle in July 2011 helped the company enter the nearby Australian market. Through organic and inorganic growth, Xero has grown its revenue to about $16m in its 2012 fiscal year, which ended in March.

Beyond M&A, some companies have developed new products as an offshoot to their businesses. Ruby on Rails developer LessEverything, based in Fort Lauderdale, Florida, is now offering LessAccounting. And Toronto-based invoice vendor 2ndSite now offers FreshBooks.

Meanwhile, Outright Inc was recently acquired by Go Daddy Group. Though, if you ask LessEverything, it could have very well been its LessAccounting product. The company purported on its blog that Go Daddy approached it two years ago with interest in buying its LessAccounting product.

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

Actian persuading Pervasive to go private

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

After a tough 15 years in the public spotlight, Pervasive Software may have finally found a graceful exit. The data integration vendor, whose revenue has flattened since the turn of the century, today announced that it has received an unsolicited $154m buyout offer from Actian.

Pervasive would be wise to accept the offer, as the Austin, Texas-based company had done little to excite investors during its public lifetime. The company’s annual revenue has been roughly in the $40-50m range ever since 2000, and its shares have appreciated less than the broad, tech-heavy Nasdaq.

The lackluster performance factored into today’s offer. Actian’s bid values Pervasive at 2.3 times trailing sales. The best comparable deal is IBM’s Cast Iron Systems pickup in May 2010, which we estimate was valued at 6.7x revenue. And Boomi took an estimated 20x valuation in its sale to Dell in November 2011, though that target was much smaller. In fact, had it not been for Pervasive’s strong cash balance, the deal value would have been much less palatable. Pervasive held $42m in cash and no debt as of June. That treasury reduces the acquisition’s total cost to Actian by more than one-third.

Pressuring Pervasive’s shareholders to act on the offer, Actian is taking an unusually persuasive tone in its acquisition announcement, blatantly pointing out that its offer is the highest closing price reached by Pervasive’s common shares in the past 10 years. The deal carries a 30% premium to Pervasive’s closing share price on Friday, August 10.

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

Some unlikely M&A agitation against BMC

Brenon Daly

Contact: Brenon Daly

Having already agitated for the sale of at least five tech businesses over the past few years, Elliott Associates has set its sights on a significantly bigger target: BMC. The hedge fund said on Monday that it has acquired 5% of the systems management giant and will push for a sale of the company.

For its part, BMC retained Morgan Stanley to advise it on its defense against the unwanted approach and, more importantly, adopted a poison pill that makes any unsolicited deal highly unlikely to succeed. Nonetheless, the idea that BMC could get sold goosed the company’s shares, which added 9% in mid-Monday trading.

From our view, however, it’s highly unlikely that 32-year-old BMC, which has been public since August 1988, will get snapped up. The first – and most obvious – hurdle is the poison pill, or ‘shareholder rights plan’ in the company’s description. But even beyond that, there aren’t very many companies or (probably more relevantly) buyout shops that could write the $10bn or so check that it would take to clear BMC.

For a strategic buyer, we’ve always thought Cisco Systems would be the logical home for BMC. The two companies have partnered around the datacenter, with Cisco providing the gear and BMC serving up the management layer. However, the returns on that partnership haven’t been overwhelming, and Cisco has taken to acquiring small management vendors on its own over the past year and a half. (To bolster its management portfolio, Cisco has reached for startups such as LineSider Technologies, Pari Networks and newScale.) But Cisco, which reported weak financial results last week while also forecasting a ‘cautious’ IT spending environment, is hardly in a place to do its largest-ever acquisition.

That would leave private equity firms as the most likely acquirer of BMC. Those shops have been the buyers of the other companies that Elliott has put in play, including Epicor Software, Blue Coat Systems, Novell and others. However, the collective value of all those Elliott-inspired deals would likely be only half the size of a BMC purchase, which would be a whopper for any single firm. (That goes double because of the reserved credit markets right now.)

The last point underscores one of the other large problems with a BMC takeout: even though its shares have lost nearly 20% of their value over the past year, the company isn’t particularly cheap. It garners a $7.2bn market capitalization, so throwing a 35% premium on that takes the (hypothetical) acquisition price to about $10bn. That works out to about 4.6 times 2011 revenue (10x maintenance revenue) and more than 12x the $800m in cash flow from operations that BMC generated last year. Even with the $1.4bn cash ‘rebate’ from BMC’s treasury, any potential buyer is still looking at paying a double-digit cash-flow multiple for a single-digit grower.

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

Intuit pays up for SMB-focused Demandforce

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

Intuit on Friday announced its largest M&A move in six years, acquiring SMB-focused marketing automation startup Demandforce for $423.5m. The deal, and Demandforce’s valuation, was primarily driven by the target’s market traction. The company, founded just in 2003, has amassed a customer roster of more than 35,000 SMBs. The transaction also demonstrates the accounting and tax giant’s desire to further penetrate this market with additional products and services – this is its first major play in marketing automation.

The Demandforce acquisition complements Intuit’s QuickBooks software and expands its offerings for SMBs. (We’d note that Intuit already offers a marketing management and productivity application called QuickBase, though that product is for enterprises.) Demandforce provides marketing automation SaaS and helps businesses maintain an online profile and better communicate with their customers. The company has grown considerably over its short lifetime. According to Inc.com’s annual survey of the fastest-growing companies, Demandforce generated $15.3m in revenue in 2010, up from $6.4m in 2009. Continuing that growth rate would put its 2011 revenue at roughly $25-30m.

Intuit is handing over $423.5m in cash for Demandforce, making this deal Intuit’s largest since it forked over $1.35bn for transaction processor Digital Insight in 2006. Demandforce’s growth certainly factored into its valuation. Assuming that Demandforce maintained historical growth rates, Intuit’s offer would value the target at a whopping 15-20 times trailing sales. If our initial estimates are correct, that valuation is double and even triple some precedent valuations. For example, in 2010, IBM bought Unica for 4.4x sales. Unica had flatlined during its final years as a public company, with revenue remaining in the $100m ballpark for the four years before its sale. The valuation is also double Teradata’s Aprimo acquisition, also announced in 2010. Teradata paid $525m for Aprimo, or 6.3x sales.

The next ‘big data’ buying binge?

Ben Kolada

Contact: Ben Kolada

After last year’s storage and data-warehousing feeding frenzies provided outsized returns to target companies’ venture investors, a new breed of ‘big data’ vendors is renewing venture capitalists’ interests. So-called NoSQL and NewSQL database firms had already been catching investors’ attention, securing millions of additional dollars in VC financing. Eventually, we expect the fast growth that drew interest from VCs to also draw interest from corporate buyers. However, the price potential acquirers will have to pay is constantly rising.

VCs are attacking big data pains again, this time by investing in a number of promising database startups. 10gen, Couchbase and Neo Technology, for example, each secured more than $10m in financing in the third quarter. The size of these recent rounds, which were almost certainly substantial up-rounds, is due in part to the fact that some of these startups have already proven themselves and are posting triple-digit growth rates. My colleague Matt Aslett recently wrote that Basho Technologies is aiming to increase its revenue seven-fold this year. And we’ve got our thumb on the pulse of another startup that expects to nearly quintuple its annual revenue, surpassing its initial 300% growth projection.

While most of the NoSQL and NewSQL startups are still in the single-digit millions of revenue, continued growth rates will likely increase their current valuations. Further, additional venture investments needed to fuel that growth will lead to even wider gaps in valuations between potential acquirers and sellers. In our recent survey of corporate development executives, half of respondents expected the valuation gap between buyers and sellers to widen. And from our view, already sky-high valuations in hot sectors such as big data and cloud computing will almost certainly rise, regardless of what happens in the public markets. If so, potential suitors such as Oracle, Informatica or Teradata will have to reach deeper into their pockets to snare promising database properties.

Select recent NoSQL venture investments (rounded to nearest $m)

Company Latest round Total
10gen $20m $31m
Couchbase $15m $30m
DataStax $11m $14m
Neo Technology $11m $13m
Basho Technologies $7.5m $13m

Source: 451 Group research, listed by size of round

The next ‘big data’ buying binge?

-by Ben Kolada

After last year’s storage and data-warehousing feeding frenzies provided outsized returns to target companies’ venture investors, a new breed of ‘big data’ vendors is renewing venture capitalists’ interests. So-called NoSQL and NewSQL database firms had already been catching investors’ attention, securing millions of additional dollars in VC financing. Eventually, we expect the fast growth that drew interest from VCs to also draw interest from corporate buyers. However, the price potential acquirers will have to pay is constantly rising.

VCs are attacking big data pains again, this time by investing in a number of promising database startups. 10gen, Couchbase and Neo Technology, for example, each secured more than $10m in financing in the third quarter. The size of these recent rounds, which were almost certainly substantial up-rounds, is due in part to the fact that some of these startups have already proven themselves and are posting triple-digit growth rates. My colleague Matt Aslett recently wrote that Basho Technologies is aiming to increase its revenue seven-fold this year. And we’ve got our thumb on the pulse of another startup that expects to nearly quintuple its annual revenue, surpassing its initial 300% growth projection.

While most of the NoSQL and NewSQL startups are still in the single-digit millions of revenue, continued growth rates will likely increase their current valuations. Further, additional venture investments needed to fuel that growth will lead to even wider gaps in valuations between potential acquirers and sellers. In our recent survey of corporate development executives, half of respondents expected the valuation gap between buyers and sellers to widen. And from our view, already sky-high valuations in hot sectors such as big data and cloud computing will almost certainly rise, regardless of what happens in the public markets. If so, potential suitors such as Oracle, Informatica or Teradata will have to reach deeper into their pockets to snare promising database properties.

Select recent NoSQL venture investments (rounded to nearest $m)

Company

Latest round

Total

10gen

$20m

$31m

Couchbase

$15m

$30m

DataStax

$11m

$14m

Neo Technology

$11m

$13m

Basho Technologies

$7.5m

$13m

Source: 451 Group research, listed by size of round

A renaissance of PE interest in Renaissance

Brenon Daly

Contact: Brenon Daly

In 2010, PLATO Learning went private in a relatively straightforward process that took just two months from Thoma Bravo’s announcement of the leveraged buyout (LBO) of the online education vendor to the close of it. Now, privately held PLATO is drawing out – and making more expensive – the LBO of fellow online education provider Renaissance Learning. PLATO has been part of a bidding war for Renaissance that has been playing out since mid-August.

In the original offer, buyout firm Permira planned to acquire Renaissance, which has been public since 1997, in a deal valued at $440m. (Somewhat unusually, terms call for Permira to pay one price for Renaissance’s common shares that trade on the Nasdaq while paying a lower price to the cofounders of the company, who control 69% of the equity.) PLATO then topped Permira’s opening bid a week later.

Earlier this week, Permira raised its offer, as did PLATO. However, the board continues to support the Permira bid – even though it values Renaissance at $16m less than the offer from PLATO. The reason? The cofounders don’t want to sell to PLATO. Other shareholders, who represent the remaining 31% of Renaissance equity, will have a chance to vote on Permira’s offer on October 17

S1 is out of one deal, still in a second deal

Brenon Daly

Contact: Brenon Daly

We now know that S1 Corp won’t be a buyer, but whether the financial software company is a seller remains an open question. Late last week, S1 scrapped its three-month-old plans to acquire Fundtech, pocketing an $11.9m breakup fee for its trouble. (That represents a not-insignificant windfall for a company that has only earned $2.2m so far this year, on a GAAP basis.)

Instead, Fundtech will be picked up by private equity firm GTCR in a deal that appears much more straightforward than S1’s original offer. For starters, GTCR is paying in cash, while S1 was planning on a mix of cash and stock. But maybe more importantly, there’s a fair amount of uncertainty hanging over S1 itself, as the company is still fending off an unsolicited acquisition offer.

A month after launching the bid for Fundtech, S1 received an offer of its own from ACI Worldwide. The two sides have been scrapping ever since. S1 has told its shareholders not to back ACI’s proposed bid, warning that there are ‘serious, unaddressed concerns’ such as antitrust challenges and ACI’s plan to raise some $450m in the credit market.

Microsemi opens the hostilities

Brenon Daly

Contact: Brenon Daly

In a bear-hug letter last month, Microsemi warned fellow chipmaker Zarlink Semiconductor that it was ready to ‘take all necessary actions’ to consolidate the Canadian company. On Wednesday, that came to pass: Microsemi said it would bypass Zarlink’s board, which shot down the unsolicited offer, and take its $549m all-cash bid directly to shareholders. Incidentally, the opening of this hostile offer in the semiconductor industry came on the same day that SABMiller launched its $10bn hostile bid for Australian brewer Foster’s Group.

Going hostile in deals is relatively rare, as the drawn-out procedure can be expensive and disruptive to business on both sides. Further, in the tech industry, the conventional wisdom has always been that hostile approaches would cause an exodus of employees at the target company, undermining the very reason for the acquisition. (Given our realpolitik view of the world, we’ve always been a little bit skeptical about that bromide. We just can’t help but think back a few years ago to how PeopleSoft, with its culture of hugs and Hawaiian shirts, stood up to the relentless push by Oracle.)

Whatever the theoretical concerns, Microsemi must have certainly factored them in before launching the offer. The company says it has the financing in place, and will have its bid open through September 22. (Morgan Stanley and Stifel Nicolaus Weisel are advising Microsemi, while Ottawa-based Zarlink is relying on RBC Capital Markets.) It’s hard to know exactly which way Zarlink shareholders will go on this one, but we can’t help but note that shares on the Toronto Stock Exchange have already traded through the bid since Microsemi floated its offer.