Category: VC

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.

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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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AirWatch raises $200m to propel growth

Ben Kolada

Contact: Ben Kolada, Chris Hazelton

AirWatch, considered one of the largest mobile device management (MDM) vendors, has raised $200m in its first round of outside funding. Insight Venture Partners led the round. This round of funding will build on several hundred million dollars the company has already invested in its MDM products and now-growing focus on mobile application deployment and management.

Terms of the investment weren’t disclosed, but we’re told the funding round values AirWatch at a whopping $1bn, which no doubt restricts its options in terms of an exit. The largest MDM acquisition we’ve seen so far was Citrix’s takeout of Zenprise for $327m. Zenprise had raised a total of $79m.

The investment will be used to increase staff in Asia as the company looks to build on 2012 revenue of nearly $100m, expanding on earlier international growth. Specifically, AirWatch says the funding will be used for product development and strategic M&A. The latter is particularly noteworthy, since the company has so far focused solely on organic growth, and hasn’t announced a single acquisition since its founding in 2003.

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Tableau tees up an IPO

Brenon Daly2 Comments

Contact: Brenon Daly

After a pair of tech companies publicly announced their intent to hit the market late last week, we understand that a high-profile private company is coming up right behind them. Tableau Software is rumored to have quietly filed its IPO paperwork under the JOBS Act, according to a number of sources. It’s the first step toward an offering that could value the data-visualization company in the neighborhood of $2bn.

Founded a decade ago, Tableau has grown quickly and steadily as customers snap up its software that helps makes sense of the ever-increasing levels of data. According to our understanding, Tableau was running at less than $10m in 2007, but finished last year at about $110m in sales. The company, which has raised only $15m in venture backing, has also been generating cash in recent years even as it scales its business.

In addition to its stunning growth, Tableau has a number of other characteristics that should play well on Wall Street. It has a larger rival, QlikTech, that enjoys a healthy valuation of 6x trailing sales, even as it grows roughly 20%, or about one-quarter the rate of Tableau. (QlikTech recently forecasted sales for 2013 of roughly $470m, nearly three times Tableau’s expected sales this year.) Further, Tableau is likely to have broad support in the investor community thanks to its long list of rumored underwriters: Goldman Sachs, J.P. Morgan Securities, Morgan Stanley and Credit Suisse, among other banks.

By filing under the recently passed JOBS Act, Tableau can put in a prospectus without publicly revealing it has done so. Assuming the offering goes according to plan, Tableau would likely announce the filing in the next few months and then go on its roadshow. We expect the company to be well received in that process, and it is likely to join the richly valued quartet of enterprise vendors that went public in 2012: Workday, ServiceNow, Palo Alto Networks and Splunk. The cheapest of those four companies trades at 13x trailing sales.

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Opera’s cautious move into video optimization

Ben Kolada

Contact: Ben Kolada

Coinciding with its fourth-quarter earnings release, mobile Web developer Opera Software has announced the acquisition of mobile video optimization startup Skyfire Labs for $50m in cash and stock, with an earnout potentially tripling that price. The deal is a strategic combination – bringing together Skyfire’s carrier-focused mobile video optimization offerings with Opera’s mobile browser products – but its conservative structure suggests that Opera isn’t yet confident enough to put all of its eggs into the video optimization market.

Using an enterprise value of $50m (Skyfire had $8m cash on its balance sheet), the purchase – Opera’s largest ever – is valued at 12.2x trailing revenue. However, if Skyfire’s sales live up to expectations, its price-to-projected revenue valuation would be a more palatable 2.9x. Architect Partners, which helped Skyfire raise its $8m series C round, advised the company on its sale. Skyfire had raised $41m in venture capital. (We’ve made our M&A KnowledgeBase record on the transaction, which includes full financial details and round-by-round funding information, freely available here.)

Besides the $50m upfront payment, Opera is on the hook for an earnout of up to $105m in cash and stock. We’d note that although Opera also just announced a $100m credit facility, it could elect to pay $79m of the earnout in stock.

Opera is no stranger to earnouts, using them in all six deals we’ve recorded for the company, but the sheer size of this earnout suggests that the company isn’t fully confident in the video optimization market’s potential. And rightfully so – nearly every video optimization vendor we know of has seen total revenue flatten over the past few years, and many are anxiously seeking exits. (For a longer report on the mobile video optimization market, click here.)

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IPO drought lifts, as Marin Software and Model N reveal their paperwork

Brenon Daly

by Brenon Daly

Both Marin Software and Model N revealed their IPO paperwork Wednesday evening, setting the pair up to be the first new technology companies to come to market since mid-November. Both planned offerings have a $75m cover raise, and given the new regulations around IPOs, won’t actually hit the market until mid-March at the earliest. But at least the end to the recent IPO drought is (apparently) near.

Although they share the same filing date, the two companies are very different. Model N sells revenue management software, primarily to the life sciences industry although it has also expanded to tech vendors recently. Model N, which is almost twice as old as Marin Software, sells both perpetual licenses and a subscription product. License sales and related maintenance account for the majority of Model N’s revenue, which totaled $89m in 2012. J.P. Morgan Securities and Deutsche Bank Securities are leading the offering.

Founded in 2006, Marin Software only really began selling its subscription-based digital advertising platform in 2009. Since then, the company has been growing quickly. Through the first nine months of 2012, it recorded $43m in sales, up 72% from the same period in 2011. Marin Software’s revenue retention rate has topped 100% in each of the past two years. Bookrunners are Goldman Sachs & Co and Deutsche Bank.

With the different vintages, business models and markets, Model N and Marin Software will undoubtedly appeal to different investor classes on Wall Street. Along with that, they will undoubtedly garner different valuations. Loosely, we figure Model N will debut at about a $400m valuation and Marin Software may come out at roughly $600m. After the dry spell that we’ve seen in the IPO market recently, $1bn or so of value creation from the two companies will be a welcome development in Silicon Valley.

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salesforce.com ‘connects’ with EntropySoft

Brenon Daly

Contact: Matt Mullen

Announcing its first acquisition in five months, salesforce.com has reached across the Atlantic for Paris-based startup EntropySoft. The eight-year-old target had raised just $3.5m in a single round of funding. EntropySoft produces perhaps the most complete set of enterprise system connectors in the marketplace. These bits of technology allow the interoperability of data between management platforms, and have found their way into many Web content management, enterprise content management and enterprise search platforms.

While connectors will never be seen as ‘sexy’ technology, they are a fundamental underpinning of many integration strategies for vendors and provide a stable income for those that create and maintain them. So why would salesforce.com, a company that will put up about $3bn in revenue this year, want a stable if unexciting income stream? The truth is that it doesn’t.

What it wants, from our view, is EntropySoft’s technology. Specifically, salesforce.com wants the ability to make greater inroads toward positioning CRM as the single repository for enterprise information. Having the predominant connectivity stack as part of its toolkit makes that process simpler. It allows, for example, much easier exposition of content from legacy systems to the CRM repository and the platform that salesforce.com has built atop it with Force.com and Site.com.

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On its way to (eventual) IPO, Alfresco does its first bit of M&A

Brenon Daly

Contact: Brenon Daly

In its first-ever acquisition, Alfresco Software has reached for an existing partner, WeWebU Software. The purchase of the 13-year-old German startup adds more management capabilities – specifically, a roles-based, configuration application framework – on top of Alfresco’s core ECM platform. In addition to customization, WeWebU should also enhance the mobile offering at Alfresco with its iOS-focused MobileWorkdesk front end.

The purchase comes as the open source company transitions from a founder-led, relatively low-profile business to one that’s eyeing the public market, at least down the road. As part of that change, just two weeks ago Alfresco appointed Doug Dennerline to the top job at the company.

A SaaS-veteran, Dennerline joins Alfresco as it finds itself competing on a new front. In addition to established ECM rivals such as EMC (Documentum), OpenText and, of course, Microsoft’s SharePoint, Alfresco is increasingly bumping into newer cloud-based startups, notably Dropbox and Box.

To combat that, Alfresco has shored up its platform with increased security and compliance to appeal to IT departments, as well as added a cloud offering of its own. Additionally, it has stressed that ECM is part of a larger business process – a function that should be made easier now with the addition of WeWebU’s configuration technology.

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Cisco acquires Israeli startup Intucell for $475m

Contact: Tejas Venkatesh

Cisco Systems has announced the acquisition of Israeli startup Intucell, paying $475m in cash and retention-based incentives for the startup’s self-optimizing network software. The deal is consistent with Cisco’s recent direction, in which it wants to provide more valuable offerings to service providers in addition to basic networking capability. The networking giant is paying a handsome multiple for the five-year-old target. (Subscribers to The 451 M&A KnowledgeBase can click here to see our official estimate on terms of the transaction.) The exit is a big moneymaker for Bessemer Venture Partners, which provided $6m in funding for almost half of Intucell’s equity.

Intucell’s software helps carriers optimize their networks in real time by analyzing data from cellular grids. Using operational support systems data, it can detect when a cell tower is overloaded and loop in assistance from nearby towers, thereby responding to unpredictable mobile traffic and improving network quality. AT&T was an early Intucell customer.

Cisco’s last three acquisitions have been aimed at service providers. In November, it bought Cariden Technologies for $141m, adding capacity-planning and management tools for IP and optical networks. And in December, Cisco followed up with the purchase of Broadhop for its policy control and service management technology.

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