A new boss and new buys at Acronis

Contact: Brenon Daly

The new CEO at Acronis has brought a new M&A strategy to the backup and disaster recovery (DR) vendor. Although the company has plenty of cash – thanks to its mid-30% EBITDA margin – it hasn’t used that to go shopping in the past. And when Acronis has looked at deals, we understand that it has historically been more focused on consolidation or geographic expansion.

That has changed dramatically under CEO Alex Pinchev, who took the top spot at Acronis in January. According to our understanding, Pinchev drove the acquisition of GroupLogic, a company that wasn’t on the M&A list under Acronis’ previous regime. A source says that although Acronis arrived late in the process, it moved quickly to land GroupLogic.

The acquisition gets 10-year-old Acronis solidly into the fast-growing enterprise file-sharing and synchronization market. Acronis eventually plans to integrate GroupLogic’s product into its flagship DR and backup offering.

Granted, the deal won’t have much impact on Acronis’ financials right now. GroupLogic – like rival Syncplicity, which sold to EMC almost four months ago – was probably only generating $2-3m of share/synch revenue. That’s nothing to Acronis, which will sell about $150m of backup and DR this year. But the move does show a change in strategy at Acronis.

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Qualys: a quality offering at a tough time

Contact: Brenon Daly

Continuing a run of enterprise-focused IT security IPOs, Qualys has set an initial range of $11-13 per share for its upcoming offering. The range would value the on-demand vulnerability management vendor a bit above $400m, a rather conservative valuation for a company that will record bookings of more than $100m this year. We understand that Qualys will price its offering in two weeks, and we wouldn’t at all be surprised to see it debut at a price in the mid-teens. J.P. Morgan Securities and Credit Suisse Securities are co-leading the offering.

The IPO of Qualys would mark the fourth enterprise IT security provider to hit the market in the past year, following Imperva, Proofpoint and Palo Alto Networks. That makes this particular slice of the tech landscape the most active – and most lucrative – area for IPOs. Collectively, the quartet – including the roughly half-billion-dollar initial market cap we project for Qualys at its debut – will have created about $6bn in market value.

Two-thirds of that amount comes from the wildly successful IPO of Palo Alto Networks. But we would note that Imperva and Proofpoint have been fairly well received on Wall Street, with both offerings trading above water. That stands in contrast to the loosely related consumer security companies and, even more broadly, the overall IPO market, which is highly skeptical of new offerings as a number of recent high-profile IPOs have turned out to be big money losers for investors.

For instance, shares of consumer Internet security provider AVG Technologies have broken issue and are currently changing hands at nearly their lowest level since the company debuted in February. AVG’s woeful performance contributed to the decision by AVAST Software, a similar consumer Internet security provider, to pull its IPO in late July.

Undoubtedly, the bearishness around the consumer security market is weighing on the offering from Qualys. However, we suspect that pressure will be relatively short-lived for Qualys, and the company will enjoy the same strong aftermarket performance of other recent enterprise security IPOs.

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Buying your loyalty

Contact: Ben Kolada

Gannett Co announced on Thursday the acquisition of Mobestream Media, maker of the Key Ring customer loyalty application. The deal is one of only a handful of mobile rewards and loyalty purchases announced so far, but as the market matures, we expect that many startups will be acquired and tucked into larger digital marketing vendors’ portfolios.

Like its pickup of social media marketing startup BLiNQ Media last month, Gannett bought Mobestream to build out its digital marketing portfolio. Mobestream’s Key Ring app allows smartphone users to store and receive merchant loyalty card information and digital coupons. The company’s retail customers also use its platform for marketing campaigns. So far, more than five million users have downloaded the app. Horizon Partners advised Mobestream on its sale (this is Horizon’s fifth M&A deal this year, but won’t be its last).

Because the mobile loyalty sector is still so young, there have only been a few acquisitions. However, there are more than a dozen startups operating in this sector, and purchases by Gannett and Constant Contact suggest that their products are better suited as part of a larger digital marketing portfolio.

As the mobile loyalty market matures, the leading startups will likely become acquisition targets for larger tech marketing vendors and publishers such as Google, Vocus, Teradata and Advance Publications. Several startups have already secured funding to propel their growth. In May, RewardLoop announced a $1m series A round, Beintoo took $5m in its A round and Belly secured $10m in its series B. Kiip followed in July with an $11m B round.

Select mobile loyalty M&A

Date announced Acquirer Target
September 7, 2012 MasterCard Truaxis
September 6, 2012 Gannett Co Mobestream Media [dba Key Ring]
January 19, 2012 Constant Contact CardStar
December 8, 2011 Plum District Chatterfly
July 8, 2011 Google Punchd Labs
November 9, 2010 Angoss Software Hitgroup.ca (mobile solutions assets)

Source: The 451 M&A KnowledgeBase

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Renewed rumors in MDM M&A, spotlight on Fiberlink

Contact; Ben Kolada

Rumors are swirling again about a possible takeover of one of the largest mobile device management (MDM) vendors. While we previously reported on speculation that AirWatch was nearing a sale to BMC, rumors this time put the spotlight on Fiberlink Communications.

Several industry sources have told us that mobile and laptop management veteran Fiberlink, better known nowadays for its MaaS360 mobile management product line, has been shopping itself. If a deal comes to fruition, it would most likely be the largest sale yet of an MDM provider.

We’re hearing varying rumors regarding the Blue Bell, Pennsylvania-based company. A couple of sources noted that Fiberlink had been shopping itself for a while, and that talks at one point fell apart, until an unknown suitor unexpectedly came back to the table. The company declined to comment on those rumors.

No word yet on who may be bidding for Fiberlink. Last year we wrote that the 21-year-old company was profitable, with revenue in the $50-100m range. Fiberlink has not taken funding since 2003, when it secured a $50m round led by Technology Crossover Ventures.

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Co-founders set Workday IPO as ‘PeopleSoft 2.0’

Contact: Brenon Daly

Despite the initially abrupt and ultimately acrimonious end of PeopleSoft in the mid-2000s, many of the executives are back with another run at the public market. Workday put in its IPO paperwork late Thursday in what’s shaping up to be the most anticipated post-Facebook offering.

As a sign of that anticipation, Workday plans to raise $400m, nearly twice the amount of most ‘big’ tech IPOs and about four times more than the typical tech offering. To move all that paper, the human capital management (HCM) startup has enlisted no fewer than nine underwriters, led by Morgan Stanley and Goldman Sachs & Co.

Workday was founded in 2005 by Dave Duffield and Aneel Bhusri after Oracle pushed through its contentious $10.5bn deal for the first-generation ERP vendor. Perhaps conscious of how ‘their’ company got rolled into Oracle against their wishes, Workday’s two cofounders have concentrated ownership in their hands (collectively owning almost three-quarters of the company) and created two classes of stock. The structure effectively gives Duffield and Bhusri absolute control of all matters that go to a shareholder vote.

The rivalry with Oracle – and to a degree, SAP as well – also carries over into how Workday does its business. During pre-roadshow presentations, Workday executives noted that they typically pitched their on-demand product when enterprises were considering an upgrade of their current license-based ERP or HCM offering, such as Oracle’s PeopleSoft product. Workday has 325 enterprise customers.

So far, that approach has paid off in stunning growth for the company. It doubled revenue to $134m in the year ended January 31, and has more than doubled revenue in the two quarters since then: Workday recorded $120m, up from $55m in the year-earlier period. (It also has a mountain of nearly $250m in deferred revenue that it has piled up from its contracts that range from three to five years.)

The revenue growth so far in 2012 puts Workday loosely on track for revenue of about $250m. For comparison, that would make the fast-growing ‘redo’ about one-tenth the size of PeopleSoft when it was erased from the market.

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LifeLock plans life as public company

Contact: Brenon Daly

Despite consumer technology names falling largely out of favor on Wall Street, LifeLock has announced plans for a $175m IPO. The identity theft prevention vendor, which has 2.3 million customers, ran at basically breakeven on sales of $125m in the first half of 2012. The offering is being led by Goldman Sachs & Co, which owns 11% of LifeLock, along with Bank of America Merrill Lynch and Deutsche Bank Securities.

LifeLock’s filing comes as other consumer-focused technology IPOs have had a rough go of it. That’s true across a number of markets, from social networking (Facebook) to gaming (Zynga) to online backup (Carbonite has been nearly cut in half during its first year on the public market) to information security (AVAST Software pulled its IPO paperwork last month). Fairly or not, LifeLock – a company that spends about half its revenue on sales and marketing – will have to work its way through that bearish sentiment in the market.

Still, the company has been steadily increasing its subscriber base (at about a 20% rate) as well as bumping up its average revenue per subscriber (currently $9 per month). That has helped LifeLock get to a point where it generated $21m of free cash flow in the first half of 2012, which is only slightly less than it generated in all of last year. Also, we recently noted that LifeLock used some of that cash to take its first step into the enterprise market, acquiring ID Analytics. Although that business is still less than 10% of total revenue, it’s a welcome hedge for LifeLock, both in terms of technology and end markets.

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InronPlanet throws its IPO paperwork on the scrap heap

Contact: Brenon Daly

The road to the public market is turning into a dead end for an increasing number of companies. IronPlanet has pulled its IPO paperwork, just days after AVAST Software also scrapped its planned offering. The two companies operate in wildly different markets, with IronPlanet serving as an online marketplace for industrial machinery and AVAST selling security software to consumers. While both cited ‘market conditions’ as the reason for their withdrawals, it’s a bit of a stretch to see it applied to both.

In the case of AVAST, the company almost certainly could have gotten public, if it were willing to take a bit of a discount on its pricing. (AVAST, which was growing at about 40% annually and richly profitable, was nonetheless dinged by concerns over its focus on the consumer, rather than enterprise, market as well as a less-than-robust IPO by fellow European security software provider AVG Technologies.) But rather than cut its value to convince investors to buy into the offering, AVAST will stay private until ‘market conditions’ change.

On the other hand, IronPlanet won’t make it to the Nasdaq anytime soon. Although the company filed its prospectus in March 2010, it hadn’t updated its financials in more than a year. And the numbers it revealed then would have gotten it roughed up on Wall Street. In 2010 (the latest full-year results available), IronPlanet grew just 7%, down from 56% in 2009. (The paltry growth rate continued in the first half of 2011, too.) Meanwhile, IronPlanet has swung to a loss after posting black numbers in the past. That’s clearly not the profile of a company that will appeal to investors, particularly ones that have been burned on their investments in recent IPOs that have posted slowing growth and declining margins.

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Oracle adds network virtualization with Xsigo

Contact: Brenon Daly, John Abbott

A week after VMware made its network virtualization play with the blockbuster purchase of Nicira Networks, Oracle has expanded its own virtualization portfolio by reaching for I/O virtualization startup Xsigo Systems. Although both startups loosely fall into the category of ‘software defined networks’ (SDNs), Xsigo itself used that description only sparingly to talk about its business. And if we look deeper at the two deals by the serial acquirers, we see they’re actually quite different.

For starters, the targets were at very different stages of commercial deployment. Nicira only had a handful of customers, and we understand that it still measured its revenue in the single digits of millions of dollars. In contrast, Xsigo indicated that it had tallied roughly 550 deployments since it began shipping its product some five years ago. It was generating revenue in the tens of millions of dollars, according to our understanding.

Further, the strategic drivers for each of the networking acquisitions are quite different. For VMware, the purchase of Nicira represents its grand plan to do to switches through virtualization what it has already done to servers through virtualization. For Oracle, there’s arguably a more focused goal for Xsigo, at least in the near term. My colleague John Abbott speculates that Xsigo’s technology is likely to be deployed as a means of providing a broader virtualized network fabric to surround Oracle’s Exa family of systems, boosting the number of available network and storage connections and making them more suitable for hosting cloud services. Look for our full report on Oracle’s acquisition of Xsigo in tonight’s Daily 451.

Facebook saves faces with Instagram, at least for now

Contact: Brenon Daly

There wasn’t much to be wildly bullish about in Facebook’s initial financial report as a public company on July 26. At least that was the view on Wall Street, as shares of the social networking giant slumped around 10% to their lowest level since the mid-May IPO. The one bright spot, however, is the continued stunning growth of Instagram.

Just ahead of the financial release, Instagram indicated 80 million people are now using the photo-sharing application. That’s more than twice the number of users that Instagram had when Facebook announced the acquisition in April. Additionally, some four billion photos have been shared over Instagram.

Of course, it’s important to note that Facebook hasn’t actually closed the acquisition. Moreover, even when it does close, there won’t be much – if any – direct impact on Facebook’s financial statements from Instagram, which is free to use. (The payoff from mobile advertising, which was the primary driver for the acquisition, is some time off for Facebook.)

Not to be cynical, but we couldn’t help but think that there might be (just maybe) something going on behind the scenes around the timing of Instagram’s boastful release. Investors have a much more jaundiced view of CEO Mark Zuckerberg’s impetuous decisions – including his hasty agreement to drop $1bn on Instagram – now that they are losing money on him.

So perhaps it was important for Facebook to show that it is getting an early return on its largest-ever acquisition. That might have been even more important because social gaming company Zynga – whose fortunes are tied to Facebook in many ways – got pummeled on Wall Street after indicating people just aren’t into its games as much as they once were. One specific area of weakness that Zynga indicated: Draw Something, which Zynga picked up as part of its largest-ever acquisition.

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VMware’s new era with Nicira

Contact: Brenon Daly

Having built a business valued in the tens of billions of dollars by virtualizing computing, VMware is now using its largest-ever acquisition in an effort to bring virtualization to networking. VMware will hand over a total of $1.26bn for startup Nicira. It’s a significant gamble for VMware, both strategically and financially.

The purchase is more than three times the size of VMware’s next-largest acquisition, and is roughly equal to the amount the virtualization kingpin has spent on its entire M&A program since parent company EMC spun off a small stake in VMware a half-decade ago. (VMware will cover the cost of the purchase from its treasury. As of the end of June, it held $5.3bn in cash and short-term investments, and it has generated $2bn in free cash flow over the past year.)

VMware has positioned Nicira, a company that only recently emerged from stealth, as a key component of its effort to put software at the core of datacenters. VMware has done that with servers – and to some degree, storage as well – by using software to essentially commodify hardware. It’s an approach that appears to undermine a once-cozy relationship with networking partner Cisco Systems. Incidentally, shares of the switch and router giant are currently at their lowest level in about a year, and it announced another round of layoffs at almost exactly the same time that VMware announced its big networking acquisition.

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