Category: VC

Dell uses M&A (again) to go it alone in storage

Brenon Daly

Contact: Brenon Daly

Dell’s reach for AppAssure Software continues the tech giant’s trend of using M&A to reduce its reliance on outside vendors for its $2bn storage business. Most notably, the purchase of Compellent two years ago – following its unsuccessful effort to land 3PAR – reduced Dell’s long-standing partnership with storage powerhouse EMC. In a similar vein, Dell’s acquisition Friday morning of AppAssure is likely to trim its business with data-protection specialist CommVault. (Dell is CommVault’s largest OEM partner, accounting for roughly 20% of that company’s total revenue.)

Terms weren’t revealed but we would expect that Dell paid more than $100m for AppAssure. (Whatever the amount, the deal almost certainly represents a sterling return for Bain Capital, which is AppAssure’s sole backer, having put just $6m into the five-year-old startup.) According to our understanding, AppAssure generated about $20m in 2011, triple the level from the previous year.

For comparison, CommVault stock currently trades near its all-time high. CommVault’s steady run has put the company’s valuation at an eye-popping $2.3bn, or nearly 6 times the expected $400m in revenue for its current fiscal year, which wraps up next month. Word of Dell’s purchase of rival AppAssure put some pressure on CommVault’s high-flying shares. On an otherwise bull-market day on Wall Street, CommVault stock dipped 4% on trading that was more than twice as heavy as average by early Friday afternoon. We’ll have a full report on this deal in tonight’s Daily 451.

More of the same at SuccessFactors under SAP

Brenon Daly

Contact: Brenon Daly

With the official closing today of SAP’s $3.6bn acquisition of SuccessFactors, it’ll be business as usual for the human capital management (HCM) vendor – starting at the top. Certainly the new ownership hasn’t throttled CEO Lars Dalgaard in the least. During his Wednesday luncheon keynote at the Pacific Crest Securities Emerging Technology Summit, Dalgaard was jarringly blunt, colorfully profane and wickedly insightful. In other words, same old Lars.

For instance, during his keynote he gave the flick to the more than 70 venture capitalists that he said passed on SuccessFactors when he was raising money back in the early part of last decade, and then rubbed that in by pointing out that the VC firms that did invest got a return of more than 4,000%. Similarly, in a video clip he played during his speech, Dalgaard noted that one of the more gratifying parts of the sale to SAP – the largest-ever SaaS deal, which valued SuccessFactors at its highest-ever price – was the fact that the acquisition ‘fried’ investors who had shorted SuccessFactors’ stock.

Dalgaard also indicated that even though his company is now owned by SAP, it will continue to be active in M&A. (On its own, SuccessFactors announced six acquisitions, after looking at some 140 companies, according to Dalgaard.) In fact, we understand that SuccessFactors will actually have an expanded corporate development role, taking on responsibility for cloud deals that would go beyond the HCM sector it focused on as a stand-alone company. That mirrors SAP’s decision to tap Dalgaard to run its overall cloud business

Webinar: The future of enterprise IT

Brenon Daly

Contact: Brenon Daly

In this era of disruptive technologies, what does the future hold for enterprise IT? What new innovations are expected to reshape software, networking and even the datacenter itself in the coming year? For a look ahead, join us for a special webinar on Thursday, February 9 at 9:00am PST/12:00pm EST. (Click here to register.) The heads of several practice areas at 451 Research will highlight a number of key trends in their sectors, and what impact that will have on the broader IT landscape.

Topics we will cover in the hour-long webinar include the emergence of truly virtualized infrastructure, the rise of software-defined networks and the trend toward modularity inside the new datacenters. We will also cover some of the financial implications of those trends, both in terms of capital raising and M&A valuations. To join the webinar on Thursday, simply register here.

Rough start to 2012 as January tech M&A spending drops 70%

Brenon Daly

Contact: Brenon Daly

As the new year starts, tech acquirers have yet to really reach deep to do any deals. In January, aggregate spending on all tech transactions across the globe plummeted to just $3.5bn – the lowest monthly level since the bottom of the recession in February 2009. Compared to the January 2011 total of $11.8bn, the value of deals announced in the just-completed month fell by a whopping 70%. The number of transactions, however, was unchanged, year-over-year, at roughly 325.

A key point to make about deal flow in the just-completed month is that not a single transaction topped a half-billion dollars. In fact, the largest deal in January 2012 (Semtech’s all-cash $494m reach for semiconductor vendor Gennum) would only be the sixth-largest transaction of January 2011. Last year, January featured deals including Qualcomm’s $3.6bn purchase of Atheros Communications – which, at the time, stood as the largest chip transaction in four years – as well as Verizon’s big bet on cloud services with its $1.4bn acquisition of Terremark Worldwide.

The January totals extend a slump that has seen M&A spending sink dramatically below average in four of the past five months. Since peaking at a post-recession monthly record of $40.2bn last August, spending levels have plunged to $8.9bn in September, $14bn in October, just $4.3bn in November and $19.7bn in December.

A continuing M&A recovery in 2011

Brenon Daly

Contact: Brenon Daly

The choppiness that was felt in the overall M&A market in 2011 also came through in the totals for the year. While the number of transactions hit a five-year high, spending on tech deals in 2011 didn’t necessarily keep pace. The total value of transactions announced last year around the globe rose 17% to $219bn. Still, the increase in 2011 represented the second straight year of higher M&A spending following the dramatic decline in the recession of 2008-2009. However, the total for 2011 is only about half the value of deals announced in the previous years of the tech bull market.

Overall, dealmaking in 2011 started slowly, but then dramatically picked up in late spring and early summer. But that rebound stalled as uncertainty around European stability pushed out acquisitions, or canceled them altogether. The concerns knocked M&A spending in November to the lowest monthly level seen since the depths of the recession in February 2009. And while spending did rebound in December to a more typical level of nearly $20bn, the final few months of 2011 were hardly a robust time for significant transactions. Just one of the 10 largest deals of last year was announced in the final quarter of 2011.

Survey says: Tech M&A is likely to pick up in 2012

Brenon Daly

Contact: Brenon Daly

After a summer of discontent, the environment for tech M&A in the coming year once again appears welcoming, according to 451 Research’s annual survey of corporate development executives. More than half of the company dealmakers we surveyed indicated they expected to be busier in the coming year than they had been in the previous one. The number who predicted an increase actually ticked up slightly to 56% this year from 52% in our previous survey.

Meanwhile, when we asked about the overall climate for M&A, three times the number of corporate development executives projected it would get better rather than worsen in the coming year (43% vs. 14%). The sentiment is slightly more bullish than the result last year, when actual M&A spending totals rose for the second straight year following the dramatic drop-off during the recession.

The robust outlook for dealmaking in 2012 is even more remarkable when we compare it with the results from a special ‘flash survey’ we sent out in early August. At that time, the equity markets were sliding to their lowest levels in a year as volatility hit its highest level since early 2009. (It was also the time when the US got its AAA credit rating clipped by Standard & Poor’s, a downgrade that had been largely unimaginable before the recession.) Back in August, just one-third (32%) of respondents indicated they would be busier in the back half of 2011 compared with the first half of the year. We’ll have a full report on the survey results – including the outlook for M&A valuations, as well as which deal got voted as the most significant one in 2011 – in tonight’s Daily 451.

Projected change in M&A activity

Period Increase Stay the same Decrease
December 2011 for 2012 56% 30% 14%
December 2010 for 2011 52% 41% 7%
December 2009 for 2010 68% 27% 5%
December 2008 for 2009 44% 33% 23%

Source: 451 Research Tech Corporate Development Outlook Survey

Proofpoint refills the IPO pipeline

Brenon Daly

Contact: Brenon Daly

Wedged between the strong debuts this week of two tech companies, Proofpoint has put in its paperwork to refill the IPO pipeline. The subscription-based email security vendor filed for a rather small $50m offering, which is being led by Credit Suisse and Deutsche Bank. Earlier this week, Jive Software hit the market well above its expected price while Zynga raised a cool $1bn as it priced its offering at the top end of its range.

Founded in 2002 by a former Netscape executive, Proofpoint has expanded beyond its core email security. Most recently, we noted that the company has begun to position itself as a full compliance platform, complete with email discovery and litigation support. While Proofpoint’s technology is solid, Wall Street may be left wanting a bit more from its financials.

For starters, Proofpoint has never printed black numbers, and has wrung up a total of $155m in accumulated deficit. Meanwhile on the top line, the company increased revenue a less-than-stellar 27% through the first three quarters of 2012. That compares to 43% growth in sales over the same period at Imperva, the most recent security vendor to hit the public market. Proofpoint plans to trade on the Nasdaq under the ticker PFPT.

The Houses of Morgan are in demand for on-demand work

Brenon Daly

Contact: Brenon Daly

It turns out that the advisers for the largest-ever SaaS acquisition are also the busiest in terms of restocking the ranks of publicly traded subscription-based software companies. J.P. Morgan Securities, which banked SAP, and Morgan Stanley, which advised SuccessFactors, are upper left on the prospectuses of no fewer than five SaaS vendors currently in registration. Between them, the ‘Houses of Morgan’ have a fairly tight grip on the sector, leading the proposed IPOs of on-demand software shops including Eloqua, ExactTarget, Bazaarvoice, Jive Software and Brightcove.

As lead underwriters, the banks stand to pocket tens of millions of dollars in fees from the upcoming offerings. Additionally, they are likely to build on that initial relationship through other advisory services for the companies. For instance, J.P. Morgan co-led Taleo’s IPO in 2005 and, more recently, advised it on its $125m purchase of Learn.com. On an even bigger scale, Morgan Stanley led the IPOs of both RightNow and SuccessFactors and then advised them on their sales, a pair of deals that totaled a whopping $5bn.

Where to go after the sale?

Brenon Daly

Contact: Brenon Daly, Thejeswi Venkatesh

In an effort to bolster its Smart Grid offering, Siemens AG reached earlier this week for eMeter, a company that the German giant had invested in three years ago. The sale comes after San Mateo, California-based eMeter had looked to raise a round of funding last summer, on top of the roughly $70m it had already raised.

Along with Siemens, other investors in eMeter included Foundation Capital, Sequoia Capital and Northgate Capital. And while the returns may not have been electrifying (if you’ll pardon the pun), we understand that the investors will actually book a decent gain. (Subscribers to The 451 M&A KnowledgeBase can click here to see our record of the transaction, which includes our estimates for both the revenue and sale price of eMeter.)

The ink was barely dry on the agreement when rumors started flying about what eMeter CEO Gary Bloom would be doing now that he has free time on his hands. (Understandably, he won’t be joining Siemens when the deal closes this month.) A longtime former Oracle executive, Bloom is perhaps best known for heading up Veritas at the time of its sale to Symantec, the largest-ever software transaction.

The most intriguing bit of gossip around a possible job for Bloom is that he may step into a senior sales role at BMC, a company where he also serves on the board. Candidly, the Houston-based company could use some additions in that area, as it has seen a number of key departures of sales executives (Luca Lazzaron, Jim Drill) in the past few months. Once a steady performer, BMC has come up short of Wall Street estimates recently. The sluggish growth has clipped one-third of the value of BMC shares since last summer, sending them to their lowest level in more than a year.

SuccessFactors works the other side of the deal

Brenon Daly

Contact: Brenon Daly

In one of the quickest M&A turnarounds, SuccessFactors has gone from a seller to a buyer in just a matter of days. The human capital management (HCM) vendor announced over the weekend that it would be selling itself to SAP for $3.4bn in cash, the largest-ever SaaS deal. The ink was hardly dry on that transaction when SuccessFactors said on Tuesday that it will hand over $110m for Jobs2Web, a recruiting marketing platform with about 150 customers. (For the record, the mammoth SAP-SuccessFactors pairing is expected to close in the first quarter of 2012, while SuccessFactors’ purchase of the Minnesota-based startup should be done by the end of the year.)

The addition of Jobs2Web makes a great deal of sense for SuccessFactors, and in some ways, it shares some similarities to another deal earlier this year – salesforce.com’s $326m pickup of Radian6. In both cases, the startups added technology around mining social media sources and powerful analytics to expand the acquirer’s existing product portfolio.

There are even more similarities between Jobs2Web and Radian6, besides simply having numerals in their names. Both startups were founded far from any of the typical launch pads for tech companies. Jobs2Web has its headquarters in Minnetonka, Minnesota, while Radian6 was in the even more remote location of Fredericton, Canada.

But more importantly, both targets were incredibly capital efficient, each raising about $5m in VC on their way to a solidly valued exit. (Updata Partners was the sole institutional backer for Jobs2Web, which was advised in its sale by Raymond James & Associates.) According to our understanding, Jobs2Web garnered a valuation of roughly 6 times sales in its sale, while Radian6 was valued north of that.