Category: vertical-market technology

NetSuite shops for its retail platform

Brenon Daly

Contact: Brenon Daly

One year after Retail Anywhere released its point-of-sales SuiteApp for NetSuite, the startup has been rolled into the on-demand ERP giant. Terms of the deal, which is NetSuite’s first since mid-2009, weren’t released. However, we suspect the price is probably in the $20-30m range of NetSuite’s two previous acquisitions.

Entirely bootstrapped through its 18 years of incorporation, Retail Anywhere has about 30 employees, with CEO Branden Jenkins taking a general manager role at NetSuite. According to our understanding, Retail Anywhere was generating roughly $5m of sales. For its part, NetSuite will likely report more than $300m of revenue for 2012 when it releases its financial results in early February. The market currently values NetSuite at a stratospheric $5bn.

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Oracle buys DataRaker, adding energy analytics software

Contact: Tejas Venkatesh

Continuing to acquire software companies that target specific industry verticals, Oracle on Thursday announced the acquisition of smart energy meter analytics vendor DataRaker. The enterprise software giant has used M&A to buy its way into specific markets such as retail, financial services, healthcare and energy.

Five-year-old DataRaker provides smart energy meter analytics that enable utilities to integrate smart grid systems and analyze the resulting flood of new data. The software also helps utilities diagnose problems, forecast demand and detect tampering. Oracle’s purchase comes almost exactly a year after Siemens bought DataRaker rival eMeter for an estimated $200m. However, the two energy startups differ in one key area: DataRaker appears to have raised no outside funding, while eMeter took in a fair amount of venture capital.

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NCR rings up another software purchase with Retalix

Brenon Daly

Contact: Brenon Daly

NCR will hand over $763.5m in cash for Retalix, the latest example of an old-line hardware vendor using M&A to build up its more valuable software and services business. The deal is actually the second significant software acquisition by the company formerly known as National Cash Register, and takes the equity value of the transactions to a collective $2bn. In mid-2011, NCR dropped $1.2bn on fellow publicly traded company Radiant Systems.

NCR leaned on the credit market to finance nearly all of its purchase of Radiant, the largest acquisition the company has done. It will add a bit more debt to cover the just-announced reach for Retalix. An Israeli company, Retalix has no debt and about $133m in cash, lowering the net cost of the business to roughly $650m.

In comparing NCR’s two software plays, the valuations line up rather closely. NCR’s bid for Radiant valued the company (on the basis of enterprise value) at about 3.2 times trailing sales and 21x trailing EBITDA. For Retalix, the comparable figures are 2.4x trailing sales and 25x trailing EBITDA.

Further, the premium NCR paid for Radiant, compared with the stock price 30 days prior, came in at 47%; for Retalix it was 50%. A final similarity between the two deals: the advisers. J.P. Morgan Securities banked NCR in both deals while Jefferies & Company worked for both Radiant and Retalix.

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AOL’s MapQuest ‘Discovers’ Everlater

Ben Kolada

Contact: Ben Kolada

In a fairly rare M&A move, AOL has acquired online travel journal startup Everlater to expand its MapQuest offering into the travel industry. The announcement coincides with the launch of MapQuest Discover, an interactive travel planning and discovery tool. Although this appears to be AOL’s first acquisition specifically for MapQuest, it may not be the last.

Founded in 2008 and based in Boulder, Colorado, Everlater provides a free online travel journal for consumers, as well as a paid customer engagement and travel planning product called Concourse for companies in the tourism industry. The startup lists six employees on its site and had secured about $750,000 from incubator TechStars and venture firm Highway 12 Ventures. Terms of its sale were not disclosed.

The move by AOL is an attempt to reinvigorate its staid MapQuest mapping assets, with an apparent focus on consumers (MapQuest’s B2B licensing services revenue has been declining). The acquisition of Everlater also appears to be the first inorganic move AOL has made specifically to expand MapQuest beyond navigation to providing original travel content and planning features. (We’d note, though, that AOL has bought other local content companies, including Patch Media and Going Inc in 2009.)

To expedite the growth of MapQuest’s travel content and interactive features, AOL could do additional small acquisitions in the travel and tourism sector, similar to what TripAdvisor has done over the past half-decade. In the past five years, TripAdvisor has announced nearly a dozen travel-related acquisitions, including the recent pickups of Wanderfly, Where Ive Been and EveryTrail.

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KEYW picks up Sensage to build out Project G

Ben Kolada

Contact: Ben Kolada

Just three days after announcing its largest acquisition – the $126m pickup of cybersecurity software development firm Poole & Associates – KEYW has snagged small security information and event management (SIEM) vendor Sensage for $24m, with an earnout potentially raising that price by $10.5m. The two companies had previously been partners, working together on KEYW’s networking cybersecurity platform, dubbed Project G.

KEYW is handing over $15m in cash and $9m in stock. The deal also includes an earnout of up to $3m in cash and $7.5m in stock, achievable based on unspecified revenue targets for the second half of the year. The transaction is expected to close in October.

The Redwood City, California-based target, which has 35 employees, generated about $12m in revenue last year and recorded a small operating loss for the first half of this year. However, although the legacy Sensage business will be retained, the company isn’t being valued on its sales, but rather its potential contribution to KEYW’s nascent Project G platform. Sensage CEO Joe Gottlieb will head the combined company’s Project G network security initiative. KEYW began commercially testing Project G in June.

Select precedent ESIM acquisitions

Date announced Acquirer Target Price/sales valuation
April 3, 2012 TIBCO Software LogLogic 3.5*
October 4, 2011 IBM Q1 Labs 8.8*
October 4, 2011 McAfee NitroSecurity 5.3*
June 23, 2011 SolarWinds TriGeo Network Security 3.9
September 13, 2010 Hewlett-Packard ArcSight 7.7

Source: The 451 M&A KnowledgeBase *451 Research estimate. Click links for full deal details.

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Though relatively small, Thoma Bravo’s Mediware buy signals larger trends

Ben Kolada

Contact: Ben Kolada

Although Thoma Bravo’s $195m reach for Mediware Information Systems isn’t exactly a market-moving acquisition, tech dealmakers will note that the transaction underscores a pair of larger trends in tech M&A. The deal continues the consolidation in the medical-focused IT vertical, as well as hints at the reemergence of buyout shops as volume acquirers.

Thoma Bravo is handing over $22 in cash for each share of Mediware’s stock, a 40% premium to the day-prior closing price, and the highest price Mediware’s shares have ever seen. The transaction values Mediware’s equity at $195m. However, the medical management software vendor’s $40m in cash holdings, and no debt, reduces its net cost to $155m. Using that enterprise value figure, Mediware is valued at 2.4 times trailing revenue and 8.8x trailing EBITDA.

Mediware’s sale is the latest acquisition in the rapidly consolidating medical-focused IT vertical. In July, Huntsman Gay Global Capital sold Sunquest Information Systems to Roper Industries for $1.4bn, or about 10x projected EBITDA, and One Equity Partners acquired M*Modal for an enterprise value of $1.1bn, or 2.4x trailing sales. We’ve recently noted that medical speech recognition and transcription companies in particular seem to be receiving considerable buyout interest.

While the Mediware acquisition shows the health of medical-focused tech M&A, it also points at somewhat of a reemergence of private equity firms as volume acquirers. Thoma Bravo, including its portfolio companies LANDesk and PLATO Learning, has already announced five acquisitions this year. PE firms were also especially active in August, with Carlyle Group shelling out $3.3bn for Getty Images.

PE activity also comes while some strategics are sitting on the sidelines. For instance, CA Technologies, which has historically announced about four acquisitions per year, has only announced one this year – the purchase of process automation software veteran Paragon Global Technology. The deal, announced this week, is CA’s first disclosed transaction in more than a year. Also, Symantec has been out of the market since March.

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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.

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General Dynamics nabs networking cybersecurity vendor Fidelis

Ben Kolada

Contact: Ben Kolada

General Dynamics on Monday announced the acquisition of network security vendor Fidelis Security Systems. Fidelis’ customer profile and proximity to security operations at federal agencies appealed to General Dynamics as the defense giant looks to expand its cybersecurity capabilities against several competitors that have already announced inorganic moves in this market.

General Dynamics isn’t disclosing terms of the all-cash deal, but did say that Fidelis has approximately 70 employees. When we last wrote about Fidelis in February 2011, we noted that it had 52 employees and that its average deal size had steadily grown from $200,000 in 2008 to $350,000. At the time, the company had 62 customers (up from 21 in 2008).

We’ve written before about traditional military contractors moving toward cybersecurity as the government cuts back on traditional military spending. In June, Northrop Grumman printed a similar transaction, reaching for Australian network security systems integrator M5 Network Security. And in October 2011, ManTech International announced that it was acquiring network, security and systems integration and software development vendor Worldwide Information Network Systems for $90m. General Dynamics also bought Fortress Technologies, which provides wireless mesh network access points and software that enable US defense agencies to establish secure wireless LAN connections, in July 2011. We’ll have a full report on this deal in an upcoming Daily 451.

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Healthy M&A activity in medical speech recognition and transcription

Ben Kolada

Contact: Ben Kolada

There’s seemingly been a burst in deal volume in the niche medical-focused speech recognition and transcription market lately. On Thursday, iMedX announced the acquisition of Electronic Medical Transcription Services (eMTS), capping off a growing line of acquisitions in this sector. Driving deal flow, among other things, is healthcare professionals’ increasing use of transcription and voice recognition systems and various legislation being passed that provides incentives for digital clinical documentation.

One such bill is the Health Information Technology for Economic and Clinical Health Act, also known as the HITECH Act, which became law in 2009. HITECH provides incentives for healthcare providers to use electronic health records, which store clinical data in a digital format.

Although the eMTS buy is likely quite small in the grand scheme of things, there is big M&A money being poured into medical speech recognition and transcription deals.

Earlier this month, One Equity Partners bet its money on this market when it announced that it was taking M*Modal private for $840m, or $1.1bn when including $260m of net debt. That transaction was announced almost exactly a year after M*Modal was acquired by rival MedQuist, which assumed the target’s name.

We’ve previously written that Nuance Communications, with its Nuance Healthcare unit, has been a major consolidator in this sector. In March, Nuance announced that it was paying $313m for medical-focused rival Transcend Services – its largest purchase since its last significant medical acquisition in April 2008, when it paid $363m for eScription. Nuance’s Healthcare division generated $583m in trailing sales as of March 31.

Recent select M&A in medical transcription and speech recognition

Date announced Acquirer Target Deal value
July 2, 2012 One Equity Partners M*Modal $840m
March 7, 2012 Nuance Communications Transcend Services $313.5m
August 15, 2011 Nuance Communications Loquendo $75m
July 14, 2011 Nuance Communications Webmedx Not disclosed
July 11, 2011 MedQuist M*Modal $130m

Source: The 451 M&A KnowledgeBase

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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.

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