A Big Blue move into the data warehousing market

Contact: Brenon Daly

A little more than three years after Netezza debuted on the NYSE, the data-warehousing vendor is being erased from the Big Board at basically twice its valuation at the time of its IPO. Under terms, IBM is handing over $27 in cash for each share of Netezza, which went public at $12 in July 2007. However, after the strong debut, which valued the company at around $1bn, gravity set in on Netezza shares. They spent most of 2008 and all of 2009 under the $12 offer price.

Earlier this summer, however, Netezza shares started running. The run was fueled by strong second-quarter results that saw total revenue surge 45%, as well as lingering M&A rumors. (We noted in early July that we had heard EMC was interested in Netezza before it opted for rival data-warehousing vendor Greenplum. IBM’s bid values Netezza at twice the level it was trading at the time.)

As Netezza shares continued climbing to new highs on the market, the move whittled away the premium Big Blue is offering. Compared to the previous day’s close, IBM is paying just a 10% premium for Netezza. But judged against where Netezza was trading a month ago, the premium is 80%. We would add that Netezza shares have traded above the $27 bid since the open Monday morning. UBS advised IBM, while Qatalyst Partners advised Netezza.

Based on the enterprise value of $1.7bn given by IBM, the offer values Netezza at 8.9 times sales in its fiscal year that ended in January. (As a trading comparison, Teradata currently garners a valuation that’s about one-third that level.) At the end of its second quarter, Netezza guided Wall Street to expect about $250m in sales for the current fiscal year, meaning IBM is paying 6.8x projected sales. While that is a relatively rich valuation, it’s much lower than rival EMC paid in its big data-warehousing purchase. We understand that it handed over $400m for Greenplum, which was running at about $30m in sales.