Contact: Scott Denne
Over the three years on record in its IPO prospectus, application delivery controller vendor A10 Networks has grown its total revenue, but not without setbacks. The company has weathered – and continues to weather – multiple patent lawsuits, with one resulting in a $75m settlement with Brocade that included current and future patent licensing from A10 to Brocade until 2025.
Meanwhile, its own operations are showing signs of slowing. A10’s top line grew a respectable 18% to $141m in 2013, but its year-over-year growth rate on a quarterly basis was inconsistent, ranging from 7-27%.
Further, its costs have risen lately, indicating that the growth may not have met management’s expectations. A10’s operating costs (minus litigation expenses) grew to 84% of revenue in 2013, up from 73% in 2012 and 60% in 2011 and 2010. Last year A10 recorded a $27m loss, making 2013 the first year in the past four (the full period reported in its S-1) that it was unprofitable independent of its legal bills.
A10’s networking peers trade at 3-5x trailing revenue. Taking into account A10’s slightly higher – but lumpy – growth and the prospect of pending litigation, we expect it to trade on the low end of that range, with an enterprise valuation of 3-4x for a debut valuation of about $500m.
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