Contact: Nick Patience
Last week was more or less bookended with two acquisitions in the e-discovery market, with Autonomy Corp picking up Iron Mountain’s digital assets on Monday and Symantec buying Clearwell Systems on Thursday. Autonomy and Symantec share a market but little else between them. Both are experienced acquirers – having made, collectively, 50 deals over the past decade – but each company chooses its targets and executes acquisitions in very different ways.
Autonomy often buys rivals simply to remove them from the market. Or it inks deals to obtain customer bases or move into adjacent sectors, and it often swoops in on companies at the last minute (as it did with Zantaz in 2007). The purchase of Iron Mountain’s divested business has all four of those characteristics. Iron Mountain was a direct rival in the e-discovery and archiving segments, while it also provided a backup and recovery business, which is a new area for Autonomy. The buyer also netted 6,000 customers, although there is some overlap. Autonomy took out Verity back in 2005 to remove a competitor and picked up Zantaz to get into the archiving space. The vendor is known for being aggressive in integrating companies, which often leads to a lot of people quickly moving on after being acquired, and we expect both people and products to be removed rapidly here.
Symantec’s M&A strategy is still somewhat shaped by its misguided attempt to add storage to its core security offering with the acquisition of Veritas in 2004. (That deal remains Big Yellow’s largest-ever purchase, accounting for more than half of the company’s entire M&A spending.) Of course, that transaction happened more than a half-decade ago and a different management team was heading the company.
Still, that experience – along with the constant reminders about the misstep from Symantec’s large shareholders – appears to have made the company more considered in its approach. For example, it had been working with Clearwell in the field as well as at the product development level for more than two years before the deal. However, we don’t think Big Yellow could have waited much longer to add some key e-discovery capabilities to boost its market-leading (but aging) Enterprise Vault franchise. We suspect that is why Symantec paid such a high premium for Clearwell, valuing the e-discovery provider at 7 times sales – more than twice the multiple Autonomy paid in its e-discovery purchase.
Clearwell had been on a growth tear since its formation at the end of 2004 and the firm helped define the e-discovery space, starting with early case assessment and then systematically moving into other segments of the e-discovery process. We get the feeling that management may have wished to have waited another year or so before being bought. We think they would have relished the chance to turn Clearwell into something substantial and possibly take it public; the fact that no bankers were used on either side indicates that Clearwell was not actively shopping itself around. But some offers are just too good to turn down.
Contact: Brenon Daly, Nick Patience
Announcing its first acquisition in almost a year, Autonomy Corp has picked up Iron Mountain’s digital assets in a surprisingly rich purchase of a castoff business. Autonomy will pay $380m in cash for the units, which include backup and recovery, e-discovery and digital-archiving software. The transaction effectively unwinds Iron Mountain’s acquisitions of Mimosa Systems and Stratify, deals the records giant had done as a hedge against the digitization of information. As my colleague Nick Patience writes in his report on the move in tonight’s Daily 451, the divestiture puts Iron Mountain almost entirely back in the business of storing cardboard boxes.
For Autonomy, we suspect that the main reason for the purchase is the division’s customer base of 6,000 as well as the six petabytes of data those customers have stored. (Autonomy already has e-discovery and archiving technology, so would be less interested in those Iron Mountain products.) Viewed in that light, the purchase price of $380m, or more than 2.5 times projected revenue in 2011, seems a bit steep. That’s particularly true when we consider that Iron Mountain was under the gun from big shareholders to dump the digital division. On the news, Iron Mountain shares inched a bit higher Monday afternoon, and have now added one-third in value since the beginning of the year.
Contact: Brenon Daly
There’s money, and then there’s expensive money. To underscore the difference, consider a pair of recent money-raising offerings from notably acquisitive companies. First, the worst. Art Technology Group announced earlier this month that it intended to hold a 25-million-share secondary, with an undisclosed portion of it earmarked for possible acquisitions. The plan didn’t find many fans on Wall Street, who carped about a profitable company adding 25 million additional shares on top of a base of about 135 million.
Art Technology shares promptly went into a tailspin. By the time the e-commerce firm had priced them, investors had clipped 22% off the stock. So instead of raising about $113m, the vendor had to settle for $88m (excluding overallotments). Even though Art Technology had to take a haircut on the secondary, it did at least get it done. With it, the debt-free company more than doubled the amount of cash it has on hand and could be a serious consolidator in the market. Already this year, Art Technology made a rather smart purchase of InstantService, a startup providing customer service through online chat and email.
And, although the reaction wasn’t nearly as severe, Autonomy Corp also took a mild hit from its investors when it announced plans to raise some $785m in a convertible offering last week. Adding those proceeds into its already well-stocked treasury will give Autonomy more than $1bn to go shopping with, although some of that will have to go to pay for its earlier Interwoven acquisition. Over the past three years, Autonomy has picked up five companies for a total of $1.2bn, although Interwoven accounts for two-thirds of the aggregate spending. As to what Autonomy might be looking to buy with its newfound riches, my colleague Nick Patience says in a recent report that he could imagine Autonomy going into marketing automation and BI, and he even has a few names that could well be on Autonomy’s shopping list.
Contact: Brenon Daly
In many ways, Autonomy Corp’s surprise purchase of Interwoven looked more like a 2007 deal than any transaction of a more recent vintage. In fact, both the purchase and the valuation line up almost exactly with acquisitions of public companies in 2007. Specifically, Interwoven’s enterprise value (EV) of $704m matches almost exactly the median EV of $701m for companies acquired in 2007. And Autonomy’s purchase values the content management vendor at 2.8x its trailing 12-month (TTM) sales, compared to 2.6x TTM sales for deals in 2007.
The Autonomy-Interwoven transaction stands out even more coming off of 2008, when public company deals took a hammering. The median EV/TTM sales multiple got cut nearly in half last year, falling to 1.4x from 2.6x in 2007. Meanwhile, the median purchase price sank to $159m from $701m.
Public company M&A
||Median deal size
||Median EV/TTM valuation
Source: The 451 M&A KnowledgeBase
Contact: Brenon Daly
Known as a turnaround guy for most of his career, Joe Cowan didn’t actually have too much fixing up to do at his latest posting as chief executive of content management vendor Interwoven. After he took over Interwoven’s top post in early April 2007, the business hummed along with sales growth in the mid-teens and solid profitability. Under Cowan’s leadership, shares of Interwoven dropped just 9%, less than one-quarter the decline posted by the Nasdaq over that same period. And never mind the southbound performance of shares of rival Vignette.
Cowan’s work at Interwoven stands in sharp contrast to earlier postings at Baan and Manugistics, scandal-tainted companies with declining sales and heavy losses. However, the end result of most of his engagements has been the same: a sale of the company. As a testament to the difference in the relative health of the two most-recent exits that Cowan has helped broker, consider that Interwoven is getting valued at twice the price-to-sales multiple of Manugistics. Viewed another way, Interwoven sold for almost 19x EBITDA, compared to closer to 13x EBITDA for Manugistics. We understand that Cowan will be staying on at acquirer Autonomy Corp after the close of the deal, at least for a bit.
CEO Joe Cowan: A tale of two exits
Source: The 451 M&A KnowledgeBase