Renewed rumors in MDM M&A, spotlight on Fiberlink

Contact; Ben Kolada

Rumors are swirling again about a possible takeover of one of the largest mobile device management (MDM) vendors. While we previously reported on speculation that AirWatch was nearing a sale to BMC, rumors this time put the spotlight on Fiberlink Communications.

Several industry sources have told us that mobile and laptop management veteran Fiberlink, better known nowadays for its MaaS360 mobile management product line, has been shopping itself. If a deal comes to fruition, it would most likely be the largest sale yet of an MDM provider.

We’re hearing varying rumors regarding the Blue Bell, Pennsylvania-based company. A couple of sources noted that Fiberlink had been shopping itself for a while, and that talks at one point fell apart, until an unknown suitor unexpectedly came back to the table. The company declined to comment on those rumors.

No word yet on who may be bidding for Fiberlink. Last year we wrote that the 21-year-old company was profitable, with revenue in the $50-100m range. Fiberlink has not taken funding since 2003, when it secured a $50m round led by Technology Crossover Ventures.

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Shakeout looming in MDM sector?

Contact: Ben Kolada

The crowded mobile device management (MDM) sector is likely to see a shakeout in the near future. By one account, there are already more than 80 firms vying for space in the growing MDM market. As the sector’s more notable vendors increasingly advance ahead of the competition, we expect laggard firms will either shutter their doors or be picked off one by one in small bolt-on technology acquisitions. But as the sector narrows, the future may shine brighter for firms that are making names for themselves.

As the smartphone and tablet take more overall computing share from laptops and desktops, the need for MDM will accelerate. Increasing adoption of tablets, in particular, is driving MDM demand. According to a report by ChangeWave Research, the survey arm of 451 Research, 23% of respondents said they plan on purchasing tablets for their employees in the first quarter of 2012, up from just 5% in the fourth quarter of 2010.

As the largest acquirers continue to consolidate the software stack, we expect to see them move into the MDM market. IBM has already announced a couple such acquisitions, picking up BigFix in July 2010 for an estimated $400m and Worklight in January for an estimated $70m. Dell and BMC are also expected to be eyeing this market, and would likely look at the frontrunners – firms like AirWatch, BoxTone, Good Technology, MobileIron and Zenprise, to name a few – as their top acquisition choices. But these firms aren’t likely to be had for cheap. We’ve already heard rumors that one of them is looking for a $400m-plus exit, and that another was previously in the sights of a $250m deal. Meanwhile, valuations will likely rise as these vendors continue growing. In 2011, Zenprise tripled its headcount, while MobileIron doubled its employee base. AirWatch’s headcount hit 400 last year, and it expects to double that this year.

Where to go after the sale?

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.

BMC rumored to be going mobile

Contact: Brenon Daly

Rumors are swirling that BMC will announce the acquisition of AirWatch, a purchase that would extend the systems management provider’s reach into the fast-growing mobile device market. The deal, which may print next week, would mark the first major move to consolidate the highly fragmented mobile device management (MDM) space, a market where we count more than 50 vendors of all sizes. AirWatch is one of the largest MDM players, and will get valued that way, according to sources. The rumored price tag is about $250m, or roughly 10 times revenue.

If the deal comes together, it would represent BMC’s only significant acquisition in mobility. The company nibbled in the market last summer, reaching for startup Aeroprise in July. (That was primarily a technology transaction, basically adding mobile capabilities to BMC’s flagship Remedy IT Service Management Suite.) Assuming this deal closes, we would expect other tech giants – both IT management companies as well as security vendors – to look at acquiring MDM capabilities as well.

A new frontier in IT management M&A

Contact: Brenon Daly

Few areas of software have seen more consolidation than the broad bucket known as IT service management (ITSM). Where vendors were once selling relatively simple helpdesk software, the offerings have evolved – primarily through M&A – into broader IT management platforms. The deals have ranged from massive strategic bets (Hewlett-Packard’s $4.5bn reach for Mercury Interactive, for instance) to tiny technology tuck-ins (e.g., EMC’s March 2008 addition of Infra Corp).

But what we hadn’t really seen in this flurry of dealmaking is an acquisition focused on mobile capabilities. Well, that was true until Thursday, when BMC Software reached for Aeroprise. (BMC is slotting Aeroprise into its Remedy portfolio, a business that BMC acquired in 2002 for $347.3m from bankrupt parent company Peregrine Systems.) The acquisition bolsters BMC’s ability to deliver its ITSM tools to smartphones and tablets of all flavors. And BMC knows the startup very well. It has been selling Aeroprise products (branded as a BMC offering) for the past year.

An extended cold snap in the M&A market

Contact: Brenon Daly

The tech M&A spending slump continued into February. For the sixth straight month, the aggregate value of deals came in at only about $10bn. (Specifically, we tallied 256 deals in February, worth just $9.7bn – the lowest monthly spending total in a year.) The rather anemic recent spending comes after a flurry of dealmaking last summer had many observers speculating about a return to a more robust M&A environment.

Instead, recent monthly spending has flat-lined at just half the level it was last summer. Another way to look at the activity: The total value of deals so far this year (January and February combined for $20.6bn in spending) is only equal to the single-month totals from April to August last year.

One reason why 2011 has gotten off to such a slow start is that many big-name tech buyers haven’t been in the market. Among the companies that have yet to open their M&A account this year: Microsoft, Symantec, Oracle, IBM, EMC, BMC and others.

BMC adds to automation capabilities

by Brenon Daly

BMC Software hopes its latest purchase will make life easier for database administrators (DBAs) and systems operations. The management giant on Friday picked up longtime partner GridApp Systems, adding the startup’s database automation offering to its broader automation and management portfolio. GridApp automates tasks such as database provisioning and patching – mundane and time-consuming chores for DBAs, but ones that are critical for security and compliance reasons. Additionally, it enhances BMC’s full-stack automation capabilities.

The importance of this technology was highlighted (in part, at least) by another acquisition earlier this year. In late August, Hewlett-Packard reached for Stratavia, a startup that had begun life as a database management vendor but expanded into application-layer automation as well. (Pacific Crest Securities advised Stratavia, while GrowthPoint Technology Partners banked GridApp.) Even if the technology in the two deals doesn’t line up exactly, we understand that the valuations are nearly identical. Both GridApp and Stratavia, which were small, nonetheless garnered a 10 times multiple.

Talk is cheap, but BMC isn’t

Contact: Brenon Daly

All the talk around an acquisition of BMC may be just that – talk. We have a hard time believing some of the rumored buyers for the IT management vendor. That skepticism was shared by a few bankers who we spoke with about the rumor. In fact, they reminded us that the most recent M&A buzz around BMC had the company as a buyer, not a seller. Several sources have indicated that BMC was an early bidder for security provider ArcSight, but dropped out quickly when the price got a bit rich.

Nonetheless, M&A speculation pushed BMC shares Thursday to their highest level in a decade. Currently, the company garners a market cap of $7.6bn. Fittingly for a 30-year-old firm, BMC sits on a pile of cash. It has some $1.4bn in its treasury, although a bit of debt lowers its net cash position to about $1.1bn. The company recently indicated that it would generate in the neighborhood of $700m in cash from operations in the current fiscal year, which ends in March. Sales for the fiscal year are expected to come in at $2bn.

With an enterprise value of roughly $6.2bn, BMC currently trades at more than 3 times projected sales and almost 9x projected cash flow. Even without a take-out premium, those are fairly rich multiples for a company that grows just 2% per year. A premium could take BMC’s equity value to around $10bn.

Obviously, there are only a few companies that could write that a check that big and if we were to short-list them we would probably put Oracle and Cisco Systems on there – but for different reasons. The $1bn of maintenance revenue that flows steadily to BMC each year would undoubtedly catch Oracle’s eye. But buying $1bn of annual maintenance revenue for, say, $8bn (on a net cost basis) doesn’t look like the kind of bargain Oracle typically strikes.

And while Cisco has partnered with BMC for the management within its Unified Computing System, it’s not clear to us that Cisco actually needs to own BMC to further its interest in outfitting datacenters. To our mind, Cisco should just put the money it would spend on BMC toward the company that it should really buy: EMC.

A unanimous quartet

Contact: Brenon Daly, Dennis Callaghan

With BMC Software reaching across the Atlantic this week for Tideway Systems, the Big Four systems management vendors are now four for four in terms of buying startups that do datacenter asset discovery and dependency mapping. The deal, which is the second acquisition by BMC in as many months, should help the company round out its datacenter management lineup. Although terms weren’t disclosed, we understand that BMC paid $30m for Tideway, which was running at about $15m in revenue. Tideway, which is based in London, had raised some $37.5m in backing, including a whopping $27m series C in April 2008.

Most of BMC’s other rivals had already inked deals in this market. In addition to the Big Four, other tech giants also picked up startups that had discovery and mapping technology. The deals started in mid-2004, when Mercury Interactive (now part of Hewlett-Packard) reached for Appilog. After that, a yearlong flurry of transactions starting in late 2005 saw pretty much all the big names make their play. IBM acquired Collation, Symantec reached for Relicore, EMC grabbed nLayers and CA Inc bought Cendura. Based on disclosed or estimated deal values, all the buyers during that period paid in the neighborhood of $50m for their respective discovery and mapping startups, roughly 40% more than we hear BMC handed over for Tideway. Look for a full report on the transaction in tonight’s MIS sendout.

M&A market timing at CA

Contact: Brenon Daly

After a two-year hiatus that ended last fall, CA Inc has returned to the market with newfound enthusiasm. With the vendor’s purchase on Monday of network performance management provider NetQoS, CA has now inked six acquisitions over the past 12 months. That comes after an extended period (September 2006 to October 2008) when the normally acquisitive company stepped out of the market entirely.

During that time, CA’s four large rivals (BMC, Hewlett-Packard, IBM and Symantec) announced a total of 61 transactions between them. Collectively, the quartet of buyers paid roughly 5.7 times trailing 12-month (TTM) revenue in the deals they did. (That’s the median valuation from the more than 20 transactions that either had terms disclosed or where we estimated the numbers.)

So from CA’s perspective, sitting out a period marked by historically high valuations might not be a bad thing at all. Consider this: CA’s purchase of NetQoS cost it $200m in cash, which worked out to 3.6x TTM sales. If we slap the prevailing multiple from the period CA was out of the market (5.7x TTM sales) onto CA’s most-recent deal, the price for NetQoS swells to $320m. Obviously, there were vastly different assumptions about growth rates in late 2006 and early 2007 than there are now, which goes a long way toward explaining the nearly 40% ‘discount’ that CA got by inking the NetQoS purchase on Monday rather than when the market was hot.