A deal in sight for ArchSight?

Contact: Brenon Daly

If nothing else, the long Labor Day weekend gave us all a chance to catch our breath following a week of some of the most frenetic dealmaking we’ve seen in some time. We had bidding wars, doubleheader deals and even a billion-dollar chip transaction. But in some ways, the loudest buzz in the tech M&A market came from a deal that didn’t happen: ArcSight still stands on its own.

The ESIM vendor was supposedly in play, at least according to a thinly sourced and almost woefully vague recent article in The Wall Street Journal. Not to pick apart the piece, but listing a half-dozen of the largest tech companies as ‘potential bidders’ misses a great deal of context. For instance, we noted two and a half years ago that Hewlett-Packard was rumored to have offered about $600m for ArcSight the summer before it went public. ArcSight is now worth twice HP’s rumored bid, and roughly four times the amount the market valued it at when it came onto the Nasdaq in February 2008, just before the IPO window pretty much slammed shut. (For the record, Morgan Stanley led the ArcSight offering.)

That stellar aftermarket performance raises another interesting point about ArcSight: despite the fact that its shares have quadrupled during a time when the Nasdaq has essentially flat-lined, the company has never done a secondary offering. It has just 37 million shares outstanding. That strikes us a narrow base for a firm with $200m in sales and a market valuation of more than $1bn. But maybe the company figures it shouldn’t bother selling shares at current market prices if it stands to get a substantial takeout premium on top of that. For our part, we wouldn’t at all be surprised to see ArcSight get a second exit.

The ‘new normal’ in new offerings

Contact: Brenon Daly

Back in the third quarter of 2009, when the economy had pulled through the worst of the recession, we floated the idea that we looked likely to be entering a ‘new normal’ period for tech M&A. The term had been used to characterize a number of segments of the financial world, and we took it to mean that spending on deals wouldn’t be as low as it was earlier in the year, but it wouldn’t be anywhere near as high as it once was, either.

In recent weeks, it has struck us that our new normal description could also extend to another market that has seemingly recovered from the knock it took in last year’s recession: IPOs. In many cases, the new issues that are coming to market are lighter raises and less richly valued than the ones that came before the US economy slumped into its worst decline since the Great Depression. Even companies that once planned to hit the public market but then had to withdraw and, eventually, re-file their paperwork have done so with their eyes on smaller exits.

Take Convio. When the company, which makes on-demand software for nonprofits, initially filed its S-1 back in August 2007, it planned to raise some $86m. It filed another set of IPO papers earlier this year, planning to raise $58m. The one-third cut in offer size comes despite the fact that Convio finished 2009 almost half again the size it was in 2007 ($63m in 2009 revenue, compared to $43m in 2007). GlassHouse Technologies and Fabrinet are two other examples of vendors that also cut the size of their offerings in their latest efforts to go public.

As for initial valuations, we seem to be entering a new normal phase for debutants, as well. For instance, Meru Networks set its expected price range of $13-$15 per share earlier this month. Assuming it prices at the high end of the range, the wireless LAN provider, which will have just 14.9 million shares outstanding after the offering, would start its life on the Nasdaq at a market cap of just $223m. That’s just 3x the $70m in revenue it recorded in 2009. In comparison, rival Aruba Networks trades at more than 5x trailing sales.

QlikTech looks likely to click on the market

Contact: Brenon Daly

Even though the public market has been fairly choppy lately, there seems to be no shortage of companies willing to step into the uncertain waters. We’ve seen a number of recent IPO filings, as companies get their final 2009 numbers in order and look ahead to a possible summer offering. The problem is that few of the would-be debutants actually look all that attractive. Included in the current lineup of IPO candidates are a deeply money-losing company that will stay in the red for at least the next two years (Tesla Motors) and a barely baked company that generated a grand total of $36,000 in revenue last year (Vringo).

Those IPO candidates, along with most of the rest of the recent vintage, hardly approach the caliber of offerings of SolarWinds and Fortinet, among other companies that made it public last year. But we understand that may be about to change as rumors indicate that one of the stronger private tech companies has set its underwriting lineup. QlikTech has picked bankers and will look to put in its IPO paperwork shortly, according to several sources. (Morgan Stanley, CitiGroup and JPMorgan will reportedly be running the books on the offering.)

We noted a possible future offering more than two years ago, coming off a year when the analytics provider increased revenue 80% to $80m. QlikTech followed that up with $120m in revenue for 2008, and we understand that the vendor actually boosted its top line again in 2009. If indeed QlikTech does file its S1 and eventually manages to go public, it will help to replenish a bit of the market that got picked over pretty thoroughly. Recall the shopping spree by tech giants back in 2007 that saw BI vendors Hyperion Solutions, Business Objects and Cognos all get erased from the public markets. The collective tab for that BI shopping spree: $15bn.

Autonomy and Art Technology: Lower after raising

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.