Citrix takes a breather from M&A

Contact: Ben Kolada

After setting an M&A spending record in 2012, Citrix has stayed on the sidelines. The company announced six acquisitions that year, including two of its three largest deals, and spent more than $750m, the most in its history. It has been pretty quiet since then, announcing only two acquisitions in 2013 for a combined total of just $11m.

The cooldown contrasts the trend we’re seeing among the other large tech vendors, most of which have moved toward fewer and larger acquisitions. (Our recent Tech M&A Outlook webinar talks more about this trend.) Citrix participated in this activity in 2012, when it announced its all-cash acquisitions of Bytemobile for $435m and Zenprise for $327m. What’s especially noteworthy is that those two deals combined were worth more than the free cash flow Citrix generated in all of 2012 (though we note that the Zenprise buy closed in January 2013).

However, poor financial results have derailed Citrix’s dealmaking machine since then. In the 15 months since announcing the Zenprise purchase, Citrix’s quarterly results have been rocky – it has lowered guidance or posted results below analysts’ expectations a half-dozen times.

Its recently released 10-K shows that Citrix paid $5.3m for Byte Squared in September and $5.5m for Skytide in December, its only two deals of 2013. At $28.2m, the lone purchase Citrix has announced so far this year, Framehawk, already surpasses its 2013 total M&A spending, but still falls below its three-year median acquisition size of $45m, according to The 451 M&A KnowledgeBase.

Citrix’s recent acquisitions

Year announced* Target Target abstract Deal value
2014 Framehawk Application mobilization software provider $28.2m
2013 Skytide CDN and streaming video analytics $5.5m
2013 Byte Squared Mobile file-editing software $5.3m
2012 Zenprise Mobile device management software $327m
2012 Beetil Service Management Helpdesk management SaaS Not disclosed
2012 Bytemobile Mobile traffic management software $435m
2012 Virtual Computer Desktop virtualization software provider Not disclosed
2012 Apere Single-sign-on security vendor $25.2m
2012 Podio Team collaboration SaaS provider $45.3m

Source: The 451 M&A KnowledgeBase *In 2012, Citrix also acquired two unnamed companies


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AirWatch raises $200m to propel growth

Contact: Ben Kolada, Chris Hazelton

AirWatch, considered one of the largest mobile device management (MDM) vendors, has raised $200m in its first round of outside funding. Insight Venture Partners led the round. This round of funding will build on several hundred million dollars the company has already invested in its MDM products and now-growing focus on mobile application deployment and management.

Terms of the investment weren’t disclosed, but we’re told the funding round values AirWatch at a whopping $1bn, which no doubt restricts its options in terms of an exit. The largest MDM acquisition we’ve seen so far was Citrix’s takeout of Zenprise for $327m. Zenprise had raised a total of $79m.

The investment will be used to increase staff in Asia as the company looks to build on 2012 revenue of nearly $100m, expanding on earlier international growth. Specifically, AirWatch says the funding will be used for product development and strategic M&A. The latter is particularly noteworthy, since the company has so far focused solely on organic growth, and hasn’t announced a single acquisition since its founding in 2003.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

Shallow pool in mobile optimization becoming shallower

Contact: Ben Kolada

After Allot Communications dipped its toes into the pool of mobile optimization targets by acquiring small Ortiva Wireless, Citrix cannonballed with the acquisition of Bytemobile. These two deals significantly drained the already shallow pool of acquisition targets in this market. Interested buyers should dismiss the ‘don’t run when wet’ precaution, and jump in before there’s no water left.

Consumers are buying data-intensive devices in droves, and data consumption is exploding as a result. Because seamless data use is considered a right rather than a privilege these days, cell carriers unable to provide flawless transmission risk customer desertion. Tackling this concern, mobile operators are employing every option available to relieve their bandwidth bottlenecks, including relying on a new breed of mobile traffic optimization firms.

As these upstarts emerge as viable solutions, they’re becoming increasingly attractive acquisition targets both for the vendors that traditionally have served telcos, and for non-traditional vendors hoping to pull in cash-rich telco customers.

However, interested acquirers need to move fast. In a recent report, we identified 11 remaining vendors, ranging from pre-revenue firms to established midmarket players. But less than half of those vendors target mobile optimization as their core business. Click here to see who we think may be next in the buyout line.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

EMC buys Syncplicity for mobile file sharing in the enterprise

Contact: Ben Kolada, Simon Robinson

EMC on Tuesday announced that it is taking another swing at backup and file synchronization. However, this time the company is aiming primarily at mobile users in the enterprise. EMC is acquiring four-year-old startup Syncplicity, which provides file-sharing and storage software as a service that enables synchronization to and from computers, mobile devices and online services.

In announcing the acquisition, EMC noted that it chose Syncplicity over the competition because Syncplicity is focused on the enterprise segment, while most other competitors are still targeting consumers. (EMC had previously tried its hand at the consumer backup market. In 2007, it paid $76m for online storage startup Mozy, but has since handed over much of the responsibility for those assets to VMware.) Like so many of its rivals, Syncplicity started in the consumer space but turned its attention toward enterprises in the past year or so. The company now claims about 200,000 users, including roughly 50,000 businesses.

We’d also note that the deal was driven by EMC’s Information Intelligence Group (i.e., Documentum), which makes sense from a collaboration/workflow/app space, but it does have the potential to cause some internal conflicts. For example, the EMC Atmos team is working closely with Oxygen Cloud, and VMware has Horizon/Octopus.

EMC isn’t disclosing terms of the acquisition, but we were recently told that Syncplicity is still in its early days and is nowhere near the size of competitor ShareFile, which sold to Citrix last year. ShareFile had nearly double Syncplicity’s headcount, and generated an estimated $12m in revenue during the year leading up to its sale. Citrix paid $54m for ShareFile, and is now using the target’s technology in its recently updated CloudGateway 2 product for mobile app management and file sharing. We’ll have a longer report on EMC’s Syncplicity buy later this week.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

Citrix consolidates collaboration

Contact: Ben KoladaThejeswi Venkatesh

In its third collaboration deal in the past 18 months, Citrix Systems said Wednesday that it will acquire small Copenhagen-based startup Podio. The target provides team collaboration SaaS for SMBs, apparently mostly through a ‘freemium’ model. Its product is used for project management, social information sharing, sales lead management and employee recruitment management. It also provides related Apple iPhone and Google Android applications. But Citrix isn’t the only company consolidating in the collaboration market – its Podio buy comes at a time of record interest in this sector.

While there are many collaboration vendors in the market, Podio has a different approach – it enables users to create their own applications to carry out specific tasks. This allows teams to tweak the platform to cater to their specific needs. Citrix will integrate Podio into its GoTo cloud services suite, making it easy for existing customers to adopt the platform. Podio already integrates with Dropbox, Google Docs and Box.

Citrix isn’t disclosing terms of the acquisition, but we suspect that the three-year-old firm probably generated less than $5m in revenue. Podio claims tens of thousands of customers in 170 different countries, but the majority of them are likely only using its free product. If our revenue assumption is correct, then this deal should be considered more of ‘tech and talent’ play than anything else. Citrix traditionally pays above-average valuations, but we doubt that it paid more for Podio than the $54.2m it forked over in its last collaboration acquisition – ShareFile. The 27-employee firm had raised a total of $4.6m from Sunstone Capital, CEO Tommy Ahlers and private investors Thomas Madsen-Mygdal and Ulrik Jensen.

Beyond Citrix’s recent consolidation, the collaboration market is seeing increasing interest overall. The 451 M&A KnowledgeBase shows 79 collaboration acquisitions in 2011 – nearly double the volume in 2010 and an all-time record. Throughout the collaboration sector, some of the most notable transactions since the beginning of 2011 include Yammer buying oneDrum (announced just today), reaching for Manymoon and Dimdim, Citrix competitor VMware acquiring Socialcast and SlideRocket, and Jive Software picking up OffiSync (click on the links for disclosed and estimated valuations). Jive itself made its own splash in social collaboration when it went public in December. The company hit the Nasdaq at $850m and has since seen its market cap balloon to nearly $1.6bn, or 14 times projected 2012 revenue.

Citrix’s collaboration acquisitions

Date announced Target Collaboration sector Deal value
April 11, 2012 Podio Team collaboration Not disclosed
October 13, 2011 Novel Labs (aka ShareFile) File sharing & team collaboration $54.2m
December 17, 2010 Netviewer AG Web conferencing $115m

Source: 451 Research M&A KnowledgeBase; Click on the links for disclosed and estimated valuations

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

Citrix targets SMBs with Kaviza

Contact: Ben Kolada

Broadening its enterprise VDI portfolio to the SMB segment, Citrix has acquired Kaviza, a startup offering VDI-in-a-box technology to SMBs. The move follows an initial Citrix investment announced in April 2010, and brings Kaviza fully under its fold. Though Citrix already had an enterprise desktop virtualization product – XenDesktop – the company was missing an SMB mass-market offering. This acquisition fills that gap and, with the backing of Citrix’s marketing muscle, Kaviza’s technology should see quick adoption. Indeed, the vendor has already made considerable progress on its own.

Kaviza’s success is in part attributed to its kMGR virtual appliance, which runs on a grid of commodity servers and manages virtual desktops. Once Kaviza is up and running, scaling up infrastructure shouldn’t require any more effort than dropping the virtual appliance into a new physical server since the appliance configures itself automatically.

The company’s VDI-in-a-box product has attracted a diverse client listing, and we understand that the average size of its deployments was growing. A German systems and service management vendor, Matrix42, chose Kaviza’s VDI-in-a-box to integrate with its IT-Commerce offering. Parker SSD Drives, a division of Parker Hannifin, deployed VDI-in-a-box to improve production time by reducing unscheduled downtime and time required for repair work. The University of Wisconsin-Madison College of Engineering uses the product to give its students remote access to teaching labs. And British Columbia’s Credit Counselling Society has also adopted Kaviza. We’ll have a full report on this transaction in tonight’s Daily 451.

Big buyers sit out Q3 uncertainty

With the third quarter in the books, we get our first glimpse of the impact that the unprecedented upheaval on Wall Street is having on tech M&A. Over the past three months, the value of tech deals dropped about one-third from year-ago levels, sinking from $58bn to $37bn.

The falloff was even more pronounced at the high end of the market: only six deals worth more than $1bn were announced during the July-September period, down from 11 deals worth more than $1bn during the same period last year and 22 deals worth more than $1bn during the third quarter of 2006. (Along those lines, IBM has acquired just one public company so far this year, down from three last year.)

There are a number of reasons for the muted deal flow, starting with the barren conditions in the credit market. That knocked the number of leveraged buyouts from 36 in the third quarter of last year to just 12 this year.

Strategic acquirers, too, faced their own difficulties in striking deals as they got clubbed on the Nasdaq. Consider Google, which saw its shares bottom out at the end of the quarter at a three-year low. So far this year, the online ad giant has inked just four deals, down from 14 during the same period last year. Or Citrix, which recently saw its shares reach their lowest level since mid-2005. The enterprise software company has scaled back its acquisitions, picking up a product line and a tiny German company so far this year, after closing five deals during the first three quarters of 2007. See full report.

Third-quarter deal flow

Period Deal volume Deal value
Q3 2005 811 $87bn
Q3 2006 1,030 $102bn
Q3 2007 822 $58bn
Q3 2008 691 $37bn

Source: The 451 M&A KnowledgeBase

Microsoft’s ‘paper’ trail leads to Citrix?

Shares of Citrix jumped 5% Wednesday on reheated rumors that Microsoft may be bidding for its longtime partner. Volume in Citrix shares was about 50% heavier than average. One source indicated that Microsoft would be paying $36 for each Citrix share, which is essentially where Citrix started the year.

This rumor, of course, has made the rounds before. We noted in April that although both IBM and Cisco were rumored suitors for Citrix, our top pick for the acquirer would be Microsoft. (The two companies have been close for years, with Citrix being one of just two companies with access to the Windows source code.) All that said, however, we don’t see Microsoft buying Citrix. (How would Microsoft handle the fact that XenSource, which is arguably Citrix’s most-coveted asset, is built on open source software?)

As to why the rumor resurfaced Wednesday, we might trace that back to a misread of Microsoft’s announcement the day before that it was planning to sell some $2bn of commercial paper. The thinking is that Redmond might be prepping an even larger offering. But looking at Microsoft’s current balance sheet, it could buy Citrix four times over with the cash and short-term investments it already holds.

Citrix sits out

Since announcing its landmark acquisition of XenSource a little more than a year ago, Citrix has largely taken itself out of the M&A market. And don’t expect that to change anytime soon. CFO David Henshall told the Deutsche Bank Technology Conference earlier this week that the company ‘has its hands full’ with working out its virtualization strategy, which it grandly refers to as a datacenter-to-desktop offering. (That strategy largely reflects the fact that VMware, with an estimated 85% of the server virtualization market, isn’t as vulnerable as Citrix initially thought, at least around ESX.)

While Citrix has inked three deals since XenSource, the acquisitions have been quiet technology purchases. For instance, in January Citrix snagged a product line from FullArmor, a self-funded business process orchestration tool vendor, and in May it added Sepago, a 30-person company that only launched a product a year ago after a few years as a consulting shop.

Instead of spending on M&A, Citrix’s Henshall indicated that the company will continue to put much of the cash it generates ($75-100m each quarter) toward buybacks. If nothing else, Citrix has been getting a relative bargain in the buyback. After two straight earnings warnings earlier this summer, shares sank to their lowest level in almost three years. Around that same time, perhaps not coincidentally, rumors began to surface that Cisco or IBM might be shopping Citrix. If Citrix does get acquired, we still think the deal will flow through Redmond, with Microsoft to reach for its longtime partner to shore up its own virtualization offering.

Citrix deal flow

Year Deal volume Deal value
2008 2 Not disclosed
2007 5 $500m
2006 3 $117m
2005 2 $338m

Source: The 451 M&A KnowledgeBase

What’s brewing at Cisco?

Although Cisco chief executive John Chambers has thrown cold water on speculation about a large acquisition, the market continues to buzz about possible deals by the networking giant. Observers who think Cisco is big-game hunting point to a number of unusual moves from the company, which – with a bit of reading between the lines – appear to suggest something big is brewing.

For starters, they point to the fact that Cisco has largely stepped out of dealflow, inking just two deals so far in 2008. (We recently noted Cisco’s conspicuous absence, just a day before it announced its $120m purchase of network device configuration vendor Pure Networks.) In comparison, this time last year Cisco had inked nine acquisitions. Additionally, Cisco has drastically scaled back its share repurchase program, perhaps suggesting the company is stockpiling cash for a big deal.

Of course, most of the rumors have concerned a possible pairing of Cisco and EMC, largely so Cisco could get its hands on VMware. (EMC sports a market capitalization of $30bn.) This comes on the heels of earlier rumors that Cisco might be looking at Citrix, largely so it could get its hands on XenSource.

We have a new name to toss into the Cisco M&A rumor mill: McAfee, which has a $6bn market cap. Speculation has recently surfaced that the networking company is eyeing the largest IT security pure play, a combination that would allow Cisco – for the first time – to have control over endpoints. It would pick up a solid portfolio of security products from McAfee, notably encryption and port and device control offerings, as well as potentially salvaging Cisco’s disastrous NAC effort. (And as an added bonus with the deal, Cisco could stick it to Symantec. Cisco has little love for Symantec.)

Whether a deal materializes, or even is being considered, we would expect Cisco to emphasize security much more in the future. It recently handed the division over to Scott Weiss, who came with the January 2007 acquisition of IronPort Systems. A VC who has invested in Weiss’ companies over the years (Weiss also ran Hotmail) said he wouldn’t be surprised if Cisco turned over the entire business to Weiss when Chambers decides to step down.