Tag: Convio

The ‘new normal’ in new offerings

Brenon Daly

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.

Interplay between M&A and IPO

Brenon Daly

Contact: Brenon Daly

With the IPO calendar essentially blank right now – and likely to stay that way as long as the Nasdaq keeps lurching downward – companies that are both of size and mind to go public are using the pause to do a little shopping of their own. These transactions tend to be smaller plays, typically rounding out the company’s existing portfolio. (We would contrast these tuck-in deals with the larger consolidation plays that companies make so they can get big enough to paper their S-1. Of course, those deals only work when the public market is receptive. For instance, Convio acquired a rival that was about half its size in hopes of bulking up and going public. It pulled its IPO paperwork last August.)

Last summer, we noted that NetQos inked a small buy on its way to what we expect will be a larger sale of its equity to the public, whenever the market returns (it was the first deal by the network performance management vendor in some two-and-a-half years). In a similar situation, Tangoe last week announced that it was picking up mobile device management startup InterNoded.

The deal, which was Tangoe’s third purchase in less than two years, certainly wasn’t done to boost revenue. InterNoded posted sales of about $4m in 2008; meanwhile, Tangoe is anticipating about $60m in 2009. Tangoe has raised some $20m in VC, along with an undisclosed slug of debt. But the company, which is running in the black, doesn’t appear to have any immediate plans to raise capital (even if that were possible right now). We understand that it hasn’t met with bankers, much less held a bake-off.

Bottom-fishing by Blackbaud

Brenon Daly

In almost four years of going head-to-head on the Nasdaq, Kintera never challenged Blackbaud’s stock performance. In fact, it never even came close. An internally funded and smaller rival, Kintera actually jumped ahead of Blackbaud’s IPO by about six months. The company had to trim its offer price in late 2003 to get the IPO out the door, but shares nearly doubled shortly after they hit the market.

Once Blackbaud hit the market in summer 2004, however, Kintera had started a slide from which it would never recover. Blackbaud put Kintera out of its misery last Thursday, shelling out $46m for the struggling company. Kintera was actually in danger of getting delisted from the Nasdaq. (Evercore Partners once again banked Blackbaud, a mandate that we noted last year that has its roots in Redmond, Washington.)

The price values Kintera at basically 1x trailing 12-month sales, while Blackbaud trades at nearly four times that level. Even though Blackbaud didn’t overpay for Kintera, the market has expressed some concern about buying a damaged rival in a deal that will lower Blackbaud earnings this year. Blackbaud shares are down about 7% since announcing the deal.

Kintera is run as a public company, and its paltry exit price certainly won’t help rival Convio get its offering to market. The Austin, Texas-based company filed its S-1 in September and has amended it three times since then. So, it may well be getting ready to price. However, we would note that the income statement of Kintera matches up fairly closely with Convio – both posted revenue of about $45m in 2007, but had negative operating margins. Let’s just hope that the market doesn’t value Convio the same as it did Kintera. 

Recent Blackbaud acquisitions

Date Target Price
May 29, 2008 Kintera $46m
Aug. 6, 2007 eTapestry $25m
Jan. 16, 2007 Target Software $60m

Source: The 451 M&A KnowledgeBase