Tag: corporate development survey

The wisdom of the crowds

Brenon Daly

Contact: Brenon Daly

As pretty much the only buyers at the table right now, corporate development executives’ views go a long way toward shaping the overall outlook for tech M&A. So it seems a fitting time to survey these shoppers in order to get their expectations for deal flow in 2010. The views of the corporate buyers are crucial to understanding deal flow because, collectively, strategic acquirers account for some 85% of the total M&A spending so far this year. (Note: If you are a corporate development officer and would like to take part in our survey, just email me and I’ll send you the link for the survey, which should only take about five minutes to complete.)

Over the past few years, the survey responses have correlated very closely with how deal flow has actually developed. For instance, when we asked corporate development executives last year what they expected to pay for startups in the coming year, nine out of 10 said private company valuations would come down in 2009. (That has certainly been the case this year.) And in our summer survey, we noted a significant increase in M&A appetite among the strategic buyers. That has certainly been the case, too. Spending on deals in the second half of 2009 is running 50% higher than the amount spent in the first two quarters of the year. Again, if any corporate development officers would like to take part in this survey, contact me and I’ll get you the form.

Sparxent bullish on M&A

-by Thomas Rasmussen, Jay Lyman

As indicated in the results of our recent corporate development survey, companies once again have an M&A appetite. Some firms even need a second helping of deals. That’s the case with Salt Lake City, Utah-based Sparxent. The IT services vendor wrapped up three acquisitions recently and says it is hungry for more.

In terms of the deals it has closed, Sparxent picked up Russian firm Arbyte Group – along with its Rikkon subsidiary – at a steep discount. We estimate that the company paid just south of $20m, which amounts to a valuation of roughly 0.5x trailing 12-month revenue. This is in addition to its purchase of XAware in May, which we estimate cost Sparxent about $7m, and its pickup of NetworkD last August. According to our understanding, Sparxent is currently generating approximately $70m in pro forma revenue and intends to double that by next year, primarily through M&A. The company tells us that it is currently running a process on a half-dozen or so deals, one of which could well be announced later this week. What vendor might Sparxent be reaching for?

Top among potential targets, based on the fact that both Sparxent and XAware had board membership and investment from vSpring Capital, is another vendor in the venture firm’s portfolio: Penguin Computing. Penguin, which is reaching out to a larger business market with its high-performance computing software and services, fits Sparxent’s preference for open-source-based software combined with commercial licensing. Another vSpring-funded company that may be a target is Infusionsoft, which is focused on automated sales and marketing software for the SMB and midmarket, where Sparxent is aiming to expand. Additional possibilities include PS’Soft with its IT asset and services management software and Sybrant Technologies, an application and product development services firm catering to midsize customers that includes open source in its offerings.