Looking up at the data warehousing incumbents

Contact: Matt Aslett

The face of the data-warehousing sector has changed considerably in the past 18 months. A series of acquisitions has seen Vertica Systems, Greenplum and Sybase snapped up by Hewlett-Packard, EMC and SAP, respectively. Further, Teradata and IBM have strengthened their hands to compete with Oracle and Microsoft with their respective purchases of Aster Data Systems and Netezza.

According to our 451 Information Management report, Data Warehousing: 2009-2013, Oracle, IBM, Teradata and Microsoft accounted for 93.6% of the total revenue in 2010, a level that will only drop slightly to 92.2% by 2013. Those figures were calculated prior to the recent M&A activity, but in order to make a considerable dent in the dominance of the big four, any acquiring company will not only have to buy a data-warehousing player but also invest in its growth.

EMC has the right idea: Greenplum had 140 employees when it was acquired in July 2010. EMC’s Data Computing Products Division now has more than 350 employees, and is set to reach 650 by the end of the year. Netezza can benefit by being part of the much larger IBM, but Big Blue is also investing in growing the business. IBM is expected to increase headcount there from 500 in September 2010 to 600 now, and a target of 800 by year-end. We believe that HP will have to make a similar investment in Vertica, which had just 100 employees at the time of its acquisition, just as Teradata is likely to boost the headcount at its new Aster Data ‘center of excellence’ beyond the estimated 100 employees Aster Data has today.

As for the remaining data-warehousing specialists, while they can all boast differentiating features and strategies, they must also be looking for acquisitions of their own. On their own, they can’t hope to compete with the investments available at their deep-pocketed rivals.

Comings, goings and growings in the data-warehousing market

Contact: Brenon Daly, Matt Aslett

Over the past two and a half years, tech giants such as Microsoft, IBM and EMC have all inked major data-warehousing (DW) acquisitions, running up a collective bill of some $2.5bn. All that time, Hewlett-Packard stayed out of the shopping spree, opting to develop its own DW offering in-house. On Monday, HP conceded that those efforts haven’t generated the return that it was looking for, and indicated that it would phase out sales of its Neoview product.

HP is expected to continue its DW-related partnerships, including a recently announced accord with Microsoft to deliver four new data appliances. On its own, however, HP wasn’t able to capture much business in the fast-growing DW market, in part because the company approached it as a services play. (My colleague Matt Aslett noted some of the struggles HP was having with Neoview in a recent report, where he indicated that if HP was serious about DW it should have either reached for Netezza or made the big move for Teradata.) It couldn’t have helped Neoview, either, that it was so closely associated with former CEO Mark Hurd, who is being erased as quickly as possible from HP since his unceremonious departure last summer.

HP’s shift away from directly focusing on the DW market comes as Teradata enjoys its richest-ever valuation. (Shares of Teradata, which is the largest and most-visible DW vendor, have jumped about 60% over the past year, giving the company a $7.7bn valuation.) We’re also hearing that Teradata may be looking to do a deal of its own. Having just closed its purchase of Aprimo to get into the business application market, the buzz is that Teradata will shift its M&A focus back to its basic business, perhaps picking up additional analytics and other DW technology.

Teradata pays a tidy premium for Aprimo

Contact: Brenon Daly

Announcing its first major acquisition since it was spun off into a stand-alone company more than three years ago, Teradata said it will pay $525m in cash for Aprimo. The deal marks a significant bet by the data-warehousing giant on the application market. Specifically, Aprimo brings a marketing automation offering to run on top of Teradata’s existing business analytics offering. Aprimo products will continue to be marketed and sold under the company’s name once the transaction closes, which is expected in the first quarter.

According to a conference call discussing the acquisition, Aprimo is expected to generate about $80m in annual sales. (We understand that roughly $60m of that is recurring revenue.) That means Teradata is paying a healthy 6.5 times revenue for Aprimo. That’s slightly ahead of the valuation that IBM paid in its big marketing automation play four months ago. Big Blue handed over $523m in cash for Unica, valuing the publicly traded company at 4.8 times trailing revenue.

Part of Aprimo’s premium could likely be attributed to the fact that it was steadily moving its business from a license model to a subscription basis. In fact, Aprimo’s SaaS offering accounted for a majority of its revenue. IBM’s move was important in the Aprimo process, as we gather that Teradata and Aprimo started talking only after Big Blue had closed its acquisition.

A Big Blue move into the data warehousing market

Contact: Brenon Daly

A little more than three years after Netezza debuted on the NYSE, the data-warehousing vendor is being erased from the Big Board at basically twice its valuation at the time of its IPO. Under terms, IBM is handing over $27 in cash for each share of Netezza, which went public at $12 in July 2007. However, after the strong debut, which valued the company at around $1bn, gravity set in on Netezza shares. They spent most of 2008 and all of 2009 under the $12 offer price.

Earlier this summer, however, Netezza shares started running. The run was fueled by strong second-quarter results that saw total revenue surge 45%, as well as lingering M&A rumors. (We noted in early July that we had heard EMC was interested in Netezza before it opted for rival data-warehousing vendor Greenplum. IBM’s bid values Netezza at twice the level it was trading at the time.)

As Netezza shares continued climbing to new highs on the market, the move whittled away the premium Big Blue is offering. Compared to the previous day’s close, IBM is paying just a 10% premium for Netezza. But judged against where Netezza was trading a month ago, the premium is 80%. We would add that Netezza shares have traded above the $27 bid since the open Monday morning. UBS advised IBM, while Qatalyst Partners advised Netezza.

Based on the enterprise value of $1.7bn given by IBM, the offer values Netezza at 8.9 times sales in its fiscal year that ended in January. (As a trading comparison, Teradata currently garners a valuation that’s about one-third that level.) At the end of its second quarter, Netezza guided Wall Street to expect about $250m in sales for the current fiscal year, meaning IBM is paying 6.8x projected sales. While that is a relatively rich valuation, it’s much lower than rival EMC paid in its big data-warehousing purchase. We understand that it handed over $400m for Greenplum, which was running at about $30m in sales.

A different outcome of the EMC-Netezza rumors

Contact: Brenon Daly

Although EMC paid top dollar for Greenplum, the startup may not have been EMC’s top choice for its move into data warehousing. At least two sources have indicated that the storage giant talked with fellow Boston-area company Netezza earlier this year. Talks were apparently short-lived, as the two sides never got close on price.

When discussions were going on, Netezza stock was trading at about $10. Our sources report that EMC was kicking around a bid that had a roughly 40% premium – in other words, essentially where shares change hands right now. Netezza, which came public three years ago, has been trading at its highest level since October 2007 lately.

Yet even with the run in Netezza shares (up 45% so far this year), the company isn’t egregiously expensive. It currently sports a market capitalization of $870m, but has about $110m in cash and equivalents, lowering its net cost to $760m. That’s about 3.2 times projected sales this fiscal year and just 2.7x next fiscal year’s estimated sales.

As it is, EMC paid a substantially higher multiple for Greenplum. (Our estimate, based on two sources familiar with the transaction, is that EMC handed over about $400m, or roughly 13x estimated trailing sales, for Greenplum.) Of course, there are different motivations – and, naturally, multiples – attached to either move. Netezza was a much more mature company, with more than twice the number of customers of Greenplum. On the other side, Greenplum had developed some pretty slick technology, particularly for cloud environments, that should fit easily into EMC’s broad sales channel.