IPOs: nothing to offer

Contact: Brenon Daly

Security vendor ArcSight marked its first full year on the public market with an unexpectedly solid fiscal third-quarter report Thursday. (That said, my colleague Nick Selby reads between the lines and sees some potential problems at the company, which now sports a market capitalization of nearly $350m.) Heading into the release, ArcSight shares traded essentially where they did when they hit the market last February, though an after-market rally pushed the stock above $11 for the first time in seven months.

The fact that ArcSight is now above its offer price is nothing short of astounding, given that both the Nasdaq and the Dow have nearly been cut in half since the debut of the security company. (Rackspace, which was the only other VC-backed tech IPO in 2008, has likewise been cut in half since going public last summer.) It’s telling that we have to limit our discussion about the IPO market to after-market performance, rather than new issues. Not to put too fine a point on it, but we all know that the IPO market is dead right now. (As if to reiterate that, GlassHouse Technologies on Thursday pulled its planned $100m offering, which it filed in January 2008.)

And even when the market opens up once again for debutants (and we think that date is a long time off), it will almost certainly provide even fewer exits for VC-backed companies than in the past. Sandy Miller, a general partner at late-stage venture firm Institutional Venture Partners (IVP), recently noted that roughly one-quarter of IVP’s past exits had come through an IPO. (Included in that number is ArcSight; IVP was its second-largest holder before the IPO.) In the future, however, Miller projected that the percentage of portfolio companies exiting to the public market would drop to ‘single digits.’

Dell’s deals

Contact: Brenon Daly

Dell picked up one services company last week, even as rumors were swirling that the company might be eyeing another, larger services deal. Dell said Friday that it would hand over $12m in stock to acquire four divisions from Allin Corp, an IT consulting shop that trades on the Nasdaq’s bulletin board. Allin, which is profitable, reported revenue of some $22m for the first three months of 2008.

The asset buy from Allin was Dell’s first acquisition in almost a year, following last February’s $155m purchase of MessageOne. However, rather than the Allin deal, the talk last week about Dell’s M&A was more focused on reports of whether the company is planning a play for storage-consulting firm GlassHouse Technologies. That company filed an S1 a little more than a year ago, but has only amended it once since then. GlassHouse was looking to raise $100m in the offering, which was slated to be led by Goldman Sachs.

While Dell has been active in building out its services portfolio through acquisitions (notably, Everdream and SilverBack Technologies in 2007), we would note that the company might face some difficulties in preserving impartiality at an independent GlassHouse if it were to pick up the storage consultant. The reason? Dell might be interested in pushing its own EqualLogic gear, which it bought in November 2007 for $1.4bn (which stands as the company’s largest-ever deal). Speaking of EqualLogic, there are a number of common threads that tie it to GlassHouse. Both companies are based in the Northeast, have nearly 30% of their equity owned by venture firm Sigma Partners and tapped Goldman to lead their offerings.

Recent Dell acquisitions

Date Company Deal value
January 2009 Allin Corp (assets) $12m
February 2008 MessageOne $155m
December 2007 The Networked Storage Company $31m
November 2007 Everdream Not disclosed
November 2007 EqualLogic $1.4bn

Source: The 451 M&A KnowledgeBase