IBM puts its antifraud faith in Trusteer

Contact: Tejas Venkatesh

In its first security deal in two years, IBM reaches for financial antifraud and endpoint integrity software provider Trusteer. According to The 451 M&A KnowledgeBase, this is the highest-valued (on a price/sales basis) security acquisition for IBM, and should help further its already strong presence in the financial services vertical.

Terms of the transaction were not disclosed, but our sources corroborated the reported $800-1bn price range that IBM paid for the seven-year-old company. Using the midpoint of that range and our own verified revenue estimates gives the target a valuation far north of any of Big Blue’s other security deals. (Subscribers to the KnowledgeBase can view our estimates, including last year’s, trailing 12-month and projected revenue, here.)

Trusteer is known for providing lightweight fraud-prevention technology that scales en masse and provides an unobtrusive user experience. Having made its mark in the banking sector for end users, Trusteer recently launched an enterprise product in its foray into that market. From Trusteer’s perspective, having IBM as a parent will further accelerate its product’s adoption in the enterprise segment.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Taking advantage of the times

Contact: Ben Kolada

While the real estate industry overall is still hurting, M&A in the construction and facilities management software space is growing. Driving deal flow is the same factor that depressed the real estate market – the macroeconomy. Companies are continuing to seek new ways to cut costs, and increasing facilities’ efficiency is becoming a popular option. Growth, alongside fragmentation in the facilities management software sector, is leading to increasing consolidation.

Similar to trying to squeeze additional productivity out of employees, companies are now trying to squeeze additional efficiencies out of their facilities. In fact, as IBM stated in its acquisition of TRIRIGA, property and real estate are the second-largest costs to a business after employee compensation.

As a result, many vendors in the facilities and property management software segment are experiencing significant growth. Accruent, which claims to be the largest facilities management software provider, expects to grow revenue approximately 50% this year. (However, we’d note that M&A has helped the company’s upward revenue trajectory. Accruent has announced four acquisitions since 2011.)

The sector’s growth potential has even attracted some of the largest acquirers. IBM paid $108m for TRIRIGA in 2011 and last year Oracle acquired Skire’s assets. Beyond growth potential, vendors will consolidate the fragmented market, and acquire to add complementary offerings to their portfolios. Accruent, for example, bought Evoco in part to add construction management software to its existing facilities management software products.

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

KEYW picks up Sensage to build out Project G

Contact: Ben Kolada

Just three days after announcing its largest acquisition – the $126m pickup of cybersecurity software development firm Poole & Associates – KEYW has snagged small security information and event management (SIEM) vendor Sensage for $24m, with an earnout potentially raising that price by $10.5m. The two companies had previously been partners, working together on KEYW’s networking cybersecurity platform, dubbed Project G.

KEYW is handing over $15m in cash and $9m in stock. The deal also includes an earnout of up to $3m in cash and $7.5m in stock, achievable based on unspecified revenue targets for the second half of the year. The transaction is expected to close in October.

The Redwood City, California-based target, which has 35 employees, generated about $12m in revenue last year and recorded a small operating loss for the first half of this year. However, although the legacy Sensage business will be retained, the company isn’t being valued on its sales, but rather its potential contribution to KEYW’s nascent Project G platform. Sensage CEO Joe Gottlieb will head the combined company’s Project G network security initiative. KEYW began commercially testing Project G in June.

Select precedent ESIM acquisitions

Date announced Acquirer Target Price/sales valuation
April 3, 2012 TIBCO Software LogLogic 3.5*
October 4, 2011 IBM Q1 Labs 8.8*
October 4, 2011 McAfee NitroSecurity 5.3*
June 23, 2011 SolarWinds TriGeo Network Security 3.9
September 13, 2010 Hewlett-Packard ArcSight 7.7

Source: The 451 M&A KnowledgeBase *451 Research estimate. Click links for full deal details.

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

Kony Solutions acquires SAP app developer Sky Technologies

Contact: Ben Kolada, Thejeswi Venkatesh

After providing offline sync features for applications connecting to SAP’s ERP systems, Kony Solutions has decided to bring those apps in-house with the acquisition of Sky Technologies. Melbourne-based Sky provides preconfigured apps that integrate with SAP software. IBM, SAP and Kony competitor Appcelerator have also recently announced purchases that bolstered their app development platforms.

Terms of the deal were not disclosed, but we feel this should be viewed as a tiny tuck-in for Kony, which has 900 employees. Sky’s headcount is reportedly in the 30-40 range.

Kony is increasingly targeting the internal business requirements of enterprises after working with them to develop their customer-facing apps. Sky aids this initiative. By tucking in Sky, Kony can now offer customers a broader range of business-to-employee apps, including those that integrate with SAP environments.

Respondents in our April 451 Enterprise Mobility Survey said that their organizations place higher priority on development of apps that serve employees than apps that serve customers. To a degree, SAP acknowledged this sentiment when it announced that it was acquiring Syclo, which provides mobile work order software for field workers. Underscoring the value of these companies, we’re hearing that SAP paid roughly $100-150m for bootstrapped Syclo.

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

Actian persuading Pervasive to go private

Contact: Ben Kolada, Thejeswi Venkatesh

After a tough 15 years in the public spotlight, Pervasive Software may have finally found a graceful exit. The data integration vendor, whose revenue has flattened since the turn of the century, today announced that it has received an unsolicited $154m buyout offer from Actian.

Pervasive would be wise to accept the offer, as the Austin, Texas-based company had done little to excite investors during its public lifetime. The company’s annual revenue has been roughly in the $40-50m range ever since 2000, and its shares have appreciated less than the broad, tech-heavy Nasdaq.

The lackluster performance factored into today’s offer. Actian’s bid values Pervasive at 2.3 times trailing sales. The best comparable deal is IBM’s Cast Iron Systems pickup in May 2010, which we estimate was valued at 6.7x revenue. And Boomi took an estimated 20x valuation in its sale to Dell in November 2011, though that target was much smaller. In fact, had it not been for Pervasive’s strong cash balance, the deal value would have been much less palatable. Pervasive held $42m in cash and no debt as of June. That treasury reduces the acquisition’s total cost to Actian by more than one-third.

Pressuring Pervasive’s shareholders to act on the offer, Actian is taking an unusually persuasive tone in its acquisition announcement, blatantly pointing out that its offer is the highest closing price reached by Pervasive’s common shares in the past 10 years. The deal carries a 30% premium to Pervasive’s closing share price on Friday, August 10.

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

The Facebook effect

Contact: Ben Kolada

Facebook’s stratospheric growth has had a profound impact on technology entrepreneurship and exits. In addition to creating some $60bn of market value in its own recent IPO, the company has spawned an ecosystem of vendors hoping to further monetize its one billion customers. A myriad of startups have popped up over the years to help advertisers, marketers and brands manage and deliver their message across Facebook’s platform, which some bulls on the company consider something like a new operating system.

Several of these startups are finally starting to show material sales. As a result, the market overall is being targeted by tech titans looking to become advertising and marketing vendors of choice for agencies and brands. That has led to a dramatic rise in the volume of acquisitions of tech firms serving this segment. Last year set the record in both the volume and value of acquisitions.

Dealmaking this year, however, has already shattered that total spending record: The $3.6bn spent so far this year on social-related companies is already twice the 2011 total. The M&A is being driven by phenomenal growth rates in the social media market. As a proxy for that, consider Facebook’s monthly active user (MAU) count, which has grown at a compound annual growth rate of 132% from its founding in 2004 to 2011.

The social media sector’s growth is leading to top-dollar prices for hot startups. Buddy Media, probably the largest social media marketing platform vendor, increased revenue 250% last year. On Monday, officially announced that it is paying $689m for Buddy Media. Meanwhile, Google and Meebo made their pairing official: Google is reportedly paying $100m for the social networking and user engagement vendor. Oracle just paid an estimated $325m for social marketing provider Vitrue to gain capabilities competitive to what Buddy Media offers. (And the enterprise software giant tucked in Collective Intellect for social media monitoring on Tuesday.) And finally, even old-line vendor IBM has inked a high-priced deal in the market, likely paying north of $200m for social sentiment provider Tealeaf Technology last month.

Source: The 451 M&A KnowledgeBase *Includes transactions in social software, social networking and related categories.

Intuit pays up for SMB-focused Demandforce

Contact: Ben Kolada, Thejeswi Venkatesh

Intuit on Friday announced its largest M&A move in six years, acquiring SMB-focused marketing automation startup Demandforce for $423.5m. The deal, and Demandforce’s valuation, was primarily driven by the target’s market traction. The company, founded just in 2003, has amassed a customer roster of more than 35,000 SMBs. The transaction also demonstrates the accounting and tax giant’s desire to further penetrate this market with additional products and services – this is its first major play in marketing automation.

The Demandforce acquisition complements Intuit’s QuickBooks software and expands its offerings for SMBs. (We’d note that Intuit already offers a marketing management and productivity application called QuickBase, though that product is for enterprises.) Demandforce provides marketing automation SaaS and helps businesses maintain an online profile and better communicate with their customers. The company has grown considerably over its short lifetime. According to’s annual survey of the fastest-growing companies, Demandforce generated $15.3m in revenue in 2010, up from $6.4m in 2009. Continuing that growth rate would put its 2011 revenue at roughly $25-30m.

Intuit is handing over $423.5m in cash for Demandforce, making this deal Intuit’s largest since it forked over $1.35bn for transaction processor Digital Insight in 2006. Demandforce’s growth certainly factored into its valuation. Assuming that Demandforce maintained historical growth rates, Intuit’s offer would value the target at a whopping 15-20 times trailing sales. If our initial estimates are correct, that valuation is double and even triple some precedent valuations. For example, in 2010, IBM bought Unica for 4.4x sales. Unica had flatlined during its final years as a public company, with revenue remaining in the $100m ballpark for the four years before its sale. The valuation is also double Teradata’s Aprimo acquisition, also announced in 2010. Teradata paid $525m for Aprimo, or 6.3x sales.

Deep-pocketed acquirers could bid up capacity-planning valuations

Contact: Ben Kolada

In a recent report, my colleague Rachel Chalmers discusses opportunities for some of the largest IT firms to fill holes in infrastructure management capacity planning through M&A. However, if bidding increases for the remaining startups in this sector, valuations could rise above the current estimated $100m record set by VMware’s Integrien acquisition.

Capacity planning is similar to performance monitoring. However, monitoring can only tell you what happened in the past, or at best, what’s happening now. Capacity planning requires you to have some idea of what will happen in the future. We’ve seen some dealmaking in this sector already, with each of the primary precedent transactions being valued well above the market average. However, many of the remaining potential acquirers have very deep pockets and intense bidding by this group for the decreasing pool of available targets could elevate valuations. Chalmers’ report cites Oracle, HP, IBM and Microsoft as still missing some capacity-planning capabilities – these four firms have a combined $100bn in cash and cash equivalents in their war chests. Click here for the full report, which includes current market valuations and details some of the most likely acquisition candidates.

Shakeout looming in MDM sector?

Contact: Ben Kolada

The crowded mobile device management (MDM) sector is likely to see a shakeout in the near future. By one account, there are already more than 80 firms vying for space in the growing MDM market. As the sector’s more notable vendors increasingly advance ahead of the competition, we expect laggard firms will either shutter their doors or be picked off one by one in small bolt-on technology acquisitions. But as the sector narrows, the future may shine brighter for firms that are making names for themselves.

As the smartphone and tablet take more overall computing share from laptops and desktops, the need for MDM will accelerate. Increasing adoption of tablets, in particular, is driving MDM demand. According to a report by ChangeWave Research, the survey arm of 451 Research, 23% of respondents said they plan on purchasing tablets for their employees in the first quarter of 2012, up from just 5% in the fourth quarter of 2010.

As the largest acquirers continue to consolidate the software stack, we expect to see them move into the MDM market. IBM has already announced a couple such acquisitions, picking up BigFix in July 2010 for an estimated $400m and Worklight in January for an estimated $70m. Dell and BMC are also expected to be eyeing this market, and would likely look at the frontrunners – firms like AirWatch, BoxTone, Good Technology, MobileIron and Zenprise, to name a few – as their top acquisition choices. But these firms aren’t likely to be had for cheap. We’ve already heard rumors that one of them is looking for a $400m-plus exit, and that another was previously in the sights of a $250m deal. Meanwhile, valuations will likely rise as these vendors continue growing. In 2011, Zenprise tripled its headcount, while MobileIron doubled its employee base. AirWatch’s headcount hit 400 last year, and it expects to double that this year.

IBM plays small ball in big market

Contact: Ben Kolada, Vishal Jain, Chris Hazelton

After a streak of batting in the majors, Big Blue recently took a swing in the minor leagues. The company’s recently announced pickup of Worklight is one of the smallest deals it has announced in more than two years. (In fact, Worklight’s $70m price tag is a fraction of the estimated $475m that IBM has spent on average for its acquisitions since the beginning of 2010.) Nonetheless, it’s a handsome price for a small company, and is indicative of the premium that acquirers are willing to pay for technologies that cover the entire scope of mobile app lifecycle development and management.

According to our understanding, Big Blue’s offer gives Worklight a boisterous valuation of 20-30x trailing sales. Why the sky-high valuation? Basically, as the PC era diminishes, IBM felt pressure to prop up its existing enterprise offerings for mobile clients. Faced with the extent of fragmentation, both on the client and back-end services side, IBM saw Worklight as key to the missing pieces in its puzzle. Worklight completes Big Blue’s coverage of HTML5 frameworks, brings single-code-based development, and provides encrypted local device storage as well as cross-platform publishing and packing capabilities.

Beyond its implications for IBM, the transaction is another example of a longer-term trend we’re seeing in mobile app lifecycle management. In our 2012 M&A Outlook – Mobility, we noted that enterprises need a platform that can manage their entire app development life cycle right from development and through to deployment and maintenance. Larger enterprises that have typically used mobile enterprise application platforms will eye app development firms or agencies in their quest to take control of mobile app development. These acquisitions would be similar to ones closed by Antenna Software, Deloitte, Financial Times, VeriFone and Wal-Mart in 2011.