A splashy IPO for Splunk

Contact: Brenon Daly

After spending the past two weeks baking off, Splunk has picked Morgan Stanley, J.P. Morgan Securities and Credit Suisse to run the books on its upcoming IPO, according to sources. The offering is expected to raise $150m for the San Francisco-based company, with the paperwork likely coming in January. Splunk will finish this year at about $110m in sales, an increase of some 65% over 2010. For 2012, projections call for the company to top $160m in sales.

The fast growth – an eager anticipation of the company’s rumored IPO – indicates just how far Splunk has grown beyond its roots as a basic event management vendor. Although most people currently know the company as a simple, easy-to-use search engine for IT data, it has been broadening the information sources it collects, including ever-increasing volumes of machine-generated data. Additionally, we recently profiled the beta release of Splunk Storm, a monitoring tool for cloud-based apps that runs on Amazon Web Services.

While the company has been fairly clearly focused on an IPO, several sources have indicated that Splunk has nonetheless attracted attention from both Dell and Oracle in recent months. However, for both financial and philosophical reasons, the company is expected to remain independent. Splunk has a number of executives that have already helped sell companies for more than $1bn, notably Hyperion Solutions, ArcSight and Opsware. Several bankers who have met with various executives say there is a sort of ‘been there, done that’ attitude toward a trade sale, and they want to build a stand-alone business for the long run. That sentiment also comes through in the rumored clearing price for Splunk: a robust $1.5-2bn.

Jive talkin’ on Wall Street

by Brenon Daly

Despite one of the more inhospitable environments for IPOs, Jive Software has put in its paperwork for a $100m offering. The company, which sells a social network for businesses, has seen revenue nearly triple from 2008 to $46m last year. In the first half of this year, Jive has continued its strong growth on the top line, pushing revenue up 77%. Assuming it continues to track to that level, it would finish 2011 at about $80m in sales.

Clearly, that growth is what Jive will be selling on Wall Street. And that pitch seems to have caught the attention of IPO investors, at least looking at recent offerings that resemble the planned IPO from Jive. For instance, the financials of Cornerstone OnDemand, which went public in March, line up very similarly with those at Jive. Both companies are relatively immature, having only really begun generating any revenue of note in 2007 and still finishing 2010 with less than $50m in sales. Further, neither Jive nor Cornerstone have been running their businesses at an operating profit, much less a net profit, in recent years.

Not that the ‘sub-scale size’ or red ink has hurt Cornerstone on the Nasdaq. The company hit the market at about $900m, and even after the historical declines on the broad market earlier this month, it is still valued at close to $700m. That works out to an incredibly rich valuation of almost 13 times trailing sales. So maybe Cornerstone’s eye-popping multiple has something to do with Jive’s decision to file its prospectus, even as the market and the economic outlook have deteriorated since Cornerstone debuted.

RealPage gets diluted on a deal

by Brenon Daly

Exactly a year after going public, RealPage on Monday evening announced its largest-ever acquisition. However, the $74m cash-and-stock purchase of MyNewPlace didn’t exactly go over with Wall Street as the property management software vendor might have hoped. The recently minted shares of RealPage dropped 11% on heavy trading, hitting their lowest level since just about a month after their debut.

The concern? The acquisition will lower earnings at the company, trimming non-GAAP net income at RealPage by more than $1m this year. Conscious of the dilution, RealPage opened the conference call discussing the deal in an almost apologetic tone, acknowledging that it paid ‘a lot’ for MyNewPlace. In fact, the purchase price of this latest transaction is only slightly more than RealPage paid, collectively, in its three previous acquisitions.

But on the other side, the deal positions the company to be more relevant in the lead generation part of the rental housing market, which is undergoing dramatic changes. During the call, the company estimated that it would take five years and an investment of $30-40m to build a business, internally, that would do what MyNewPlace does right now. So, RealPage billed the purchase as a play to be more relevant in the long term. After a year on the market, we would have thought that RealPage would already know enough about the myopic vision on Wall Street to not talk about delayed gratification from acquisitions.

Summing up the IPO calculus

Contact: Brenon Daly

At the risk of oversimplifying the market for new offerings this week, we might nonetheless formulate an equation like this: AAA to AA+ = RW. Spelled out, that means: The historic downgrade in the credit worthiness of the US contributed to some of the bloodiest days Wall Street has seen, which in turn contributed to many IPO candidates deciding to scrap their planned offering. (Companies formally do this by filing what’s known as an RW form, for ‘Registration Withdrawal,’ with the SEC.)

Amid the choppy trading this week, both WageWorks and Trustwave shelved their proposed IPOs, which were originally expected to raise, collectively, about $200m for the companies. Instead, they’ll be heading home empty-handed from their aborted push to the public market. (The sole tech firm that made it to market, online backup vendor Carbonite, did so only after trimming its offering, which meant raising one-third less money than planned.)

While WageWorks and Trustwave – both of which have been active acquirers, even as private companies – will undoubtedly miss that windfall from their planned IPOs, the decision to scrap the offerings this week was inevitable. For a bit of context, consider this: When the two companies originally filed their paperwork to go public back in April, the Nasdaq was roughly 10% higher and the overall market volatility (as measured by the CBOE Volatility Index, or VIX) was less than half the level it is now.

‘Bear-ing’ down on the IPO market

Contact: Brenon Daly

This time last week, the Dow Jones Industrial Average was just above 12,000. Even with today’s relief rally, the benchmark index is 1,000 points lower, and is at its lowest level since last October. More broadly, both the S&P 500 and the Nasdaq have dropped 15% over the past month – declines that cut more than $1 trillion of market value from indexes. Amid all of this value being erased from the market, it’s no wonder that companies are struggling to create new market value, in the form of an IPO.

At least three tech vendors are hoping to debut this week, including online backup provider Carbonite, compliance security specialist Trustwave and WageWorks, which provides services around employee benefits. But those offerings by unknown and unproven companies appear to be a tough sell when the shares of well-known firms with a proven track record are getting mauled by the current bear market.

We’re already seeing signs of the fallout from the rout. WageWorks had to substantially trim the price range in its expected IPO last week. And on Monday, Cornerstone OnDemand, which went public in March, shelved a planned secondary offering.

Even if the equity market does stabilize in the coming days, there’s still a fair amount of uncertainty lingering from recent events such as the debt ceiling debate and the downgrade of the US credit rating, a move that would have been almost unimaginable in earlier decades. Reflecting that skittishness, the CBOE Volatility Index, or VIX, closed at 48 on Monday. That’s the highest reading since the recession days of early 2009 and twice the level from earlier this summer. Altogether, it’s a tough time to be on the market, much less come to market.

Fusion-io’s ‘flash-y’ and jumpy M&A currency

Contact: Brenon Daly

In the same breath that it announced quarterly results for the first time, Fusion-io also announced its first-ever acquisition. The flash storage specialist reached for IO Turbine, a caching software startup that had only emerged from stealth mode earlier this summer. Our storage analyst, Henry Baltazar, points out that although IO Turbine was only just getting started, its software had been bundled with Fusion-io’s PCIe flash cards. Fusion-io says the pairing boosts performance, and should open up new markets in virtualized environments.

Fusion-io will use both cash and stock to cover the $95m price of its inaugural purchase. The exact makeup of the consideration wasn’t released, but it’s basically one-third cash and two-thirds equity. That breakdown is noteworthy, given that Fusion-io – with some $220m in cash, thanks to its IPO two months ago – could have easily just used greenbacks to pay for IO Turbine.

Instead, the startup felt comfortable enough to take the majority of its payment in Fusion-io shares, which have been noticeably volatile since their June debut. Consider this: During last Thursday’s rough ride for the overall market, Fusion-io was particularly jumpy ahead of its earnings announcement. Shares opened at $28 each, dropped as much as 14% in the first hour of trading, actually popped above the opening trading price at midway through the session, and then slid almost uninterruptedly to close at the low of the day.

Granted, the trading last Thursday for individual equities was overshadowed by the historic 500-point drop in the Dow Jones Industrial Average that day. But we would note that the Dow was in the red from the opening bell, while Fusion-io actually rallied into the green at one point before sliding. Given those sorts of swings, it might not be a bad idea for the new holders of Fusion-io shares to look into a hedging plan for their holdings.

Dual track, but singular outcomes

Contact: Brenon Daly

For the third time in just two months, a tech company that had planned to go public has instead ended up inside a company that’s already public. The latest dual-track sale came Wednesday when Force10 Networks opted to accept a bid from Dell rather than see through its IPO plan. The networking gear vendor had filed its prospectus in March 2010.

The deal follows one month after would-be debutant Apache Design Solutions sold to ANSYS and two months after SiGe Semiconductor went to Skyworks Solutions. Those three transactions probably only generated about $1.2bn in liquidity, including Force10’s reported price of roughly $700m. (As a side note, we might point out that Deutsche Bank Securities was a book runner on all three proposed IPOs.)

As this trio of enterprise-focused startups finds itself snapped out of the IPO pipeline, consumer-oriented companies continue to receive a warm welcome on Wall Street. Consider this: Zillow, which went public earlier this week, now trades at about 20 times trailing revenue. In contrast, Force10, SiGe and Apache Design garnered much more modest valuations ranging roughly from 2-6x trailing revenue in their sales.

What happened to the storage sector’s Class of 2007?

Contact: Brenon Daly

Back in mid-2007, BlueArc was one of a quartet of storage vendors that put in their paperwork to go public during those go-go days on the stock market. However, if the NAS systems specialist, which recently re-filed its prospectus, does manage to see through its offering on this go-round, it will find itself very much alone. All three of BlueArc’s would-be fellow public storage contemporaries have been consumed by larger tech companies. The total bill for those three transactions: $4.8bn.

Dell would have had a hat trick for the Class of 2007 storage firms, if not for Hewlett-Packard. As it was, the Round Rock, Texas-based vendor took home EqualLogic in November 2007 before that company could even go public and then erased Compellent Technologies from the NYSE last December. Of course, Dell was lead bidder for 3PAR last summer, too, before losing out to HP. (And those deals are just for the big storage providers that filed their S1s in 2007. If we move back a year to 2006, another two vendors – Double-Take Software and Isilon Systems – that debuted that year were both gobbled up in 2010.)

With all this consolidation, where does that leave BlueArc? As we penciled out in our report on its planned IPO, the company is almost certain to be worth less when it does hit the market than it would have been worth before the Great Recession. Somewhat perversely, that’s true even though BlueArc will be twice the size that it was when it put in its prospectus in 2007.

If the company finds that prospect too demoralizing, it could always follow its fellow filers and opt for a trade sale. We would have put forward Oracle as a possible buyer of BlueArc, in a kind of ‘discount’ play for NetApp. But that seems even less likely since Oracle rolled in Pillar Data Systems on Wednesday morning. So, it looks like either HDS decides that it wants to own its OEM partner outright or BlueArc (finally) hits the market.

Different exits at different prices

Contact: Brenon Daly

Imperva’s pending IPO offers a fairly intriguing counterpoint to the trade sale of rival Guardium nearly two years ago. In 2009, both companies would have been rather similarly sized (basically, $35-40m) and posting roughly comparable growth rates.

Rather than continue as a stand-alone vendor, however, Guardium took a relatively rich bid from IBM for what we understand was about $232m, or about 6 times trailing sales. For a deal that was announced in November 2009, when the overall market was only starting to recover from the credit crisis, Guardium’s valuation looked positively platinum. (It was even more shiny when we consider that the Boston-based company raised just $21m in venture backing.)

But now with Imperva’s IPO, we may well get to see what Guardium might have been worth if it had opted for the other exit. (Obviously, there are a lot of flaws built into standing Imperva as a proxy for Guardium, and doing so glosses over the impact of time and risk on the return. But, arguably, it’s still a useful exercise.)

Nonetheless, assuming that Imperva can garner roughly the same trailing valuation that Guardium got in its sale, that would imply an initial valuation of about $330m – or roughly $100m more than its rival’s clearing price. That $330m would work out to about 4.5x this year’s expected revenue, which seems like a reasonable starting point for Imperva when it does hit the NYSE. (See our speciual report on Imperva’s offering.)

Heading toward an ‘Eloqua-ent’ IPO

Contact: Brenon Daly

A little more than a month after the strong IPO by a rival on-demand marketing vendor, Eloqua has taken its first significant step toward an offering of its own, according to market sources. We understand that the company has tapped J.P. Morgan Securities and Deutsche Bank Securities to lead the IPO, with a filing expected in a few weeks. Co-managers will be Pacific Crest Securities, JMP Securities and Needham & Co.

Eloqua has been positioning itself for an offering for the past few years, taking steps such as moving its headquarters from Canada to the Washington DC area, as well as hiring a raft of senior executives, most of whom have experience at public companies. Meanwhile, on the other side, Wall Street appears ready to buy off on marketing automation companies. At least the demand has been there for rival Responsys, which went public in late April and currently trades at a $750m valuation.

Responsys’ valuation works out to about 8 times 2010 sales and 6x 2011 sales at the on-demand company. Eloqua, which also sells its marketing automation software through a subscription model, is thought to be about half the size of Responsys. Assuming that Wall Street values the two rivals at a similar multiple, Eloqua could find itself valued at $350-400m when it hits the market later this year.