Tag: M&A

What’s next for billionaire Twitter?

-Contact Thomas Rasmussen

At a time when the social networking bubble is quickly deflating, micro-blogging startup Twitter seems to be living in an alternative universe. We are, of course, referring to the much-publicized $1bn valuation the San Francisco-based company received in a recent round of funding. The rich funding dwarfs even the kinds of valuations we saw during the height of the short-lived social networking bubble last year. And it’s pretty difficult to justify Twitter’s valuation based on its financial performance, since the money-burning startup has absolutely no revenue to speak of, nor a clear plan of how to change that. It seems the entire valuation is predicated on the impressive user growth it has experienced over the past year, as well as the charismatic founders’ wild dreams of ‘changing the way the world communicates.’ That’s pretty thin, particularly when compared to LinkedIn’s funding last year at a similar valuation. That round, which was done at a time when the social networking fad was near its peak, nonetheless had some financial results to support it. Reid Hoffman’s startup was profitable on what we understand was about $100m in revenue and a proven and lucrative business model.

The interesting development from this latest funding is that it makes a sale of Twitter less likely, we would argue. This may be fine with the founders, who have drawn in some $150m for the company and will (presumably) look to the public market to repay those investments at some point in the future. But without any revenue to speak of at this point, any offering from Twitter is a long way off. Also, an IPO by Twitter in the future hangs on successful offerings from Facebook and LinkedIn, which are far more likely to go public before Twitter. If both of those social media bellwethers enjoy strong offerings, and Twitter actually starts to make money off its fast-growing base of users, then a multibillion-dollar exit – in the form of an IPO – might not be farfetched. But we should add that there are a lot of ‘ifs’ included in that scenario.

An offering looks all the more likely for Twitter because the field of potential acquirers has gotten significantly slimmer, since not many would-be acquirers have deep-enough pockets to pay for a premium on the startups’ already premium valuation. As we know from Twitter’s own embarrassing leak of some internal documents, Microsoft, Yahoo, Google and Facebook have all shown an interest in the startup at one point or another. But we’re not sure any of those companies would really be ready to do a 10-digit deal for a firm that’s still promising – rather than posting – financial results. Moreover, we wonder if any of the four would-be buyers even need Twitter. Yahoo and Microsoft seem focused on other parts of their business. Meanwhile, Google is hard at work on Google Wave, and Facebook appears to have moved on already with its much-cheaper acquisition of Twitter competitor FriendFeed in August.

Recent high-profile social networking valuations (based on last known valuation event)

Date Company Valuation/exit value Revenue Revenue to value multiple
September 2009 Twitter $1bn $0* N/A
Summer 2009 Facebook $8bn $500m* 16x*
June 2008 LinkedIn $1bn $100m* 10x*
May 2008 Plaxo $150m* (acquisition by Comcast) $10m* 15x*
March 2008 Bebo $850m (acquisition by AOL) $20m* 42.5x*
July 2005 MySpace/Intermix $580m (acquisition by NewsCorp) $90m 6.5x
December 2005 FriendsReunited $208m (acquisition by ITV; divested to Brightsolid in $42m fire sale in August 2009) $20* 10x*

Source: The 451 M&A KnowledgeBase *451 Group estimate

Starting strong, once again

Brenon Daly

Contact: Brenon Daly

For the second time this year, the first day of a new quarter brought with it a multibillion-dollar transaction. Back on April 1, Fidelity National Information Services opened the second quarter by announcing its $2.9bn all-equity acquisition of Metavante. (The deal closed yesterday.) And to start the fourth quarter on October 1, Cisco said it plans to spend $3bn in cash for Tandberg, the Norwegian maker of video and network infrastructure technology. The purchase, which is expected to close in the first half of 2010, should bolster Cisco’s TelePresence product.

Cisco’s reach for Tandberg stands as the company’s largest acquisition since it paid $3.2bn in cash for WebEx Communications in March 2007. The transaction also continues a flurry of recent deals. September came in with the highest spending of any month so far this year, with significant acquisitions announced by Xerox, Adobe, CA Inc and Dell, among others. In fact, September alone accounted for two-thirds of all M&A spending in the just-completed third quarter. (See our full report on the numbers and trends in the third quarter.)

Recent deal flow

Month Deal volume Deal value
September 2009 243 $22bn
August 2009 222 $4bn
July 2009 274 $9bn

Source: The 451 M&A KnowledgeBase

A ‘new normal’ for tech M&A

Brenon Daly

Contact: Brenon Daly

With the third quarter now in the books, we’re busy tallying the buying that went on over the past three months. Not that it involves all that much work, actually. In fact, for all the talk of how much better off we are now than at this time last year, you wouldn’t know it from the M&A levels in the third quarter, which wrapped yesterday.

And just to qualify, when we say ‘better off,’ in most cases we mean ‘less worse off.’ It’s true, for instance, that jobless rates aren’t rising as fast as they once were, but they are still rising. That sentiment is mirrored in statistics covering many other areas of the economy as well, although is does go against the 15% rise in the Nasdaq over the summer.

So where do these currents and crosscurrents leave us in terms of numbers of third-quarter deals and the spending on them? In the just-completed July-September period, we recorded 740 transactions with an aggregate announced value of $34bn. That lines up nearly identically with the 733 deals worth $32bn in the third quarter of 2008, which saw the beginning of the historic credit crisis. Further, the third-quarter results continue the trend of measuring tech M&A spending in the tens of billions of dollars, compared to the $100bn quarters that we saw regularly during the boom years. Our take: there’s a ‘new normal’ in tech M&A.

Recent quarterly M&A activity

Period Deal volume Deal value
Q3 2009 740 $34bn
Q2 2009 767 $48bn
Q1 2009 654 $10bn
Q4 2008 725 $40bn
Q3 2008 733 $32bn
Q2 2008 719 $173bn
Q1 2008 836 $55bn

Source: The 451 M&A KnowledgeBase

Correlated markets?

Brenon Daly

Contact: Brenon Daly

To look at the recent performance of the Nasdaq, you’d hardly know that capitalism (as we know it) almost died a year ago. The tech-heavy index was largely unchanged on Wednesday but has posted gains for three straight sessions, having added 9% so far in September. That’s part of a longer run that has seen the Nasdaq tack on 35% since the beginning of 2009 and 70% since bottoming out in early March. In fact, the index is essentially where it was a year ago, before banks started going under, the credit market froze and the US government fired up its printing presses to give us all enough money to buy our way out of the recession.

The optimism that’s been boosting the equity markets is starting to carry over to the M&A market, with several signs from big-time buyers pointing to a return to health:

  • Dell’s recent reach for Perot Systems stands as the largest tech transaction in five months.
  • Google inked its second acquisition in as many months, after being out of the market for nearly a year. (The search giant added reCAPTCHA last week after picking up On2 Technologies in early August, its first purchase of a fellow public company.)
  • Adobe and CA Inc announced their largest deals in four-and-a-half years and three-and-a-half years, respectively, in the past week.
  • Microsoft grabbed a bucketful of small companies to add technology to its ERP division, a business that has largely been shaped by a pair of billion-dollar buys earlier this decade.

Of course, we need to consider this resurgence of deal flow in the context of an overall sluggish M&A market. With a week and a half left in the third quarter, spending on deals is running at just $28bn. While that would put activity roughly on par with where it was last year, it is only half of the amount of third-quarter spending in 2007 and one-third of the total in Q3 2006. Another way to look at it: the roughly $84bn that we’ve seen so far for all of 2009 is basically what we used to see in a single quarter during the boom years.

Q3 tech M&A activity

Period Deal volume Deal value
Q3 2009 (through August 22) 672 $27bn
Q3 2008 733 $32bn
Q3 2007 825 $58bn
Q3 2006 1,029 $102bn
Q3 2005 811 $87bn

Source: The 451 M&A KnowledgeBase

Goldman regains its Midas touch

Brenon Daly

Contact: Brenon Daly

Goldman Sachs is having a September to remember, after an uncharacteristically quiet run throughout 2009. We noted in our mid-year league table report that Goldman, which topped our annual rankings 2005-07, had slipped to a distant seventh place in the first half of this year. Since the beginning of September, however, the bank has regained its Midas touch.

Goldman has worked on four tech deals announced so far this month, with a total equity value of $7.9bn. (The September spending accounts for some 60% of the value of all deals that Goldman has advised on so far this year.) The transactions: sole advisor to eBay on its $2bn Skype divestiture; advisor to Intuit on its $170m purchase of Mint; sole advisor to Adobe on its $1.8bn acquisition of Omniture; and sole advisor to Perot Systems in its (relatively richly priced) $3.9bn sale to Dell, which stands as the largest tech transaction in five months.

By way of a final thought on Goldman’s return, we’d note the unusual situation that popped up in the buy-side deals that Goldman worked last week. We can’t recall the last time we saw any bulge-bracket bank get a print one day (Intuit’s purchase of Mint) and then turn around the very next day and get a print that’s 10 times larger (Adobe’s purchase of Omniture).

Intuit mints a rich deal

-Contact Thomas Rasmussen, Brenon Daly

We might be inclined to read Intuit’s recent purchase of Mint Software as a case of ‘If you can’t beat ’em, buy ’em.’ The acquisition by the powerhouse of personal finance software undoubtedly gives the three-year-old startup a premium valuation. Intuit will hand over $170m in cash for Mint, which we understand was running at less than $10m in revenue. (Although we should add that Mint had only just begun looking for ways to make money from its growing 1.5-million user base.)

More than revenue, we suspect this deal was driven by Intuit’s desire to get into a new market, online money management and budgeting, as well as the fear of the prospects of a much smaller but rapidly growing competitor. (Intuit and Mint have been talking for most of this year, according to one source.) In that way, Intuit’s latest acquisition has some distinct echoes of its previous buy, that of online payroll service PayCycle. For starters, the purchase price of both PayCycle and Mint totaled $170m. And even more unusually, bulge bracket biggie Goldman Sachs advised Intuit on both of these summertime deals. (Remember the days when major banks would hardly answer the phone for any transaction valued at less than a half-billion dollars? How times change.) On the other side of the table in this week’s deal, Credit Suisse’s Colin Lang advised Mint.

Intuit M&A, 2007 – present

Date Target Deal value
September 14, 2009 Mint Software $170m
June 2, 2009 PayCycle $170m
April 17, 2009 BooRah <$1m*
December 3, 2008 Entellium $8m
December 19, 2007 Electronic Clearing House $131m
November 26, 2007 Homestead Technologies $170m

Source: The 451 M&A KnowledgeBase *451 Group estimate

Informatica: Just dating or something more?

Brenon Daly

Contact: Brenon Daly, Krishna Roy

Is it just dating, or are they looking to get married? That was a question that Wall Street was kicking around last week after Hewlett-Packard and Informatica announced a deeper relationship. The new accord sees HP licensing a number of Informatica’s offerings so that it can provide its customers with data management products. HP is also supplying these same wares from Informatica as part of its existing consulting services for business intelligence (BI) and related arenas and pushing these combined offerings through its direct sales force. (My colleague Krishna Roy has a full report on the tie-up.)

The announcement, which came out last Tuesday, didn’t initially generate much speculation about the relationship between the two longtime partners. However, by Friday, Wall Street was reading much more into the joint agreement. Shares of Informatica rallied almost 7% on Friday, with volume more than three times heavier than average. (The rally continued a strong run by Informatica, which has seen its shares gain some 56% so far this year, vastly outpacing the 32% advance for the Nasdaq in 2009.)

However, both HP and Informatica have taken great pains to position themselves as independent software providers. Indeed, even as HP announced that it would be doing more with its relationship with Informatica, it also clearly said that it will continue to work with other data management and BI vendors. And on the other side, we noted that ‘neutrality’ may have come up in rumored talks last year between Informatica and Oracle. In any case, the independence and openness stand in contrast to the moves in this market by IBM – the rival that’s the primary target of the deeper HP-Informatica partnership. Big Blue spent $1.14bn in cash in March 2005 for Ascential Software, an acquisition that most observers would say hasn’t delivered.

VeriSign’s bargain bin of deals

-Email Thomas Rasmussen

We’ve been closely watching VeriSign’s grueling divestiture process from the beginning. One year and $750m in divestitures later, VeriSign is largely done with what it set out to do. The company finally managed to shed its messaging division to Syniverse Technologies for $175m recently. Although we have to give the Mountain View, California-based Internet infrastructure services provider credit for successfully divesting nine large units of its business in about a year during the worst economic period in decades, we nonetheless can’t help but note that the vendor came out deeply underwater on its holdings. From 2004 to 2006 it spent approximately $1.3bn to acquire just shy of 20 differing businesses, which it has sold for basically half that amount. (Note that the cost doesn’t include the millions of additional dollars spent developing and marketing the acquired properties, nor the time spent on integrating and running them, which undoubtedly hurt VeriSign’s core business.)

Aside from the lawyers and bankers, the ones who really benefitted from VeriSign’s corporate diet were the acquirers able to pick up the assets for dimes on the dollar. And in most cases, the buyers of the castoff businesses were other companies since the traditional acquirers of divestitures (private equity firms) were largely frozen by the recent credit crisis. The lack of competition from PE shops, combined with the depressed valuations across virtually all markets, means the buyers of VeriSign’s divested businesses scored some good bargains. Chief among them are TNS and Syniverse, which picked up the largest of the divested assets, VeriSign’s communications and messaging assets, respectively. Wall Street has backed the purchases by both companies. Shares of TNS have quadrupled since the company announced the deal in March, helped by a stronger-than-expected earnings projections this year. More specifically, Syniverse spiked 20% on the announcement of its buy, which we understand will be immediately accretive, adding roughly $35m in trailing 12-month EBITDA.

VeriSign’s divestitures, 2008 to present

Date Acquirer Unit sold Deal value
August 25, 2009 Syniverse Technologies Messaging business $175m
May 26, 2009 SecureWorks Managed security services $45m*
May 12, 2009 Paul Farrell Investor Group Real-Time Publisher Services business Not disclosed
March 2, 2009 Transaction Network Services Communications Services Group $230m
February 5, 2009 Sinon Invest Holding 3united Mobile Solutions $5m*
May 2, 2008 MK Capital Kontiki Not disclosed
April 30, 2008 Melbourne IT Digital Brand Management Services business $50m
October 8, 2008 News Corporation Jamba (remaining 49% minority stake) $200m
April 9, 2008 Globys Self-care and analytics business Not disclosed

Source: The 451 M&A KnowledgeBase *451 Group estimate

Summer sun dries up deal flow

Brenon Daly

Contact: Brenon Daly

It really was the lazy days of summer, at least in terms of tech deal-making. With summer officially wrapping up on Labor Day, spending on M&A is running at less than one-fifth the level it has been in any of the three previous years. (For our purposes, we mark summer as beginning on Memorial Day and ending on Labor Day.) In that period this year, acquirers spent a mere $18bn – down from $139bn in the same period in 2008, $101bn in 2007 and $123bn in 2006.

And spending has slowed recently, dipping to just $4.3bn since August 1. (Nearly half of that came in a single transaction, eBay’s divestiture of its Skype property to a PE-led consortium.) Granted, it’s not uncommon for spending to dip in late summer, as even the hardest-working deal-makers look to kick back on the beach for a bit. But this year, it appears as if folks went ahead and remained on vacation. Speaking of which, we will not be publishing on Labor Day but will pick up again on Tuesday, the other side of summer.

Increasing cloudiness

Brenon Daly

Contact: Brenon Daly

Just three weeks after VMware inked its company-defining acquisition of SpringSource, the virtualization kingpin is throwing the doors open on its annual VMworld conference today. (We can only hope that those attending the get-together found it smoother than those trying to access the conference through the website. For much of Monday morning, pages on the VMworld site were unavailable due to ‘temporary maintenance.’ With our tongue planted firmly in cheek, we might suggest that they need to add some additional server capacity.)

Although known primarily for its virtualization software, VMware’s purchase of SpringSource indicates that it sees much of its future growth coming from ‘cloud computing.’ To show just how serious the company is taking this, consider that VMware is spending roughly twice as much on SpringSource as it spent, collectively, in the dozen deals it had done before picking up the open source application development startup. The VMware-SpringSource transaction is also, we would argue, the most important cloud computing deal so far.

As a concept, cloud computing is a relatively new term, but one that has caught on strongly in the tech industry. Consider that a search of ‘cloud computing’ in our 451 M&A KnowledgeBase returns 36 deals already this year, up from just eight transactions in all of 2008. Before last year, there were no instances of the term in our M&A database, which has more than 20,000 technology deals going back to the beginning of 2001.

Of course, some of that can be chalked up to the fact that cloud computing is a pretty vague and sprawling term, covering everything from infrastructure management to storage to security to hosting and other areas. To help get some clarity around what can be an otherwise opaque topic, The 451 Group will be hosting its own conference on Thursday called ‘Cloud in Context.’ The half-day event in San Francisco will feature end users discussing working in the cloud, innovative startups and (for the first time ever) the release of our own estimates and projections for the cloud computing market. More details on ‘Cloud in Context’ can be found at the conference website.