Tag: M&A

Microsoft makes meaningful buy

Since shelling out nearly $10bn in a year and a half to reinvent itself as an online contender, Microsoft, on July 1, confirmed reports of its purchase of online search and natural language vendor Powerset. Microsoft aims to add Powerset’s Web search linguists, engineers and technology to its Live Search division. On the heels of its $1.2bn purchase of enterprise text analytics giant FAST Search and Transfer in January, Microsoft inked this much smaller deal to enhance its consumer Web search.

Founded in 2006, Powerset released its Web search technology earlier this year. In partnership with Xerox’s PARC (Palo Alto Research Center), the San Francisco startup, which has raised some $12.5m in funding, has been developing search software that reads online text and discerns semantics as well syntax. So far, Powerset’s semantic technology has been publicly tested only on Wikipedia and fellow open source encyclopedia Freebase, both of which have a solid structure that Powerset leverages. The company has also been in talks with major publishing companies about an ad-supported service it has in the works.

With Powerset having been sold to an established technology company to realize its plans, we wonder what that will mean for the rest of the semantic technology companies. Currently, the poster child of the market is Radar Networks, which is backed by $18m in VC. It is developing a semantic social networking application, Twine, which is still in private beta and due to be released this fall. There’s also New York-based semantic search engine Hakia, also in private beta, which has landed over $20m in funding. However, if Powerset, which was often referred to as ‘the next Google,’ got picked up for just $100m (as the rumors have it), then what’s the exit picture for the two remaining rivals, both of which have raised more money than Powerset? Maybe we need to Google the answer.

Selected Microsoft search acquisitions

Date announced Target Deal value Target description
July 1, 2008 Powerset $100m (reported) Semantic Web search engine
January 8, 2008 Fast Search and Transfer $1.2bn Enterprise search software

Source: The 451 M&A KnowledgeBase

M&A goes MIA in Q2

Brenon Daly1 Comment

With the second quarter wrapped up, we’ve been busy tallying the deal flow from the period. As you might guess, M&A levels for the past three months mirror the dour economic climate. The quick numbers: Overall tech M&A fell 40% in the second quarter, year-over-year, dragged down by private equity players that have been knocked out of the market by the credit market turmoil. The total shopping bill of $148bn is a sharp decline from the $241bn in the same period last year, putting it only slightly above the $122bn recorded in the second quarter of 2006.

A number of trends shaped M&A in the quarter, including the continued use of bear hugs to pressure reluctant sellers, the frozen IPO market and the rise of consolidation deals. Of course, the single largest crimp on deal-making in the second quarter was the utter disappearance of tech buyouts. The value of tech LBOs in the second quarter fell more than 90% compared to the same period last year, when credit was flowing freely. In the just-completed quarter, we recorded some $7bn worth of tech buyouts, down from $85bn in the year-ago period. Looked at another way, LBOs accounted for just 5% of all tech M&A spending in the second quarter, after representing a full one-third of total spending in the same period last year.

Deal flow breakdown

Quarter PE deal value Corp. deal value Total deal value
Q2 2006 $13bn $109bn $122bn
Q2 2007 $85bn $156bn $241bn
Q2 2008 $7bn $141bn $148bn

Source: The 451 M&A KnowledgeBase

Bear market mauls debutants

Brenon Daly

The talking heads at the Nasdaq and the New York Stock Exchange generally define a bear market as a 20% decline from the index’s highs. And, as anyone who picked up a weekend newspaper knows, the markets have officially slumped into bear territory since peaking last fall.

Of course, an index is made up of individual stocks, with some getting more roughed up than others. Oracle has basically traded flat since the Nasdaq meltdown began last October; Microsoft has matched the index’s decline; and VMware has been hammered, plunging nearly three times the Nasdaq decline over the same period. (Another way to look at the meltdown in shares of VMware: At its peak, VMware stock was worth roughly the same amount as a barrel of oil at current prices. Now, you’d have to pony up nearly three shares of VMware to trade for that same barrel of oil.)

With investors not willing to take a chance on shares of existing companies, what chance do the shares of largely unknown and entirely untested IPO candidates have? The short answer is ‘zilch.’ Actually, it’s somewhat of an academic question as there hasn’t been a VC-backed IPO since ArcSight floated on the Nasdaq four months ago. (As we’ve written in the past, we wouldn’t be surprised to see ArcSight get gobbled up, with Hewlett-Packard a logical buyer, in our view.)

With the IPO window closed, corporate acquirers have even more leverage in negotiations. (In other words, don’t expect transactions going off at a double-digit price-to-sales multiple, like IPO candidate EqualLogic got from Dell last November.) We’ve already seen Initiate Systems scrap its proposed offering and go hat-in-hand to a gaggle of investors. Meanwhile, a handful of other S-1s from other companies are gathering dust at the SEC. And we hardly expect any movement during the third quarter. Given the parched IPO market and corporate acquirers in the doldrums, it’s going to be a long, hot summer for a few of these IPO candidates.

Emerald Isle M&A

Brenon Daly

Given that today is Bloomsday, we’ve given ourselves literary license to take a look at deal flow between the US and Ireland. (Don’t worry, if you’re like us and have never actually managed to get through James Joyce’s ‘Ulysses’ – despite taking more than a few cracks at the tome – this Insight will still make sense. Quick show of hands: Who’s actually read all the way to “…and yes I said yes I will Yes”?)

In any case, deal-flow between the two countries has been remarkably stable during the past four years, clipping along at about 30 deals each year. M&A spending in the most-recent year, however, has fallen to its lowest level, just half the previous year and one-quarter the level in the year before that. (Note: In three weeks, we’ll publish our annual Trans-Atlantic Tech M&A Banking Review. Obviously, the steady decline of the US dollar has had a big influence in deal-making. So far, we’ve seen European acquirers be even more active than the previous year, while US buyers have only spent about half as much as the same period last year. You can request a copy of last year’s report here.)

One company that may very well figure into the US-Ireland M&A tally very shortly is Iona Technologies. We noted in February that the Dublin-based company had attracted an unsolicited bid from an unknown company, which turned out to be Germany’s Software AG. Iona has retained Lehman Brothers, which led its IPO in the late-1990s, to advise it. At the time, we tapped SAP and Sun Microsystems as the most-logical buyers of Iona. More recently, an Irish newspaper reported that Progress Software or Red Hat is Iona’s ‘preferred’ buyer. Meantime, Software AG now says it’s out of the running. So it looks like we could very well be seeing an American company pick up another piece of the Old Sod. 

Irish-US M&A (year ending each Bloomsday)

Period Deal volume Deal value
June 16 2004-05 28 $1.2bn
June 16 2005-06 29 $3.8bn
June 16 2006-07 36 $1bn
June 16 2007-08 33 $860m

Source: The 451 M&A KnowledgeBase