Tag: M&A

NCR rings up purchase of Radiant Systems

Brenon Daly

Contact: Brenon Daly

In yet another signal that the credit market has reopened for business, NCR has announced that it will issue $1.1bn in debt to cover the cost of its largest-ever acquisition. The company, which has relied on M&A to expand beyond selling the cash registers that it invented in 1884, said late Monday that it will pay $1.2bn for Radiant Systems. The purchase will add Radiant Systems’ point-of-sale products focused on the hospitality and restaurant industries to NCR’s portfolio, as well as boost the acquirer’s growth rate and margins, according to post-closing projections.

NCR will hand over $28 for each share of Radiant Systems. That represents a roughly 28% premium on Radiant Systems’ previous closing price and twice the level of the stock a year ago. The offer values Radiant Systems at about 3.4 times trailing sales of $354m.

The debt-funded purchase of Radiant Systems marks the latest in a series of transactions that have shaped NCR’s long corporate history, which included an IPO back in 1926. More recently, NCR was acquired by AT&T in 1991, the same year that NCR added data-warehousing pioneer Teradata. AT&T then spun off NCR in 1997, and a decade later, free-standing NCR spun off Teradata. For those keeping score, Teradata now has a $10bn market capitalization, three times NCR’s current valuation.

The June swoon, cont.

Brenon Daly

Contact: Brenon Daly

When we looked closer at the dramatic falloff in M&A last month – what we have called the ‘June swoon’ – we saw that the decline not only cut spending by nearly two-thirds, it also slashed the number of richly priced deals. For the 50 largest and most significant transactions of the just-completed second quarter, which we believe have an outsized impact on setting the tone in the overall M&A market, we calculated the median price-to-trailing-sales multiple at 2.25. (Incidentally, that was up slightly from 2.15 in the first quarter.)

For the first two months of Q2, there was a steady flow of significant deals valued at least twice as rich as the ‘market’ multiple of 2.25. Those transactions included Microsoft paying 10 times trailing sales for Skype, LoopNet’s sale to CoStar Group for $860m (9.5x trailing sales), Symantec’s move to bolster its e-discovery offering with its $410m purchase of Clearwell Systems (7x trailing sales), and EMC’s reach for NetWitness, which we estimate valued the network forensic player at almost 6x trailing sales.

But by June, the relatively high-multiple deals were getting harder to find. In fact, last month saw the fewest number of above-median-valuation transactions in the second quarter with just 11 deals, compared to 16 in May and 23 in April. That recent weakness doesn’t particularly bode well for the rest of the year.

Significant transactions* in 2011

Period Median price-to-trailing-sales valuation
Q2 2011 2.25
Q1 2011 2.15

Source: The 451 M&A KnowledgeBase *The 50 largest transactions, by equity value, including publicly disclosed financial terms as well as our own official estimates

A swoon in June for tech M&A

Brenon Daly

Contact: Brenon Daly

For the first two months of the second quarter, tech M&A spending flowed along at basically twice the monthly rate it had been reaching since last summer. The activity spanned virtually all sectors of technology, with chipmakers, storage vendors and telecom giants confidently and consistently throwing billions of dollars at deals in an effort to secure new growth. (Even a reluctant shopper like Microsoft got into the act.) It was like dealmakers had finally – and indelibly – moved past the Great Recession.

Then came the June swoon. Spending on tech deals in the final month of the quarter plummeted nearly two-thirds from the totals for both April and May. The value of transactions announced in June is running at just $9.6bn, the lowest level since February 2010. Of the 10 largest transactions announced in the past three months, only one came in June.

The dramatic decline in June derailed the recovery in the M&A market, leaving the spending totals in the just-completed second quarter below both the year-ago quarter and the first quarter of 2011. We’ll have a full report on second-quarter M&A activity – and what we expect for the remainder of the year – in tonight’s Daily 451 and 451 TechDealmaker sendouts.

2011 activity, month by month

Period Deal volume Deal value
June 2011 297 $9.6bn
May 2011 316 $26.5bn
April 2011 287 $26.5bn
March 2011 300 $63.7bn
February 2011 285 $10.3bn
January 2011 323 $11.7bn

Source: The 451 M&A KnowledgeBase

Different exits at different prices

Brenon Daly

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.)

Heyday in May for M&A

Brenon Daly

Contact: Brenon Daly

This year opened with M&A spending in both January and February trickling along at the low levels it had been since the final months of 2010 – roughly $12-13bn each month. But then, the trickle turned into a flood. (Or at least the closest we’ve had to an M&A flood since the credit crisis.) March set a post-recession record for the value of announced transactions, with the activity staying steady in both April and now May.

The spending total for the just-completed month of May came in at $25bn. That basically matches the total for April, and is twice the monthly level we had been tallying since September 2010. (The record spending in March of $64bn came largely from AT&T’s proposed $39bn purchase of T-Mobile USA, the biggest telco acquisition in a half-decade.) Although smaller than Ma Bell’s move, big deals also helped boost spending totals in May, with two of the four largest tech acquisitions of 2011 announced in the month.

Altogether, M&A spending through the first five months of 2011 has hit a post-recession record of $137bn, putting the year on track for about $330bn in deal value for all of 2011. If we do hit that level, it will actually exceed the full-year totals for the two previous years combined. Spending on tech deals in recession-wracked 2009 totaled just $147bn, and spending only inched up a bit to $172bn in 2010.

2011 M&A activity, monthly

Period Deal volume Deal value, $bn
Jan. 322 $12bn
Feb. 285 $10bn
March 301 $64bn
April 283 $26bn
May 310 $25bn

Source: The 451 M&A KnowledgeBase

Taking chips off the table

Brenon Daly

Contact: Brenon Daly

A half-decade after financial buyers did their best to sweep up the semiconductor industry, it’s now the fellow corporate acquirers’ turn to continue the dealmaking. On Wednesday, Applied Materials Inc announced that it would hand over $4.9bn for Varian Semiconductor Equipment Associates. The deal between the chip equipment makers comes on the heels of two other multibillion-dollar transactions in the semiconductor sector earlier this year: Texas Instruments’ reach for analog chip maker National Semiconductor and Qualcomm’s bid to expand beyond cellular chips with its purchase of Atheros Communications.

All three of this year’s significant chip acquisitions rank among the 10 largest deals in the industry. However, all of the corporate transactions are still looking up at the buyouts done by private equity (PE) shops back when credit was cheap and easy. In fact, the total spending on the trio of landmark deals so far this year ($15bn) is less than the $17.6bn take-private of Freescale Semiconductor by a PE consortium in 2006.

Of course, bigger isn’t necessarily better. And we suspect that corporate buyers would hope to be at least a little more successful with their acquisitions than the buyout club has been with Freescale. Although Freescale is currently on file to once again be a public company, the buyout has been a tough one for its owners. Much of that difficulty stemmed from the fact that the PE shops put nearly $10bn of debt on the company. (It paid more than a half-billion dollars last year to service the debt.) Meanwhile, under its new ownership, Freescale is actually smaller than it was before the buyout.

M&A flowers in April

Brenon Daly

Contact: Brenon Daly

The strong M&A spending continued in April, pushing the value of tech deals announced so far in 2011 to the highest level in four years. Through the first four months of the year, dealmakers have announced transactions valued at $111bn – more than the total, collectively, for the same period in the previous two years.

April came in at $26bn, the second-highest month for spending since the Credit Crisis and roughly twice the average monthly spending over the past nine months or so. The high spending in just-completed April comes after March’s $63bn of deal value, a monthly total that harkened back to the go-go days of tech M&A.

The main reason that 2011 is on track for a post-recession record level of spending is the return of the big deal. Obviously, the year-to-date totals are inflated by AT&T’s $39bn proposed cash-and-stock purchase of T-Mobile USA in March. But in addition to that transaction, which is the largest telco acquisition is a half-decade, there have been 21 other deals valued at more than $1bn so far this year. That handily tops the 10 10-digit deals in 2010, four in 2009 and 12 in 2008.

Why the confidence among the significant shoppers? We suspect that it has something to do with the fact that the Nasdaq, which is up 8% so far this year, has reclaimed the level it held in late 2007 before the Credit Crisis lopped it in half.

Echoes of Oracle in Infor’s reach for Lawson

Brenon Daly

Contact: Brenon Daly

Now that Lawson Software has agreed to a sale to Infor Global Solutions, it’s perhaps worth speculating about just how much Charles Philips learned about the art of M&A during his previous job. Philips, of course, currently serves as CEO of Infor after seven years at Oracle, which has a reputation as a (how to say it?) ‘disciplined buyer.’ The connotations of that description probably depend on which side of the table you sit on. At Oracle, the term is a compliment meaning ‘fiscally responsible’ while the view from the buyside might hold that they are ‘cheap.’

In any case, Philips’ proposed ‘take-under’ of Lawson, which got formalized on Tuesday, carries many of the hallmarks that some folks associate with deals done by his former shop: quick process, relatively low valuation and a confident ‘one-and-done’ offer. Recall that it was just six weeks ago that Infor, which is backed by Golden Gate Capital, lobbed an unsolicited offer of $11.25 per share for Lawson. And even though shares of the old-line ERP vendor traded $1 above the bid in recent weeks, Infor stuck to its original offer.

Provided the deal gets done, the acquisition marks a new era at Infor, with a new chief executive setting its course. Before Philips joined Infor last October, the consolidator had dramatically slowed its dealmaking, announcing just three deals over the previous four years. (And the recent purchases were much smaller ones at that.) Lawson stands as Infor’s largest-ever acquisition, one that will boost the company’s revenue by roughly one-third to some $3bn. Just the sort of move Oracle might have made when Philips was there.

Oracle: The giant moves quietly in M&A

Brenon Daly

Contact: Brenon Daly

For a giant of a company, Oracle certainly strikes quietly when it moves to pick up some companies. Consider its latest purchase, the as-yet-unannounced acquisition of data-quality vendor Datanomic. Although Oracle hasn’t formally announced the purchase, the company does have it listed on its Web page for acquisitions. (That listing followed speculation by several market sources last week that Oracle had indeed sealed the deal.)

Oracle has already shown that it is ready to spend to buy in the data-quality market. A little more than a year ago, Oracle reached for Silver Creek Systems, an OEM partner that provided product-oriented data quality. Shortly after that transaction was announced, my colleague Krishna Roy speculated that Datanomic might be the next data-quality-related vendor to get snapped up, highlighting both Oracle and IBM as possible buyers for the UK-based company. We believe that Big Blue did look at Datanomic, which it considered a nice complement to the business it got when it bought Initiate Systems in early 2010. (Initiate had an OEM arrangement with Datanomic.)

Fittingly for a deal that wasn’t really announced, financials also weren’t revealed. Our understanding is that Datanomic had been posting strong growth recently, increasing revenue some 60% last year to about $15m. That rate, combined with the fact that there were undoubtedly other large bidders for Datanomic, make us absolutely confident that this transaction is significantly larger than Oracle’s related purchase of Silver Creek, which we estimate went off at $40m or so. In fact, we wouldn’t be surprised to hear that it was in the neighborhood of twice that amount.

Tech M&A spending hits post-recession high

Brenon Daly

Contact: Brenon Daly

Lifted by AT&T’s massive consolidation play, tech M&A spending in the just-closed first quarter hit a post-recession record of $84bn – one-third more than the previous high-water mark of $62bn set in Q2 2010. Additionally, the number of transactions in the just-completed first quarter (881) also set a new record. (See our full report on the first-quarter activity.)

And yet even without the landmark telecom deal, Q1 deal flow was surprisingly strong, particularly in March. Excluding AT&T’s planned purchase of T-Mobile USA, the quarterly spending total was higher than both the preceding Q4 2010 and the year-earlier Q1 2010. Most of that, however, was due to a flurry of activity in March, which saw spending at more than twice the monthly rate of the previous half-year and the highest level since last summer. (Again, that’s backing out the $39bn that AT&T is set to spend on T-Mobile USA, a deal that was announced on March 21.)

As the gigantic telecom transaction illustrates, M&A is an inherently lumpy business. So projecting annual totals from a single quarter’s activity doesn’t necessarily make for a reliable forecast. Nonetheless, we would note that the frenetic start to 2011 puts it on track for nearly $340bn in spending for the year. If it comes in at roughly that level, it would mark the highest annual spending total in four years and would not be too far from the level in 2005, just before tech M&A set off on a two-year record run.

Recent quarterly deal flow

Period Deal volume Deal value
Q1 2011 881 $84bn
Q4 2010 775 $37bn
Q3 2010 768 $46bn
Q2 2010 773 $62bn
Q1 2010 847 $30bn

Source: The 451 M&A KnowledgeBase