Amid consolidation, Ixia opens its wallet

-Contact authors: Thomas Rasmussen, Steve Steinke

Historically, networking test and measurement vendor Ixia has never been much of a shopper. However, that has started to change this year as the Calabasas, California-based company reached for Catapult Communications in June for $105m as well as wrapped up its $44m acquisition of rival Agilent Technologies’ N2X product line earlier this month. For those keeping track, Ixia’s recent deals represent some 85% of all M&A spending at the company since 2002. (We would note that the pickup in dealmaking, coincidentally or not, has come since a European private equity investor joined the firm’s board and its strategic planning committee in October 2008.) Having recently assumed the role of consolidator, the small-cap vendor ($425m market capitalization) says it still has about $85m in cash after its recent purchases and is still pursuing deals. Who might be next?

One of the growing fields in the space is wireless network testing. Given Ixia’s desire for a larger presence in the segment, we think it could look to snap up a company here. Two interesting targets are privately held Metuchen, New Jersey-based Berkeley Varitronics Systems and Bandspeed of Austin, Texas. As for more traditional targets, we would point to competitors ClearSight Networks of Fremont, California, and Canada’s publically traded EXFO. EXFO currently sports an enterprise valuation of approximately $150m and would almost double Ixia’s revenue. Doubling down on EXFO might not be such a bad idea given that, despite its aggressiveness, Ixia is still relatively small compared to larger players such as JDSU and Spirent, which could look to do some consolidation in the space of their own.

Ixia’s historical acquisitions

Date announced Target Deal value
October 21, 2009 Agilent Technologies (N2X product line assets) $44m
May 11, 2009 Catapult Communications $105m
January 24, 2006 Dilithium Networks (test tool business assets) $5.1m
July 18, 2005 Communication Machinery $4m
July 14, 2003 NetIQ (Chariot product assets) $17.5m
February 15, 2002 Empirix (ANVL product assets) $5m

Source: The 451 M&A KnowledgeBase

Omniture: the optimistic opportunist

-Contact Thomas Rasmussen

After digesting its $382m double-down acquisition of competitor Visual Sciences last year, Web analytics firm Omniture is bullish on buying. At the Pacific Crest Securities conference last week, the company outlined its M&A strategy, which essentially boils down to one word: opportunistic. It tucked in its struggling competitor Mercado Software for $6.5m in November 2008, adding an estimated $12m to its top line. The company had raised $66m in venture capital over the past 10 years. Omniture told us some of Mercado’s large customers had in fact approached it to do the deal. Moreover, Omniture said its remaining privately held competitors Coremetrics and WebTrends are struggling. The company added that it’s seeing an increasing amount of their customers transition over (some even in mid-contract), and it’s ready to deal, as long as it’s at 2009-type discounts.

Not so fast, say the two firms, which we estimate ring up combined revenue of just south of $200m. WebTrends, which PE shop Francisco Partners took off of NetIQ’s books in 2005 for $94m, says that despite a shakeup in management, the company is well positioned. It cites profitability, consistent quarter-over-quarter growth, its highest revenue quarter in its history last quarter, and says it has no need for further funding from its rich backer. (Reports Thursday indicated that Francisco is set to begin raising a third fund, targeting at least $2bn.) Meanwhile, Coremetrics seems to have overindulged on venture capital, closing a $60m series E round last March, bringing its total raised to date to $111m. We tend to get skeptical when this happens, especially in this environment. However, CEO Joe Davis assured us that having shelved further funding-related expansion plans, the company has the majority of the latest round in the bank. Its January restructuring will return the company to cash-flow neutral this month, and cash-flow positive going forward, and it is on track to grow revenue 20% year over year. The CEO added, “Rumors of my death have been greatly exaggerated by my competitor.”

With more than $80m in cash and short-term investments, its profitable standing and surprisingly upbeat outlook, Omniture can certainly handle a few more tuck-ins. Will it scoop up its feisty rivals? At the moment, it certainly does not look like it. In fact, competitors Coremetrics and WebTrends, which haven’t been in the market since 2006 and 2007, respectively, say they are looking at doing some buying of their own and have the cash to do so.

Omniture M&A

Completed Target Enterprise value Revenue multiple Price per customer
November 2008 Mercado Software $6.5m 0.5x* $32,500*
January 2008 Visual Sciences $382m 5.0x $240,302
December 2007 Offermatica $65m 7.2x* $650,000

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