Tag: On2 Technologies

Cisco adds Inlet to its video puzzle

Ben Kolada

Contact: Ben Kolada, Jim Davis

Cisco recently announced that it is acquiring video encoding provider Inlet Technologies for $95m in cash. The deal is the latest addition to Cisco’s ongoing strategy of helping service providers such as Telstra build content delivery networks that can serve video to TVs, PCs and mobile devices for pay TV services.

Cisco has picked up a lot of video-related technology over the years. Despite its networking expertise, video is a notoriously difficult beast to tame, and even more so when dealing with video over less-predictable public IP networks. Cisco bought V-Bits in 1999 for $129m to add video-processing gear to its repertoire, but stopped production in 2002. In 2000, Cisco spent $369m to acquire PixStream for its video headend gear for IPTV systems, but then closed the operation four months later when the stock market bubble burst.

When it got serious about gaining expertise in video, Cisco spent $6.9bn in 2005 on Scientific-Atlanta, a major equipment supplier to the cable industry. In 2006 Cisco acquired UB Video, a Canadian firm focused on developing MPEG-4 AVC software for use in encoding and decoding equipment. Later that year it also bought video-on-demand (VOD) software specialist Arroyo Video, whose products formed the basis of VOD servers sold to cable and IPTV providers. In acquiring Inlet, Cisco picks up an established player in the market for video encoding equipment used to ready video for delivery over multiple delivery mechanisms. Inlet’s encoding systems have two strengths: one is that they are powerful enough to do high-quality live streaming over IP networks, the other is that the gear is built for adaptive bit-rate streaming, which is becoming a favored method for delivering video to mobile devices.

Inlet reportedly recorded $7.6m in revenue in 2009 and claims to have doubled sales last year. Assuming that the company closed 2010 with $15m in revenue, Cisco’s $95m offer would value Inlet at 6.3 times trailing sales. While that multiple is more than twice as high as the average for all tech transactions, it’s actually slightly less than similarly sized video encoding competitor On2 Technologies received from Google last year. On2’s investors balked at Google’s original $106m offer, which valued the target at 6.1x sales, but later settled for a revised bid of $132m, or 7.5 times sales. (Click here for my colleague Jim Davis’ full report on the Inlet transaction.)

What’s up with the Bay Area?

Ben Kolada

Contact: Ben Kolada

Bay Area buyers have roared back to life in 2010. Compared to the same period a year ago, Bay Area buyers’ deal volume has increased 46%, while at the national level M&A has risen only 21%. Year-to-date, Bay Area-based acquirers announced 230 transactions, 19% of all technology deals undertaken by US-based companies. Further, these companies represent 19% of the total declared deal amount, including four of the 18 billion dollar-plus transactions made by US-based buyers. In the same period last year, Bay Area acquirers did only 162 deals.

So, what’s up with the Bay Area? Our data suggests that 15 big serial acquirers accounted for most of the increase. In fact, the number of Bay Area buyers acquiring three or more companies increased five-fold in 2010, compared to a 50% increase at the national level. After waiting on the sidelines in 2009, these companies have resumed M&A activity in full force. As a group, they bought 52 more companies in year-to-date 2010 than they bought in 2009. (An interesting note, Internet content providers were the preferred targets across the board, representing 22% of acquired companies at both the Bay Area and national levels.)

M&A activity by Bay Area buyers

Acquirer 2010 deal volume, year-to-date 2009 year-ago period
Google 15 0
Oracle 7 5
Playdom 6 0
Apple 4 0
Facebook 4 0
Symantec 4 1
Synopsys 4 1
Trimble Navigation 4 5
Cisco Systems 3 3
Hewlett-Packard 3 2
TIBCO Software 3 0
Twitter 3 0
VMware [EMC] 3 0
Yahoo 3 0
Zynga 3 0
Totals 69 17

Source: The 451 M&A KnowledgeBase, 451 Group research

Google is the poster child for Bay Area M&A. Year-to-date, the company has been involved in 15 transactions – the most since it inked the same amount of deals in full-year 2007. However, the search giant is noticeably absent from the 2009 ranking. Even though Mountain View, California-based Google had $8.6bn in cash at the end of 2008, the vendor took nearly a year-long break from M&A activity. Google’s M&A drought began after it acquired TNC in September 2008 and ended 11 months later, when it announced its first purchase of a public company – On2 Technologies – in August 2009.