Tag: PE

HCM deal flow nears high-water mark

Brenon Daly

Contact: Brenon Daly

Dealmaking in the human capital management (HCM) market has surged in recent months, pushing spending to near-record levels. So far this year, we’ve tallied 36 HCM transactions, with an aggregate value of $1.9bn. That basically matches the high-water mark of $2.1bn in the sector set during the first three quarters of 2007. (However, we should note that nearly all of the HCM spending three years ago came from the $1.8bn take-private of Kronos by Hellman & Friedman in March 2007.)

The number of HCM transactions so far this year (36) matches exactly the number during the same period in 2007. Another similarity between the two years is that strategic and financial buyers have both been active in the sector. Consider this: In the four deals announced so far this month, buyout shops have been behind two while corporate buyers have inked the other two. Valuations for this month’s transactions – and most other recent HCM deals, for that matter – have ranged from just below 2 times trailing sales to around 4x trailing sales.

However, in the sector’s latest acquisition, the valuation came in well north of that range. On Monday, private equity firm Madison Dearborn Partners (MDP) took a majority stake of Fieldglass in a transaction that valued the HCM vendor at more than $220m. (ArchPoint Partners advised Fieldglass in the deal between the two Chicago-based firms.) Fieldglass focuses on the so-called contingent market, which covers project-based contractors, offshore workers and so on. According to our understanding, Fieldglass generated nearly $30m in revenue and $5m in EBITDA in 2009 and was tracking to nearly $40m in sales and $10m in EBITDA for this year. That means MDP’s stake valued the company overall at about 6x trailing sales, according to our calculations.

PE firm Marlin buys BIOS provider Phoenix Technologies

Brenon Daly

Contact: John Abbott

Perhaps it was inevitable. Following the firing of CEO Woody Hobbs earlier this year and the subsequent divestment of three noncore businesses, BIOS maker Phoenix Technologies has itself been acquired. Los Angeles-based private equity firm Marlin Equity Partners offered $3.85 per share, giving the proposed deal an equity value of $139m. (Phoenix held $40m of cash, giving the transaction an enterprise value of $99m). The bid represents a 27% premium over Tuesday’s closing price.

Despite its recent troubles, and the seemingly cyclical nature of its business that has resulted in regular boom and bust periods, Phoenix remains by far the independent market leader in the core systems software marketplace, in particular BIOS software, as required by all Wintel PCs. BIOS remains a vital point of control for OS and desktop management. But under pressure from Intel and open source alternatives, the company has tried on numerous occasions – without any noticeable success – to diversify. That has usually resulted in Phoenix taking its eye off the ball of its core business, which entails maintaining relationships with the big PC vendors as well as the white-box original design manufacturers (ODMs) from Taiwan.

Revenue in the third quarter declined 16% year over year to $13.7m, but Phoenix scraped together a small operating profit, its first since 2008. Ninety staff were cut during the quarter, taking the firm’s total down to 313. Future growth depends on the take-up from OEMs and ODMs of its latest product, SecureCore Tiano 2.0, which began shipping in late March. Phoenix claims 50 wins so far and is working on a further 80 projects for this design cycle. The first systems using the new version should reach the market in fiscal 2011.

Do-or-die time for LANDesk divestiture

Brenon Daly

Contact: Brenon Daly

It’s do-or-die time for the LANDesk divestiture, with the period of exclusivity with the most serious bidder set to expire Friday. Buyout shop Thoma Bravo is said to be the last remaining party at the table for the systems management vendor, which Emerson Electric has been trying to shed for more than six months. The current betting is that Thoma Bravo, which has done a half-dozen deals so far this year, will not take home LANDesk.

Thoma Bravo, of course, already has a play in this market – one that it got thanks to another public company divestiture. The private equity (PE) firm picked up the IT asset management division from Macrovision (now known as Rovi) in February 2008, renaming the business Flexera Software. Flexera has since bolted on four other businesses, including the purchase of ManageSoft in May. As my colleague Dennis Callaghan has noted, the hypothetical pairing of Flexera and LANDesk would bring some overlap, but would add technology for endpoint security management, service desk, remote control, power management and application virtualization that Flexera doesn’t have on its own.

While the combination makes sense strategically, we have heard that the process is snagged financially. Several sources have indicated that the asking price for LANDesk has come down from more than $300m early in the process to $250m now. (LANDesk sold for $416m back in April 2006 to Avocent, which was subsequently acquired by Emerson.) At the current level, LANDesk would be valued at more than eight times EBITDA, according to our understanding. That might prove a little rich for Thoma Bravo.

Same old, same old at Novell?

Brenon Daly

Contact: Brenon Daly

Ever since hedge fund Elliott Associates put Novell in play five months ago, we’ve said that the company was going to be a tough sell. It’s a mixed bag of businesses, both in terms of what those businesses sell and how they perform. (Or rather, how those businesses underperform, as we were reminded by Novell’s warning earlier this week about third-quarter results. If nothing else, that kept alive Novell’s streak – it also came up short in the two quarters leading up to Elliott’s run at the company.)

Undoubtedly, Novell – an underperforming company that nonetheless found its treasury stuffed with more than $1bn of cash – offered an easy target for the gadfly investor. But having that agitation turn into an acquisition is proving much more difficult. (We recently took an in-depth look at Novell, as well as the specific business lines and which suitors might be eyeing them, in a special report.)

While the process initially attracted a number of parties, we understand that there are only three left at the table: a private equity-backed company, a UK-based PE firm and a joint bid between a publicly traded tech company and a buyout shop. It’s not clear that any of the three will actually close a deal for Novell. (The process has already run past two deadlines, we gather.) Without a deal, shares of Novell would be left to trade on the company’s own merits, which probably wouldn’t do much for shareholder value.

Novell timeline

Date Event
March 2, 2010 Elliott Associates launches unsolicited bid of $5.75 per share, or $2bn equity value
March 20, 2010 Novell board rejects Elliott’s bid, retains JP Morgan Securities to explore alternatives

Source: The 451 M&A KnowledgeBase

Strategic ardor for Arbor

Brenon Daly

Contact: Brenon Daly

In yet another sign that private equity (PE) still hasn’t recovered to the level that the buyout barons enjoyed in the halcyon days before the Credit Crisis, consider the process around Arbor Networks. The network security and monitoring vendor had many of the characteristics that would typically appeal to a PE shop: a mature company that was running at about $100m, with EBITDA margins approaching the mid-teens, according to our understanding. Along with the decent cash generation, 10-year-old Arbor was also growing, targeting about 20% expansion for 2011.

Even though some half-dozen PE firms looked at Arbor, the company ended up going to a strategic acquirer, Tektronix. (See our full report on the deal, which wasn’t the most intuitive pairing we could have come up with for Arbor. That said, as my colleague Andrew Hay notes in the report, the acquisition of Arbor gives Tektronix a way to couple its network diagnostics and management of fixed, mobile, IP and converged multiservice networks with security and threat mitigation products.)

So while the portfolio expansion certainly makes sense for Tektronix, there’s also the interesting side note that, in this case, a strategic buyer is outbidding would-be financial acquirers. Further, that’s largely without relying on so-called ‘synergies,’ or cost savings from cutting duplicative operations at the acquired company to effectively lower the valuation for a corporation. (The reason: Tektronix is basically absorbing all of Arbor, running it as a stand-alone business.) That sort of corporate dealmaking is a far cry from three years ago, when the low cost of capital sometimes allowed PE firms to outbid companies, even when a not-insignificant amount of synergies figured into the deal.

Private equity activity

Period Deal volume Deal value
Jan. 1-Aug. 10, 2010 170 $18.4bn
Jan. 1-Aug. 10, 2009 170 $3.8bn
Jan. 1-Aug. 10, 2008 158 $18.3bn
Jan. 1-Aug. 10, 2007 209 $109.7bn
Jan. 1-Aug. 10, 2006 189 $53bn

Source: The 451 M&A KnowledgeBase

IntraLinks limps onto the market

Brenon Daly

Contact: Brenon Daly

It turns out that the third time is not the charm for IntraLinks, at least not in terms of its initial valuation as a public company. IntraLinks cut the price for the 11 million shares it is selling to $13 each, down from the $14-16 range it had set. That means the company is raising $143m, some $22m less than it would have if it priced at the midpoint of its initial range. That’s a key consideration because unprofitable IntraLinks was counting on the IPO proceeds to help it pay down debt.

But at least it did manage to get public, unlike the times it filed back in 2000 and 2005. We recently noted how much more grown up IntraLinks looks now compared to its earlier S-1s. One kicker: when it originally filed in 2000, the company ran at negative gross margins compared to the fairly respectable 65% it notched in 2009. Although IntraLinks still isn’t printing black numbers, it’s come a long way from 2000, when it lost five times more money than it even brought in as revenue.

The weaker-than-expected pricing continues a trend that we’ve seen in most tech offerings so far this year: Motricity, Broadsoft, TeleNav, Convio and others have all priced below their range – and all of them are trading lower in the aftermarket. (The one exception to this weakness is QlikTech. The offering, which we indicated would be a hot one, priced above its range at $10, and is now trading at $15.) For its part, IntraLinks first traded at $13 and basically stuck around that level in its debut.

Shopping hard in the City of Light

Brenon Daly

Contact:  Brenon Daly

On its visit to Paris, Francisco Partners brought home more than just a miniature souvenir Eiffel Tower. In the past week, the buyout shop has announced not one but two $100m deals struck in the French capital. Francisco’s unusual double dip comes at a time when the dollar, which had been at multiyear highs against the euro earlier in 2010, has slumped in recent weeks. (We recently looked at the trade winds blowing across the Atlantic.)

For Francisco, the transactions would help restock its European holdings. The buyout shop sold Swiss chip company Numonyx to Micron Technology for $1.3bn in May. In its first deal, Francisco put forward a $100m offer for the Grass Valley Broadcast business, which is being divested by Paris-based Technicolor. (The actual Grass Valley Broadcast business operates in central California, an ocean away from The City of Light.) In probably the more interesting move, Francisco picked up a majority stake in on-demand email marketing company Emailvision. The purchase gave Emailvision, which was advised by Pacific Crest Securities, a fully diluted equity value of about $109m.

Early-mover (dis)advantage at Daptiv

Brenon Daly

Contact: Brenon Daly

So much for early-mover advantage. Daptiv – a pioneering Web-hosted project and portfolio management (PPM) startup founded in 1997 that was originally known as eProject – got sold for scraps late last week. The sale to a buyout shop stands as particularly disadvantaged when compared to earlier deals in the market, a number of which saw giant software companies writing checks in the hundreds of millions of dollars to snap up other PPM vendors. (See our full report on the deal.)

While its rivals were selling out (at rather nice multiples, thank you very much), Daptiv was focusing on selling its product. And it was doing a fair job at that, running at around $20m in revenue. (Incidentally, that’s true revenue, not bookings at the subscription-based company.) Along the way, Daptiv managed to raise about $30m from backers, following a recapitalization in the mid-2000s. So far, so good.

Problems began surfacing at Daptiv earlier this year, however. The company went through a restructuring, trimming about 15% of its employees and swapping out its CEO. It had been trying to raise another round of funding, but we suspect that it found its existing investment syndicate rather frayed. (Daptiv includes Vault Capital as well as Pinpoint Ventures among its investors. Neither firm is particularly active – or even lively – these days.)

While Daptiv had been out looking to drum up dollars from venture capitalists, the company had also been in talks with a firm on the other end of the entrepreneurial spectrum: buyout shop Parallax Capital Partners. Parallax Capital has acquired a number of other tech businesses that have gotten a bit long in the tooth, and, like other additions to its portfolio, it reportedly got a bargain in its acquisition of Daptiv. One report, which included photocopies of the purchase agreement, indicated that Parallax Capital is paying just $12.7m for Daptiv, with only $5.3m of that flowing to shareholders.

Select PPM transactions

Date announced Acquirer Target Deal value
July 27, 2010 Parallax Capital Partners Daptiv (fka eProject) Reported $12.7m
October 8, 2008 Oracle Primavera Software $350m*
June 9, 2005 CA Technologies Niku $350m
June 10, 2003 Mercury Interactive (now HP) Kintana $225m

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

SonicWALL’s big-ticket buyout

Brenon Daly

Contact: Brenon Daly

The recently closed leveraged buyout (LBO) of SonicWALL represents the largest straight take-private of a technology company so far this year. Thoma Bravo announced the deal, which has an equity value of $717m, back in early June and shareholders gave the LBO their blessing on Friday. The bid of $11.50 for each share stood as the highest price for SonicWALL shares since 2002. The close came only after an unidentified bidder – which some observers suspect may have been the ever-aggressive Barracuda Networks – stepped out of the process.

While other private equity (PE) shops have handed over bigger checks so far this year than the one Thoma Bravo is writing for SonicWALL, the buyout of the unified threat management vendor is the most money that a single firm has spent to take a public company off the market in 2010. Other large deals have involved either carve-outs (IDC, for instance, was majority owned by Pearson), secondary transactions (Hellman & Friedman’s flip of Vertafore to TPG Capital) or club deals (the consortium buyout of SkillSoft, as well as IDC).

The big-ticket buyouts of SonicWALL and other companies have helped push PE activity so far this year to essentially where it was in 2008. PE spending in the first two quarters of 2010 hit $14bn, just a shade under the $16bn we tallied in 2008 but a dramatic rebound over the paltry $2bn we saw in the first half of last year. The seven-fold increase in spending by buyout shops so far in 2010 has vastly outpaced the broad M&A market, which is basically running at twice the spending of the same time in recession-wracked 2009. See our full report on first-half tech M&A activity.

Is SafeNet looking to secure an IPO?

Brenon Daly

Contact: Brenon Daly

A little more than three years after it went private, SafeNet is looking to return to the public market. Several sources have indicated that the encryption vendor has lined up its underwriters and plans to file an S-1 in about two weeks. If indeed the offering goes ahead, it will face a market that is proving rather hostile to IPOs right now. (We recently looked at the dreary state of the IPO market in a special report.)

Through both organic and inorganic growth, the SafeNet that returns to the market will be about half the size of the one that stepped off the market. We understand that the company is running at about $450m in revenue, compared to about $300m in revenue in the year leading up to its leveraged buyout. While private, SafeNet did a handful of small deals as well as the contentious $160m take-private of Aladdin Knowledge Systems.

An IPO would mark a second straight exit for SafeNet’s owner, Vector Capital. The buyout shop sold its Register.com portfolio company last week, realizing a return of two and a half times its investment. Vector took the Web registration and design firm private in 2005, pared down the business, made it dramatically more profitable and then sold it to Web.com.

Also noteworthy about the rumored IPO by SafeNet is that the offering is being handled entirely by bulge-bracket banks. The book-runners are said to be JP Morgan Securities, Morgan Stanley and Goldman Sachs, with the offering co-managed by Bank of America Merrill Lynch and Deutsche Bank. Off the top of our heads, that’s the first tech IPO that we can think of that doesn’t have a regional or boutique bank also helping to bring out a company.