Lexmark’s Perceptive continues its buying spree

Contact: Alan Pelz-Sharpe

Perceptive Software, the document and content management division of printer giant Lexmark, continued its M&A spree Tuesday with the acquisitions of San Francisco-based Twistage and Seattle-based AccessVia for a combined total of $31.5m. Lexmark has now spent more than $600m buying software companies since it started its M&A machine in May 2010 with the purchase of Perceptive Software.

Twistage provides a cloud-based video ingestion and management system, and AccessVia sells retail industry point of sale-focused printing (signage) software. Both acquisitions come as a bit of a surprise because, previously, Perceptive had focused on building out document-centric case management and pure-play document management functionality, which extends Perceptive’s own heritage of providing document and form management capabilities to legacy business applications such as JD Edwards, PeopleSoft and SAP.

Twistage and AccessVia appear to take the firm in very new directions because they both could be described as providing Perceptive with more input and output options. Quite how these will be integrated – and leveraged by the firm – is unclear right now. We believe that Twistage mainly brings technology and AccessVia a substantial customer base, and will watch closely to see how this all pans out. But it’s likely that new industry-focused applications and solutions will come from a combination of these and existing technologies.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

Kony Solutions acquires SAP app developer Sky Technologies

Contact: Ben Kolada, Thejeswi Venkatesh

After providing offline sync features for applications connecting to SAP’s ERP systems, Kony Solutions has decided to bring those apps in-house with the acquisition of Sky Technologies. Melbourne-based Sky provides preconfigured apps that integrate with SAP software. IBM, SAP and Kony competitor Appcelerator have also recently announced purchases that bolstered their app development platforms.

Terms of the deal were not disclosed, but we feel this should be viewed as a tiny tuck-in for Kony, which has 900 employees. Sky’s headcount is reportedly in the 30-40 range.

Kony is increasingly targeting the internal business requirements of enterprises after working with them to develop their customer-facing apps. Sky aids this initiative. By tucking in Sky, Kony can now offer customers a broader range of business-to-employee apps, including those that integrate with SAP environments.

Respondents in our April 451 Enterprise Mobility Survey said that their organizations place higher priority on development of apps that serve employees than apps that serve customers. To a degree, SAP acknowledged this sentiment when it announced that it was acquiring Syclo, which provides mobile work order software for field workers. Underscoring the value of these companies, we’re hearing that SAP paid roughly $100-150m for bootstrapped Syclo.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

Google’s admission of failure?

Contact: Ben Kolada

Google has finally found a way to monetize Facebook’s platform. After failing to acquire Facebook when it had the chance several years ago, and now with its own attempts at social networking a bit spotty, official word came on Tuesday that Google is acquiring social marketing startup Wildfire Interactive. Google is reportedly paying $250m for Wildfire, a respectable price tag that likely values the target at 7-10x revenue.

Google’s own ‘Insights for Search’ search analysis engine shows interest in Orkut, its attempt at a social network that found most of its popularity outside the US, and its Google+ social network trending downward over the past 12 months. Meanwhile, interest in Facebook has remained remarkably high.

In acquiring Wildfire, Google is recognizing its social shortcomings, and not a moment too soon. There has been rapid consolidation of social marketing startups in just the past three months.

Sector stalwarts Vitrue and Buddy Media have already been acquired by Oracle and salesforce.com, respectively, leaving only a few hot startups left. Beyond Wildfire, we’d point to GraphEffect, Hearsay Social, Syncapse and Lithium Technologies as the next to go. And there will likely be bidding competition for these firms. Large CRM vendors SAP and Microsoft could make a play here, as well as Teradata, which could buy into social to build on top of its recent purchases of marketing specialists Aprimo and eCircle.

Recent select M&A in social marketing

Date announced Acquirer Target Deal value
July 31, 2012 Google Wildfire Interactive Not disclosed
July 10, 2012 Oracle Involver Not disclosed
June 4, 2012 salesforce.com Buddy Media $689m
May 23, 2012 Oracle Vitrue $325m*
April 18, 2012 Marketo Crowd Factory Not disclosed

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

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

SaaS, SaaS and more SaaS

Contact: Ben Kolada

Oracle today announced the $2bn acquisition of Taleo, and SAP is getting closer to completing its $3.6bn purchase of SuccessFactors. Both announcements come less than a month after Oracle closed its $1.5bn RightNow Technologies buy. These transactions are the largest we’ve seen in the SaaS sector. However, we doubt they represent the end of the acquisition spree of these companies, with their highly disruptive business models. Although SaaS M&A has been playing out for some time now – and even set new records in 2011 – dealmaking in this sector is far from over.

If the growing use of SaaS and public cloud is any indication of deal flow, we expect volume to continue to rise. According to a report by ChangeWave Research, 22% of respondents currently use applications that run on public cloud services, up from 17% a year earlier. We’ve been beating the drums on cloud and SaaS M&A for a while now. The reason is simple: customer demand is pushing IT vendors to change the way IT services are delivered.

As businesses increasingly adopt cloud services, as opposed to packaged software maintained on-premises, the largest IT firms are increasingly looking to break into this industry. Oracle’s RightNow and Taleo acquisitions alone represent a total of $3.5bn invested in cloud services in less than a half-year. SAP spent that much on SuccessFactors alone. And there’s undoubtedly more to come. We’ll take a deeper look at the Taleo buy, as well as provide information on SaaS valuations, in a longer report in tonight’s Daily 451.

Source: Corporate Cloud Computing Trends, January 2012. ChangeWave Research, a service of 451 Research

Sizing the SaaS M&A market

Contact: Ben Kolada

Traditional IT service providers, accustomed to an on-premises model of delivering products and services, have been rapidly buying into the SaaS sector to fulfill enterprises’ demand for SaaS offerings. The result has been a rapid increase in both the volume and value of SaaS deals announced. The most notable are Oracle’s RightNow Technologies purchase, which just closed, and SAP’s highly valued SuccessFactors buy, which is expected to close very soon.

As businesses increasingly adopt cloud services, as opposed to packaged software maintained on-premises, the largest IT firms are increasingly looking to break into this industry. We’ve seen a record number of acquisitions of private cloud providers, but now public firms are attracting additional attention as well. In 2011, we recorded 200 announced SaaS transactions in The 451 M&A KnowledgeBase – just a baker’s dozen shy of the all-time record set in 2007. However, total spending on SaaS targets came in at a record $9.7bn, shattering the previous record set in 2008. True, the RightNow and SuccessFactors deals accounted for more than half of total SaaS M&A spending in 2011, but the overall volume of large acquisitions is on the rise as well. For example, last year we saw a dozen SaaS transactions announced valued at least at $100m – a steady uptick in big-ticket deal volume since 2008.

Driving these acquisitions, in addition to customer demand, is the SaaS sector’s enviable revenue growth rates. While IBM, for example, grew total revenue just 7% in 2011, our 451 Market Monitor colleagues projected that the global SaaS sector grew 22%. And according to ChangeWave Research, a service of 451 Research, SaaS remains the most popular cloud service. In a ChangeWave report, a whopping 61% of respondents said they were using some SaaS product. The report also noted that 28% of respondents expect to increase their SaaS spending over the next six months, more than any other cloud service ChangeWave covered in the report.

Acquisitions of SaaS vendors, 2005-2011

Year announced SaaS deal volume SaaS deal value
2011 200 $9.7bn
2010 152 $6.1bn
2009 138 $8.1bn
2008 125 $3.5bn
2007 213 $6.7bn
2006 93 $3bn
2005 49 $712m

The 451 M&A KnowledgeBase

And the Golden Tombstone goes to …

Contact: Brenon Daly

It’s time to once again hand out our annual award for Tech Deal of the Year, as voted by corporate development executives in our recent survey. For the second straight year, the voting came down to a tight race between two transactions. For 2011, Google’s planned purchase of Motorola Mobility just edged SAP’s reach for SuccessFactors. (Last year, Intel’s rather unexpected acquisition of McAfee slightly topped Hewlett-Packard’s takeout of 3PAR following a drawn-out bidding war.)

Both of the deals in the running for the 2011 prize certainly would have been worthy recipients of the Golden Tombstone. Google’s all-cash $12.5bn purchase of Motorola Mobility is more than the search engine has spent on its more than 100 other acquisitions and, beyond that, stands as the largest tech transaction (excluding telecommunications) since mid-2008. (Specifically, it is the largest deal since HP’s $13.9bn pickup of services giant EDS, which was voted the most significant transaction of 2008.) Meanwhile, SAP is paying an eye-popping 11 times trailing sales for SuccessFactors. With a price tag of $3.5bn, the deal is the largest-ever SaaS acquisition, more than twice the size of the second-place transaction.

A December rebound in tech M&A

Contact: Brenon Daly

After three months of basically standing on the sidelines, tech dealmakers have stepped back into the market in a big way in December. During just the first week of the final month of 2011, the value of announced transactions across the globe hit $8.6bn, led by SAP’s announcement of the largest-ever SaaS deal with its $3.6bn purchase of SuccessFactors and Verizon’s mammoth $3.6bn reach for some excess wireless spectrum with its pickup of SpectrumCo.

To put that $8.6bn of deal value in December into context, consider this: it already equals the full-month total for September and is fully twice the amount of spending in November. But then, last month was particularly grim for M&A. In fact, spending in November sank to its lowest monthly level in more than two and a half years, which was the depths of the Great Recession. Further, the number of transactions in November (only 240) stands as the lowest of any month so far in 2011 and is roughly 20% below the typical monthly volume.

SAP looks to SuccessFactors for success in the cloud

Contact: Brenon Daly

After struggling for years to build its own on-demand offering, SAP plans to buy its way into cloud-based software, handing over $3.65bn for SuccessFactors in what would be the largest-ever SaaS acquisition. The deal combines the largest ERP vendor, which has some 500 million users, with the fast-growing human capital management (HCM) provider. However, the acquisition, which is slated to close in the first quarter of next year, does face some challenges. J.P. Morgan Securities advised SAP on the transaction, while Morgan Stanley banked SuccessFactors, after leading its IPO four years ago.

SAP, which is 30 years older than SuccessFactors, has consistently pulled back the targets for its Business ByDesign SaaS suite since it started talking about it a half-decade ago. The difficulty in moving more quickly into a subscription-based software model is underscored by the fact that even after it drops $3.65bn to make SuccessFactors its cloud-based HCM product, SAP will continue to sell its own existing on-premises talent management offering. In fairness, we had our doubts about SAP’s previous big deal – the $6.1bn purchase of Sybase in mid-2010, which thrust the German giant into a host of new markets, including mobility and databases – but the early returns from that combination have been fairly solid.

However, when we compare SAP’s two most recent significant acquisitions, we can’t help but be struck by one gigantic discrepancy: valuation. SAP is paying a price-to-sales multiple that’s roughly twice as rich for SuccessFactors compared to the one it paid for Sybase. SuccessFactors is projected to do about $330m in sales in 2011, meaning it is garnering a rich 10 times revenue valuation, while Sybase traded at about 5x revenue. Obviously, SuccessFactors’ projected growth of 57% this year goes a long way toward explaining that premium, as does the fact that it’s a subscription-based business with 15 million subscribers. But even when compared with Oracle’s recent purchase of RightNow, which went off at about 6.6x trailing sales, SAP’s move seems pricey. We’ll have a full report on the transaction in tonight’s Daily 451.

SAP’s ‘dilutive’ deal and larger M&A implications

by Brenon Daly, China Martens

The jury’s decision to order SAP to pay $1.3bn to Oracle for stealing software and support material stands as the largest award for the theft of IP in the software industry. (As one banker deadpanned: “I think the TomorrowNow acquisition is dilutive.”) But the implications of the three-week trial extend far beyond the monetary settlement, as whopping as it is. From our perspective, the key part of the courtroom drama has been just how deeply the pair has relied on M&A to radically overhaul their businesses.

A half-decade ago, SAP figured that one of the easiest ways to hurt Oracle was to spend $10m for TomorrowNow (TN). Back in January 2005, the rationale for the TN deal made sense: buy a way of potentially siphoning off some of the rich maintenance stream that Oracle collects for supporting its ERP and CRM software. That was a key concern for SAP at the time, because it was still primarily hawking rival ERP and CRM products. The German giant had largely stayed out of the M&A market, preferring just to acquire small pieces of technology.

That changed dramatically three years ago, when SAP reached for Business Objects – its first major move beyond its core market. It stretched even further this summer with the $5.8bn purchase of Sybase. That acquisition brought SAP into several emerging markets, including mobile applications and some very promising in-memory analytics technology. The deal also represented a long-term shot at Oracle, as SAP now has a database to sell against Oracle rather than simply standing back and watching most of its ERP and CRM software run on Oracle, which has roughly half the database market.

If anything, Oracle has changed itself even more dramatically since then through acquisitions. It certainly has done a lot of them, announcing some 66 deals valued at a total of more than $30bn since SAP announced its tiny pickup of TN. Oracle has consolidated broad swaths of the software industry, including CRM, product lifecycle management, middleware, content management, as well as making a push into a handful of key vertical markets. Add to that Oracle is now in the hardware business, selling servers and storage along with other new businesses it picked up with its purchase of Sun Microsystems.

A severe case of buyer’s remorse for SAP

Contact: China Martens

Hindsight is a wonderful thing. Would SAP still have gone ahead with the $10m January 2005 purchase of fledgling third-party apps support player TomorrowNow (TN) had it had any inkling then of the financial cost more than five years later (a $1.3bn payout to Oracle and a ton of legal fees), as well as the dent to its previous sterling reputation? TN was always a loss-making business for SAP and at its height attracted less than 400 customers, a tiny proportion of the tens of thousands of Oracle apps customers.

SAP had been hoping to only have to pay out $40m over the intellectual property theft case that Oracle initiated against its bitter ERP and CRM foe and its TN business back in March 2007. Oracle alleged that TN, with SAP’s knowledge, had engaged in ‘massive theft’ of its software and related support materials through a series of illegal downloads with TN staff using customer passwords to access Oracle’s technical support websites for its JD Edwards, PeopleSoft and Siebel families of ERP and CRM apps. TN had then allegedly used the stolen materials to support its customers, offering them support at 50% less than Oracle’s rates.

More recently, SAP set aside $120m, but had in no sense been prepared that the jury would find so strongly in favor of Oracle, which had been looking for $1.7bn or more. SAP is set to appeal and ‘pursue all its options’ to reduce the award. This whole saga is far from ended – already, it’s been the stuff of Silicon Valley soap operas, with Oracle CEO Larry Ellison speaking out against new Hewlett-Packard CEO Leo Apotheker, a former CEO of SAP, and failing to serve a subpoena on him in a bizarre take on the video game Where in the World Is Carmen Sandiego?

Over the course of the case, Oracle had sought to continually expand the scope of the lawsuit, while SAP had tried to limit its focus. A few months into legal proceedings, SAP had admitted to some inappropriate downloads of Oracle material at TN, but shortly before the trial began, it decided not to contest contributory infringement, effectively contradicting earlier assertions that SAP executives didn’t have knowledge about what was going at TN.

The jury decision in favor of Oracle could well have a chilling effect on the remaining third-party support market. It’s one that never took off to the degree that its advocates had been expecting. In January, Oracle filed suit against the leading third-party support vendor, Rimini Street, which is headed by a cofounder of TomorrowNow. The suit was very similar in tone and scope to the TN one, but went into less specifics. It’s going to be interesting to see what happens now, since Rimini Street has been gearing up for a legal battle of this sort for some time.

Much has changed since SAP bought TomorrowNow, a unit it put up for sale, and, after finding no buyers, shuttered in October 2008. The move was triggered by Oracle’s multibillion-dollar purchases of ERP and CRM players PeopleSoft and Siebel. The widespread expectation was that Oracle would push those acquired customer bases to adopt its own E-Business Suite apps, but there was no large user exodus and Oracle has delivered new versions of its purchased apps. Indeed, Oracle has also tempered its big push around a new generation of apps, dubbed Fusion, with the initial release due next year.

So, customers in general are under much less pressure to migrate from the apps they’re currently using. At the same time, those same users are facing increased maintenance fees, which are a steady revenue source for both Oracle and SAP. It’s effectively at present in both companies’ interests to have no third-party apps support market. It will be interesting to see whether each of them revisits the concept to be one where they could have some revenue involvement. Over time, each player will face having to support a wider and wider variety of apps, versions and deployments, and they may find that taxing on their resources and therefore not as lucrative as in the past. Both companies are keenly aware of the gradual wearing-away impact of the SaaS apps market, where maintenance fees are substantially less or are factored into the cost of per-user, per-month subscriptions.