KEYW picks up Sensage to build out Project G

Contact: Ben Kolada

Just three days after announcing its largest acquisition – the $126m pickup of cybersecurity software development firm Poole & Associates – KEYW has snagged small security information and event management (SIEM) vendor Sensage for $24m, with an earnout potentially raising that price by $10.5m. The two companies had previously been partners, working together on KEYW’s networking cybersecurity platform, dubbed Project G.

KEYW is handing over $15m in cash and $9m in stock. The deal also includes an earnout of up to $3m in cash and $7.5m in stock, achievable based on unspecified revenue targets for the second half of the year. The transaction is expected to close in October.

The Redwood City, California-based target, which has 35 employees, generated about $12m in revenue last year and recorded a small operating loss for the first half of this year. However, although the legacy Sensage business will be retained, the company isn’t being valued on its sales, but rather its potential contribution to KEYW’s nascent Project G platform. Sensage CEO Joe Gottlieb will head the combined company’s Project G network security initiative. KEYW began commercially testing Project G in June.

Select precedent ESIM acquisitions

Date announced Acquirer Target Price/sales valuation
April 3, 2012 TIBCO Software LogLogic 3.5*
October 4, 2011 IBM Q1 Labs 8.8*
October 4, 2011 McAfee NitroSecurity 5.3*
June 23, 2011 SolarWinds TriGeo Network Security 3.9
September 13, 2010 Hewlett-Packard ArcSight 7.7

Source: The 451 M&A KnowledgeBase *451 Research estimate. Click links for full deal details.

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Will OpenTable’s IPO lead to M&A?

-Email Thomas Rasmussen

Just three months after filing its initial IPO paperwork, OpenTable set the terms of its $46m offering last week. At the high point of the $12-14 range for its shares, the company would sport a valuation just shy of $300m, or about 6x trailing 12-month (TTM) revenue and 50x TTM EBITDA. For the past three years, OpenTable has grown revenue at a compound annual rate of about 43%. Despite skepticism about the IPO market and OpenTable’s prospects during a period when its primary customers (restaurants) are struggling, the online restaurant reservations service should debut on the Nasdaq under the ticker ‘OPEN’ in the next week or two. OpenTable’s offering comes as Solarwinds is also slated to go public, after its prospectus aged for more than a year.

OpenTable has not disclosed how it will allocate the funds that it will raise in its offering. However, we believe it might be gearing up to make its first foray into M&A. One indication: the presence of Allen & Co as one of OpenTable’s four underwriters. Sure it had a hand in Google’s IPO, but Allen & Co is certainly known more as a media banker than a tech underwriter. OpenTable’s offering is being led by Merrill Lynch, with ThinkEquity and Stifel Nicolaus also on the ticket.

If OpenTable were to shop, we suspect it could well look to bolster its international operations. Since 2004, the San Francisco-based company has sunk millions of dollars into expanding outside the US, but has little to show for it. Its international business, which is burning money, accounts for just 5% of total sales. (The vendor recently pulled out of Germany and France.) We see a parallel between what OpenTable has run into in its unsuccessful international expansion and the early woes that its rich Web services cousin eBay experienced in trying to translate its business outside of its home market. After struggling to address foreign markets by just expanding its existing online auction service, eBay has been picking up local foreign sites that fit the nuances of business and culture in those markets. Ebay has spent billions of dollars lately buying its way into foreign markets.

IPO window opens a crack

Contact: Brenon Daly

It’s been exactly a year since SolarWinds put in its paperwork to go public. In that time, capitalism has been beaten and bloodied. To underscore that, consider that the late-great Lehman Brothers was one of the original underwriters of the proposed offering. Obviously, that bank has been erased – both on prospectus and elsewhere. Morgan Stanley now serves as the other major bulge-bracket underwriter on SolarWinds’ ticket.

As we noted earlier this month, the tech IPO market has had nothing to offer since the debut of Rackspace in the middle of last year. Last week, Omneon Video Networks pulled its planned IPO, two years after initially filing the paperwork. That withdraw came less than two weeks after GlassHouse Technologies also scrapped its planned debut.

But a funny thing happened after we declared the IPO market dead: We began to see some signs of life. Chinese online game developer is set to hit the Nasdaq next week. We would guess that planned debut has much to do with the rebound in the Nasdaq, where intends to trade. Since finishing a month-long slide on March 9, the Nasdaq has gained some 17%. The index has risen from below 1,300 (close to where it bottomed out in October 2002, after the tech wreck) to above 1,500 during Monday’s Treasury-inspired rally.

We wonder if SolarWinds, which has already amended its original prospectus six times, won’t also look to take advantage of this slim opening of the IPO window to go public. Of course, we’ve always thought that SolarWinds could go public in just about any market, given the fact that it mints money. Last year, the company continued to run at an EBITDA margin of more than 50%, even as revenue hit $93m, up from just $38m in 2006 and $59m in 2007.