Author: Brenon Daly

‘Acquisition in Motion’?

Brenon Daly

Contact: Brenon Daly

Instead of Research In Motion, maybe we should start calling the company ‘Acquisition In Motion.’ With Monday’s announcement of its purchase of ubitexx, the BlackBerry maker has now rung up nine acquisitions in just the past 13 months. That’s as many as the company had done, collectively, in the previous seven years. As we think about RIM’s accelerated M&A pace, we can’t help but wonder how much of that activity is essentially papering over weaknesses that were exposed by its two big smartphone rivals.

For instance, RIM needed some help on its core OS, so it went out about a year ago and spent $200m on QNX Software Systems. Then it realized that office productivity apps could stand to be displayed a bit more clearly on BlackBerry devices, so it reached for DataViz. And then there was the somewhat clunky user interface, which RIM hoped to polish with its purchase of The Astonishing Tribe in December for an estimated $125m. Those deals – along with the other half-dozen recent acquisitions – were seen as signs that RIM was getting the message that its phones just weren’t as appealing as the Apple iPhone or Google Android-powered devices.

The pickup of tiny German startup ubitexx pretty much makes that sentiment official. (That’s particularly true when we consider that the transaction came just two days after RIM reported that it will sell fewer phones than it predicted this quarter, and that the phones that do sell will be going cheaper than the company originally planned. The warning knocked RIM into a tailspin, and the stock has now shed one-third of its value over the past year.) Ubitexx allows RIM to bring mobile device management for Android and iOS smartphones and tablets to its BlackBerry Enterprise Server – a somewhat belated recognition that it isn’t just BlackBerry devices that are coming to the office these days

M&A flowers in April

Brenon Daly

Contact: Brenon Daly

The strong M&A spending continued in April, pushing the value of tech deals announced so far in 2011 to the highest level in four years. Through the first four months of the year, dealmakers have announced transactions valued at $111bn – more than the total, collectively, for the same period in the previous two years.

April came in at $26bn, the second-highest month for spending since the Credit Crisis and roughly twice the average monthly spending over the past nine months or so. The high spending in just-completed April comes after March’s $63bn of deal value, a monthly total that harkened back to the go-go days of tech M&A.

The main reason that 2011 is on track for a post-recession record level of spending is the return of the big deal. Obviously, the year-to-date totals are inflated by AT&T’s $39bn proposed cash-and-stock purchase of T-Mobile USA in March. But in addition to that transaction, which is the largest telco acquisition is a half-decade, there have been 21 other deals valued at more than $1bn so far this year. That handily tops the 10 10-digit deals in 2010, four in 2009 and 12 in 2008.

Why the confidence among the significant shoppers? We suspect that it has something to do with the fact that the Nasdaq, which is up 8% so far this year, has reclaimed the level it held in late 2007 before the Credit Crisis lopped it in half.

SuccessFactors pays a peak price for Plateau

Brenon Daly

Contact: Brenon Daly

Plateau Systems certainly got a peak price from SuccessFactors. At $290m, the cash-and-stock acquisition is the largest purchase of a privately held human capital management (HCM) vendor. In fact, the pending purchase of Plateau is larger than a half-dozen acquisitions of public HCM companies we have recorded in recent years.

Similarly, the deal – which is roughly three times more than SuccessFactors had spent, collectively, on M&A – also stands out when compared to the two most-significant transactions in the learning management software (LMS) market where Plateau does its business.

Earlier this year, private equity-backed SumTotal Systems paid an estimated $150m for GeoLearning while a half-year ago, SuccessFactors’ direct rival Taleo handed over $125m for Learn.com. Just as those two deals have a lower aggregate price than Plateau’s price, publicly traded LMS vendor Saba Software actually garners a lower valuation on the market ($270m) than Plateau is set to receive in its sale.

Echoes of Oracle in Infor’s reach for Lawson

Brenon Daly

Contact: Brenon Daly

Now that Lawson Software has agreed to a sale to Infor Global Solutions, it’s perhaps worth speculating about just how much Charles Philips learned about the art of M&A during his previous job. Philips, of course, currently serves as CEO of Infor after seven years at Oracle, which has a reputation as a (how to say it?) ‘disciplined buyer.’ The connotations of that description probably depend on which side of the table you sit on. At Oracle, the term is a compliment meaning ‘fiscally responsible’ while the view from the buyside might hold that they are ‘cheap.’

In any case, Philips’ proposed ‘take-under’ of Lawson, which got formalized on Tuesday, carries many of the hallmarks that some folks associate with deals done by his former shop: quick process, relatively low valuation and a confident ‘one-and-done’ offer. Recall that it was just six weeks ago that Infor, which is backed by Golden Gate Capital, lobbed an unsolicited offer of $11.25 per share for Lawson. And even though shares of the old-line ERP vendor traded $1 above the bid in recent weeks, Infor stuck to its original offer.

Provided the deal gets done, the acquisition marks a new era at Infor, with a new chief executive setting its course. Before Philips joined Infor last October, the consolidator had dramatically slowed its dealmaking, announcing just three deals over the previous four years. (And the recent purchases were much smaller ones at that.) Lawson stands as Infor’s largest-ever acquisition, one that will boost the company’s revenue by roughly one-third to some $3bn. Just the sort of move Oracle might have made when Philips was there.

Another marketing maker heading to market?

Brenon Daly

Contact: Brenon Daly

Will Eloqua respond to Responsys? Does the rival on-demand marketing vendor perhaps have an IPO of its own planned? We couldn’t help but wonder that last Thursday as investors showed that they could hardly get enough of the Responsys offering, which priced above range and then tacked on another 28% in its first day of trading. The IPO created some $680m in market value for Responsys.

Responsys’ rather heady valuation (roughly 7x trailing sales and 5x projected sales) undoubtedly has to have generated more than a little interest from folks at Eloqua. And the company certainly has been taking steps in recent years that could indicate that it is eyeing the public market. For instance, three years ago it moved its headquarters from Canada to the Washington DC area while also hiring a raft of senior executives, most of whom have experience at public companies.

According to our understanding, Eloqua is a bit less than one-third the size of Responsys, which generated $94m in sales last year. Also, we gather that Eloqua lags a bit behind the 40% compound annual growth rate that Responsys has put up over the past half-decade. Still, the company offers a fairly compelling profile, with predictable subscription revenue flowing from its more than 800 customers. The strong debut from Responsys, plus the fact that shares of fellow on-demand marketer Constant Contact are trading around all-time highs, clearly suggest that Wall Street is in the market for marketing vendors.

A warm welcome on Wall Street

Brenon Daly

Contact: Brenon Daly

Against a backdrop that has the major stock market indexes at their highest level in about three years, investors have apparently signaled that they are ready to take a chance again on new issues. A pair of IPOs came to market Thursday at significantly higher-than-expected prices, and promptly surged in aftermarket trading. Collectively, the offerings for Responsys and 21Vianet raised a healthy $274m for the two companies.

In the hotter of the two IPOs, Chinese hosting company 21Vianet Group sold 13 million American Depository Shares at $15 each. (That raised $195m for the company, half again as much money as it originally planned to raise based on the midpoint of its initial range.) In the aftermarket, shares were changing hands at about $21 each. (We’ll have a full report on the company and its outlook in tonight’s Daily 451.)

Meanwhile, on-demand marketing software vendor Responsys also found a warm welcome on Wall Street. The offering, which we expected to be strong, raised $79m for Responsys. The company priced its 6.6-million-share offering at $12 each, roughly 30% above the midpoint of the initial range. Investors bid up the stock to about $15.50 in afternoon trading. With 44.1 million shares outstanding, Responsys garners a value of some $680m, slightly more than 7 times 2010 sales and almost 5x our projection for 2011 sales.

A responsible debut valuation for Responsys

Brenon Daly

Contact: Brenon Daly

Reversing a trend that has seen many of the major marketing software providers disappear inside larger players, Responsys is ready to step out onto the public market. The on-demand company, which filed its IPO paperwork just four months ago, plans to sell 6.6 million shares at $8.50-10 each. It is likely to begin trading Thursday. (See our full preview of the offering.)

At the high end of the range, Responsys would be valued at roughly $450m. That appears to be a fairly conservative valuation, at least when compared with recent acquisitions and even current trading multiples in the sector. We might suggest that Responsys – a company that’s solidly in the black and posting 40% growth – would garner a premium on its debut.

If it does indeed hit the market in the neighborhood of a half-billion dollars, Responsys will essentially match the exit prices over the past eight months of two of its main rivals. Last August, Unica got taken out by IBM for $523m (equity value), while Aprimo sold to Teradata for $525m in December. However, when we compare the three vendors, Responsys is growing at more than twice the rate of either of the two companies that went in a trade sale. (Aprimo had been on file to go public back in 2007, but the Credit Crisis scotched those plans.)

Despite the premium that we might expect for Responsys’ growth rate, the company is likely to start life on the Nasdaq at about 5.5 times trailing sales, roughly the midpoint of the valuations in the sales of Unica and Aprimo. Further, it would just match the current market valuation of Constant Contact, a low-end multichannel marketing firm that went public in October 2007.

Looking up at the data warehousing incumbents

Brenon Daly

Contact: Matt Aslett

The face of the data-warehousing sector has changed considerably in the past 18 months. A series of acquisitions has seen Vertica Systems, Greenplum and Sybase snapped up by Hewlett-Packard, EMC and SAP, respectively. Further, Teradata and IBM have strengthened their hands to compete with Oracle and Microsoft with their respective purchases of Aster Data Systems and Netezza.

According to our 451 Information Management report, Data Warehousing: 2009-2013, Oracle, IBM, Teradata and Microsoft accounted for 93.6% of the total revenue in 2010, a level that will only drop slightly to 92.2% by 2013. Those figures were calculated prior to the recent M&A activity, but in order to make a considerable dent in the dominance of the big four, any acquiring company will not only have to buy a data-warehousing player but also invest in its growth.

EMC has the right idea: Greenplum had 140 employees when it was acquired in July 2010. EMC’s Data Computing Products Division now has more than 350 employees, and is set to reach 650 by the end of the year. Netezza can benefit by being part of the much larger IBM, but Big Blue is also investing in growing the business. IBM is expected to increase headcount there from 500 in September 2010 to 600 now, and a target of 800 by year-end. We believe that HP will have to make a similar investment in Vertica, which had just 100 employees at the time of its acquisition, just as Teradata is likely to boost the headcount at its new Aster Data ‘center of excellence’ beyond the estimated 100 employees Aster Data has today.

As for the remaining data-warehousing specialists, while they can all boast differentiating features and strategies, they must also be looking for acquisitions of their own. On their own, they can’t hope to compete with the investments available at their deep-pocketed rivals.

A new era at Google?

Brenon Daly

Contact: Brenon Daly

It’s a new era at Google. After the market closes, Google’s once-and-future king Larry Page will give his first report to Wall Street since returning to the throne at the search company he helped found. Page took over at the beginning of the month, with Google shares trading essentially where they were a year ago.

Page, of course, is replacing Eric Schmidt, the ‘grownup’ who was brought in a decade ago to run Google, who now serves as executive chairman at the company. It’s interesting to note from our view that Schmidt steps from Google’s corner office back into a tech industry that looks very different from when the avowed technologist joined the company in 2001. Consider this: both companies where Schmidt basically spent his entire career – most notably Sun Microsystems, but also a relatively brief stint in charge of Novell – have been sold while he was at Google.

Further, both of the sales of Schmidt’s previous companies were pretty much scrap sales, valuing the once-formidable companies at less than one times their revenue. (Collectively, the equity value for both Sun and Novell at the time of their sales is just one-twentieth Google’s current valuation.) Of course, there are some observers who say it’s only a matter of time before Google – having largely missed the shift to social networking – may be headed for a long, slow decline of its own. Just like Sun and Novell.

Cisco shares are a flop for Flip’s owners

Brenon Daly

Contact: Brenon Daly

Since the purchase of Flip, Cisco Systems shares have been a flop. That’s actually an important consideration for the former owners of digital camera maker Pure Digital Technologies, which Cisco shuttered on Tuesday. Recall that when the networking giant (somewhat inexplicably) reached for Pure Digital two years ago, it covered the $590m purchase with its own equity. It was the first time Cisco had used its own equity as currency in four years, according to our records.

For the first year or so after the deal closed on May 21, 2009, Cisco basically tracked the S&P 500 Index. However, over the past half-year, Cisco stock has slumped as it has failed to execute, as the company indicated in a recently leaked memo from CEO John Chambers. Those acknowledged missteps have left Flip’s backers (at least the ones who haven’t sold) underwater on their holdings. Since the deal closed, Cisco stock has dropped 10% while the S&P 500 has tacked on 50%.