Author: Brenon Daly

Meltwater in the market

Brenon Daly

Contact: Brenon Daly

Having built a $100m business with its core media monitoring offering over the past decade, Meltwater Group is looking at picking up a small company or two this year to speed the development of the company’s next big line of business, CEO Jorn Lyseggen said earlier this week. Speaking at the Pacific Crest Emerging Technology Summit, Lyseggen said the bootstrapped private company is ‘leaning toward’ deals that bring specific IP that could bolster its recently launched products around media distribution and ad spending analytics, among other areas.

Meltwater used that strategy about a year ago to help expand an existing offering that monitored social media sources. The company already had a product, Meltwalter Buzz, before picking up BuzzGain, a 25-person startup. (We understand that Meltwater paid less than $5m for BuzzGain, its first acquisition.) Recently launched offerings by Meltwater, which claims 18,000 customers, include Meltwater Press, Meltwater Reach, Meltwater Drive and Meltwater Talent

The 451 Group picks up ‘voice of the consumer’

Brenon Daly

Contact:  Brenon Daly

For today’s deal, we move a little bit closer to home: The 451 Group announced today that it has acquired the assets of TheInfoPro, a New York-based advisory and research firm. Founded in 2002, TheInfoPro counts more than 100 organizations as clients and draws on extensive surveys of those IT buyers to get real-world perspectives and forecasts on IT innovation. Focus areas for TheInfoPro include security, storage, networks, servers as well as virtualization.

With the acquisition, TheInfoPro will become a division of The 451 Group, joining the New York City office. (Terms of the transaction weren’t disclosed.) The deal is the third significant purchase by The 451 Group in the past half-decade to expand our offerings around analyzing and advising our clients on the business of IT innovation

An extended cold snap in the M&A market

Brenon Daly

Contact: Brenon Daly

The tech M&A spending slump continued into February. For the sixth straight month, the aggregate value of deals came in at only about $10bn. (Specifically, we tallied 256 deals in February, worth just $9.7bn – the lowest monthly spending total in a year.) The rather anemic recent spending comes after a flurry of dealmaking last summer had many observers speculating about a return to a more robust M&A environment.

Instead, recent monthly spending has flat-lined at just half the level it was last summer. Another way to look at the activity: The total value of deals so far this year (January and February combined for $20.6bn in spending) is only equal to the single-month totals from April to August last year.

One reason why 2011 has gotten off to such a slow start is that many big-name tech buyers haven’t been in the market. Among the companies that have yet to open their M&A account this year: Microsoft, Symantec, Oracle, IBM, EMC, BMC and others.

PE firms back at the table

Brenon Daly

Contact: Brenon Daly

The buyout barons might not be as powerful as they were before the Credit Crisis, but that doesn’t mean the financial buyers can’t elbow aside their rivals from the corporate world. Earlier this week, Golden Gate Capital topped an existing agreement that Conexant Systems had with fellow chipmaker Standard Microsystems. While it wasn’t unusual for private equity (PE) firms to take auctions when credit was flowing cheap and easy, it’s been relatively rare in the past two years.

Terms call for Golden Gate to hand over $2.40 for each share of Conexant, giving the deal an equity value of roughly $180m. (Additionally, the company carries $86m of net debt.) The buyout firm’s all-cash offer topped a cash-and-stock bid of $2.25 per share from Standard Microsystems. The new agreement has a ‘no shop’ clause and is not conditional on financing. It also carries a $7.7m breakup fee, exactly the same amount that Standard Microsystems is pocketing for its trouble.

A 7% bump in acquisition price may not seem like much, but it could be an early signal that PE firms are getting much more aggressive in deals. That’s actually what corporate development executives told us they expected in 2011 from their PE rivals. In our annual survey, nearly four out of 10 (38%) corporate buyers said they expected more competition from buyout shops, compared to just 13% who said the opposite.

RSA = Rumors Swirling Around

Brenon Daly

Contact: Brenon Daly

Candidly, one of the main reasons we’ve always enjoyed the RSA conference is all the gossip at the event. From the show floor to get-togethers that take place along the periphery of the conference, people talk. That’s especially true at the boozy after-hours parties sponsored by vendors and their backers, where the focus is more on martinis than malware.

And once again, last week’s conference didn’t disappoint, with ‘RSA’ once again living up to its abbreviation of ‘rumors swirling around.’ Of course, most of the speculation centered on which security company was going to get taken out next. That’s more than a guessing game if you consider the following conference regulars that have been gobbled up just since last year’s RSA event: McAfee, ArcSight, PGP, SonicWall, Arcot Systems along with dozens of other smaller companies.

As for the next significant player to go, we heard a fair amount of M&A buzz around NetWitness. The company sells a powerful network-analysis platform for traffic capture, classification and analysis, and is thought to be running at roughly $60m in sales. The Washington DC-based startup is run by Amit Yoran, who already sold a company to Symantec back in 2002. (Private equity firm Summit Partners picked up a minority stake in NetWitness about a year ago.) The two names that came up most often as the rumored buyer of NetWitness were Hewlett-Packard, looking to add to its recent ArcSight acquisition, and Cisco, which has already done deals to add security to its core network business.

Out with the old, in with the new

Brenon Daly

Contact:  Brenon Daly

Just over the past week, we’ve been struck by the fact that after in-house development efforts came up short, companies simply reached out of house for other companies that were doing the same thing – only better. In one case, it was to buy; in another case, it was just to partner.

Take Hewlett-Packard’s purchase earlier this week of Vertica Systems. (Subscribers can see our full report on the transaction, including our estimates of the undisclosed deal terms.) The purchase came just three weeks after HP said it was phasing out its Neoview platform, which never caught on in the otherwise fast-growing data-warehousing market. (We’re just guessing, but the move might have also been rooted in personal reasons, as well as financial reasons. Neoview was closely associated with HP’s former CEO Mark Hurd, who has been taking shots at his former shop ever since he joined Oracle.)

Although that acquisition doesn’t entirely line up with Nokia’s ‘strategic alliance’ with Microsoft, there are more than a few echoes. In both cases, a tech giant – armed with tens of millions of R&D dollars, not to mention dozens of engineers dedicated to the effort – was in danger of slipping into irrelevancy in an explosively growing market. The agreements represented dramatic about-faces for HP and Nokia. But that’s probably better than both trying to put a good face on what the market has said is a losing effort.

Nokia + Microsoft = Love?

Brenon Daly

Contact: Brenon Daly

Maybe it’s the fact that today is Valentine’s Day and love is in the air, but we’ve been thinking about the recent closeness of Nokia and Microsoft in a whole new way. Recall that the Finnish handset maker said on Friday that it’ll be basically breaking up with its own OS to start dating Windows Phone. ‘You’re just not doing it for me anymore,’ the hardware told the software before also asking Symbian to clean its stuff out of their previously shared house. ‘Don’t forget your toothbrush.’

By dumping its longtime partner, Nokia has cleared the way for a new relationship with Microsoft, which looks like a compatible union to our eyes. After all, both giants are on a slow fade right now, largely watching while the rest of the mobile industry passes them by. (To put that into human terms, we can’t help but envision Nokia and Microsoft as a somewhat elderly couple, more likely to watch On Golden Pond (on VHS, no less) than to head out to the theater and catch The Social Network, for instance.)

Have these companies truly been struck by Cupid’s arrow? Is the ‘strategic alliance’ just a bit of handholding before a proper marriage? Well, from our view, an acquisition – although still unlikely – is less unlikely than before. Why? For one thing, the block to this long-rumored pairing has always been that Microsoft wouldn’t want to jeopardize its relationships with other device makers by settling fully on Nokia.

But frankly, that’s less of a concern now if only because Windows Phone has been left behind, even by hardware makers that have long relied on Microsoft for software to power their computers. For instance, Dell has largely embraced Google’s rival OS, Android, for its tablets. And Hewlett-Packard went out and dropped $1bn on Palm Inc to have its own OS for devices rather than continue to run Microsoft’s mobile OS. Given that many of its former partners have already paired off, maybe Microsoft believes the time is now to tie up with Nokia, for better and for worse.

A four-bagger for VMware

Brenon Daly

Contact: Brenon Daly

If the virtualization thing doesn’t work out for VMware, the company could always spin off a hedge fund. At least that’s what we’ve been thinking as Verizon Communications’ purchase of Terremark Worldwide appears set to close very soon. When the deal does wrap, VMware will walk away with a tidy windfall from a savvy bet that the virtualization kingpin made on the hosting provider back in mid-2009.

Recall that in May 2009, VMware picked up a 5% stake in Terremark for $20m, paying just $5 for each of the four million shares. According to terms, that block of equity will be worth $76m when it comes time to cash out to Verizon, which is paying $19 for each Terremark share. A four-bagger in just a year and a half is a return that might even make John Paulson envious. The gain on VMware’s investment in Terremark even outpaces the return of its own highflying stock, which has ‘only’ tripled in that time.

A public signoff from McAfee

Brenon Daly

Contact: Brenon Daly

After nearly two decades in some form or another as a public company, McAfee all but certainly reported its quarterly results to Wall Street for the final time on Tuesday morning. The company’s sale to Intel is expected to close in the coming weeks, a deal that will bring the largest stand-alone security vendor under the ownership of the largest semiconductor maker. For 2010, McAfee reported sales of $2.1bn and cash from operations of $595m. It didn’t hold a conference call because of the imminent close of its sale to Intel. (We suspect that the company won’t miss that quarterly ritual.)

The unexpected acquisition, which received our Golden Tombstone award as the most significant transaction of last year, was supposed to have already closed. When the $7.7bn deal was announced in mid-August, the companies indicated that they expected it to close before the end of 2010. It got overwhelming clearance from McAfee’s shareholders in early November, with 1,500 ‘yes’ votes for every one ‘no’ vote. US regulators signed off on the transaction in December.

But it took another month for European regulatory authorities to give their blessing – and they did so only conditionally. Among other things, Intel had to assure the European Commission that it won’t prevent other security providers from working on its chips and that the vendors will be able to use ‘functionalities’ of Intel’s products in the same way that McAfee is able to. While Intel may not be thrilled about making concessions to the EC, at least the six-month-old deal isn’t getting bogged down there. Remember that it took Oracle some nine months to close its purchase of Sun Microsystems, largely because of European regulatory concerns.

At long last, Open Text makes a BPM play

Brenon Daly

Contact:  Brenon Daly

More than a year and a half ago, we noted that Metastorm was looking to buy its way into some adjacent markets such as risk and compliance or perhaps collaboration. The planned shopping trip would have come after the business process management (BPM) provider pulled its IPO paperwork. At the time, however, we wondered if the would-be IPO candidate might not head to the other exit: a trade sale.

Specifically, we floated the single name of Open Text, which we noted had consolidated much of its core enterprise content management (ECM) market but still appeared to be losing deals to rival vendors with more robust BPM offerings. However, we thought that valuation might make it tough to bridge the bid/ask spread between the two sides. In most of its dozen deals over the past decade, Open Text has paid somewhere in the range of 0.5-1.5 times trailing sales for its acquisitions. That’s true for its most visible purchases, including deals that saw it gobble up rival ECM firms Hummingbird in August 2006 and Vignette in May 2009, as well as add image capture software maker Captaris in September 2008.

As it turns out, valuation didn’t necessarily snag Open Text’s significant acquisition to bolster its BPM credentials. The company said late last week that it will hand over $182m in cash for Metastorm. In a conference call, Open Text indicated that Metastorm was generating $70-75m in sales, implying a valuation of about 2.5x sales for the BPM provider. That’s a fair bit richer than the valuation that the Canadian consolidator has paid in the past. However, we suspect that guidance assumes a bit of revenue write-downs and (perhaps) a bit of sandbagging. The reason? Metastorm said in mid-2009 that it was above that level of revenue in 2008 and targeting $90m in 2009. In its IPO filing, Metastorm reported $60m in sales for 2007.