Author: Brenon Daly

Motricity’s equity activity

Brenon Daly

Contact: Brenon Daly

Although shares of Motricity have been trading on the Nasdaq since mid-June, it’s only been in the past few weeks that most of the action has taken place. We have already chronicled the difficult birth of the company, which had to trim both its offer size and price to go public. Debt-heavy Motricity ended up raising only half the amount that it expected in its June IPO.

Born under a bad moon, Motricity appeared destined to live out a life of quiet woe on the public market. And for the first three months, that’s exactly how it played out for the mobile data platform provider. Shares changed hands in the single digits. Then the stock took off, tripling from September to November. (That run was enough to tempt Carl Icahn, a significant shareholder in Motricity, to look to lighten his load in December. However, the activist investor pulled the planned secondary last week.)

For its part, the company has found its own use for equity: an acquisition. Earlier this week, Motricity picked up mobile advertising and analytics startup Adenyo for $100m upfront and (perhaps) another $50m in an earnout. Terms call for Motricity to use an unspecified mix of cash and stock to cover the bill. Adenyo, advised by Citadel Securities, did get a collar on shares as part of the final consideration. But for now, the once-volatile shares of Motricity have been holding steady at about $20 each, which is at the high end of the collar’s range.

Tech M&A slumps to a start in 2011

Brenon Daly

Contact: Brenon Daly

January saw more tech deals than any single month of 2010, but M&A spending shows no sign of shaking off the slump it has been in for the past few months. The muted spending in the just-completed month marks the fifth straight month that the aggregate value for deals announced has come in only slightly above half of the monthly totals from last summer. And January is the lowest of the recent months.

We tallied some 308 deals in January, worth a total of just $11bn. That’s only slightly below the roughly $12bn monthly rate we’ve seen since last September, but it’s a far cry from the activity we recorded in the second quarter, where all Q2 months (April-June) topped $20bn in spending. (In terms of number of monthly transactions, deal volume ranged from basically 250-290 in 2010.)

In addition to the lower total value of deals, another troubling sign in January was the fact that spending was highly concentrated. The two largest transactions last month (Qualcomm’s purchase of Atheros Communications and Verizon’s acquisition of Terremark Worldwide) accounted for nearly half of all spending on deals announced in January. The 45% mark is higher than all but one of the previous four months, and notably above the 36% average for the September-December period.

Trustwave surfing toward an IPO?

Brenon Daly

Contact: Brenon Daly

After two IT security companies put in their IPO paperwork last summer, we’re hearing that Trustwave is almost certain to be the first filer in 2011. The PCI-compliance vendor is currently baking off, with the selection of bankers expected to be complete next week. The actual prospectus would likely be filed around April and the offering would hit later this year, according to several sources.

If the filing goes ahead as planned, Chicago-based Trustwave would join both SafeNet and Tripwire as security providers looking to join the ranks of public security companies. (Or in the case of SafeNet, rejoin the ranks of public security companies.) Our understanding is that Trustwave finished 2010 with roughly $125m in sales, and continues to generate cash. Depending on the timing of the offering, the vendor would likely come to market with a valuation in the neighborhood of a half-billion dollars, according to our quick, back-of-the-envelope math.

Founded in 1995, Trustwave has expanded far beyond its original focus on PCI auditing and remediation, largely through M&A. It has acquired seven companies in the past three years, most of them small firms that, for the most part, were having a tough go of it on their own. Trustwave then adds the acquired technology on top of its Linux platform (TrustOS) and offers it to customers either through an on-premises product or a managed service. All in, Trustwave counts some two million customers.

Comings, goings and growings in the data-warehousing market

Brenon Daly

Contact: Brenon Daly, Matt Aslett

Over the past two and a half years, tech giants such as Microsoft, IBM and EMC have all inked major data-warehousing (DW) acquisitions, running up a collective bill of some $2.5bn. All that time, Hewlett-Packard stayed out of the shopping spree, opting to develop its own DW offering in-house. On Monday, HP conceded that those efforts haven’t generated the return that it was looking for, and indicated that it would phase out sales of its Neoview product.

HP is expected to continue its DW-related partnerships, including a recently announced accord with Microsoft to deliver four new data appliances. On its own, however, HP wasn’t able to capture much business in the fast-growing DW market, in part because the company approached it as a services play. (My colleague Matt Aslett noted some of the struggles HP was having with Neoview in a recent report, where he indicated that if HP was serious about DW it should have either reached for Netezza or made the big move for Teradata.) It couldn’t have helped Neoview, either, that it was so closely associated with former CEO Mark Hurd, who is being erased as quickly as possible from HP since his unceremonious departure last summer.

HP’s shift away from directly focusing on the DW market comes as Teradata enjoys its richest-ever valuation. (Shares of Teradata, which is the largest and most-visible DW vendor, have jumped about 60% over the past year, giving the company a $7.7bn valuation.) We’re also hearing that Teradata may be looking to do a deal of its own. Having just closed its purchase of Aprimo to get into the business application market, the buzz is that Teradata will shift its M&A focus back to its basic business, perhaps picking up additional analytics and other DW technology.

SolarWinds looks to shine in other markets

Brenon Daly

Contact: Brenon Daly

Having built a billion-dollar market cap through a cheap and easy offering for network management, SolarWinds is looking to take that approach to new markets through small acquisitions. Exactly a year ago, the company picked up Tek-Tools to add storage management to its portfolio, and now it steps fully into application performance management (APM) and virtualization management with its reach for Hyper9. SolarWinds is handing over $23m in cash for Hyper9, with terms also providing for a possible $7m earnout.

The addition of the small Austin, Texas-based startup, which had only about $2m in sales, gives SolarWinds its first stand-alone virtualization offering as well as a shoring up its APM product. (In the past, SolarWinds had a much less robust APM offering as a module to its flagship Orion product.) The moves also brings the company into more direct competition with management giants such as Hewlett-Packard, CA Technologies and Quest Software, among others.

In terms of competition, we would note with some irony that in a recent technology bakeoff that a nationwide grocery chain held for a monitoring product, Hyper9 got the nod ahead of SolarWinds, among other vendors. (See the full details in our User Deployment Report). So maybe part of the thinking at SolarWinds for the deal was if you can’t beat them, buy them

Kaspersky catches some cash

Brenon Daly

Contact: Brenon Daly

Add General Atlantic (GA) to the list of buyout firms that has picked up a stake in an information security vendor. The firm on Thursday acquired a 20% chunk of Russian antivirus software provider Kaspersky Lab for $200m, implying an overall valuation of $1bn. The deal marks the third significant investment by a private equity (PE) shop in a European anti-malware vendor in just the past six months.

GA also appears to have gotten a bargain in becoming the company’s second-largest shareholder. Kasperky’s $1bn valuation works out to about 2 times sales and 8-9x EBITDA, according to our understanding. For comparison, rival anti-malware vendor Sophos got more than 3x trailing sales when it sold a majority stake to Apax Partners last May. (And according to at least two sources, Kaspersky was targeting a valuation of ‘well north’ of $1bn when it was running the process, which took most of 2010.) The third recent antivirus deal was Summit Partners’ $100m investment in AVAST Software last August.

Everything is bigger at Big Blue

Brenon Daly

Contact: Brenon Daly

Sometimes, we forget why IBM is called Big Blue. The giant just reported $100bn in sales for 2010, making it more than twice the size of Cisco Systems and almost four times the size of Oracle. (Just on its own, IBM’s software portfolio is larger than all of Oracle, not to mention the fact that IBM’s software operations are vastly more profitable than Oracle.) IBM’s current valuation is big, too, with shares currently changing hands at their highest levels ever.

And, as we listened to the company discuss its recent financial results, we were reminded that it has a big appetite for deals. It dropped a cool $6bn on acquisitions last year, with half of that coming in just the fourth quarter. Just in the last year, IBM took two public companies off the board (Netezza, Unica), gobbled up another two companies that could have been looking for an IPO (Initiate Systems, BigFix), and was even on the buyside of an unusual $1.4bn divestiture (AT&T shedding Sterling Commerce). Of course, it’s easy to write those big checks when the company generated more than $16bn in free cash flow in 2010.

Adobe backs up Omniture buy with more SaaS

Brenon Daly

Contact: Kathleen Reidy

Continuing to show its interest in the online marketing realm, Adobe has announced that it will buy SaaS startup Demdex for an undisclosed sum. Demdex was founded in 2008 with the goal of capturing behavioral data across websites to help advertisers better segment and target ads. It had raised $7.5m in seed and series A rounds from Shasta Ventures, First Round Capital and Genacast Ventures.

This is the first deal Adobe has done explicitly in support of Omniture, which it acquired for $1.8bn in September 2009. It certainly seems like a transaction Omniture would have done, since it had been an active acquirer itself as an independent. (The company announced four purchases in 2007 alone.) Demdex will join other technologies from Touch Clarity, Offermatica, Visual Sciences and Mercado Software in the Omniture portfolio, which is now dubbed the ‘Adobe Online Marketing Suite, powered by Omniture.’ Omniture was also Adobe’s first big SaaS buy so Demdex brings it another SaaS offering, as well.

The only other acquisition Adobe has made since buying Omniture was its $242.7m pickup of Day Software last July. There are certainly connections between Day’s on-premises Web content management products and Omniture’s SaaS Web analytics and online marketing tools, but Adobe had broader reasons for buying Day and so far, seems to position Day more alongside its on-premises content management product, Adobe LiveCycle.

A decoupled and depressed tech M&A market

Brenon Daly

Contact: Brenon Daly

As we were putting together our full report on M&A last year and the outlook for this year, we couldn’t help but notice the fact that 2010 basically slumped to an end. On average, spending hit just $12bn in each of the last four months of 2010, down from about $20bn for the summer months. Not only that, spending in the September-December period last year substantially lagged the same time in 2009, with three of the four monthly totals in 2010 actually declining, year over year.

The rather muted M&A activity toward the end of 2010 stands out even more because there was a lot of confidence in the equity markets during that time. Despite a long-standing correlation between the two markets, dealmakers basically sat on their hands during the tremendous rally in the final months of 2010, which essentially accounted for all of the gains on the indexes last year. The Nasdaq jumped 17% last year, although more than a few tech companies wrapped the year with tidy triple-digit gains in their stock prices.

To explain the unusual decoupling between the equity and M&A markets in 2010, we might point to the unprecedented government intervention in the debt and credit markets. In the short term, the measures have helped buoy those markets, even if some of the underlying problems (unemployment/underemployment and foreclosure rates) remain alarmingly unresolved. There was no Washington-brokered ‘stimulus package’ for dealmakers. (Again, see our full report to get more details on activity and valuations in the year that was, and what to look for in the year that’s here.)

What’s ultimate destination for Ultimate Software?

Brenon Daly

Contact: Brenon Daly

After 20 years in business, Ultimate Software may be looking for a new owner. The human capital management (HCM) vendor is rumored to have retained Lazard to shop the company, market sources have told us. The bank will run a narrow process, likely approaching about a half-dozen possible buyers rather than running a full auction, the sources added.

The decision by Ultimate to test the market comes as deal flow in the HCM sector has hit a record level. In 2010, we tallied some $2.4bn in spending on deals, slightly eclipsing the previous record of $2.1bn in 2007, according to The 451 M&A KnowledgeBase. Valuations across the space have been soaring, and Ultimate is no exception. This time last year, shares of the Weston, Florida-based company were changing hands at about $30 each. Now, they’re at $50 – an all-time high. That gives Ultimate a market value of $1.25bn, roughly 4.6 times projected 2011 sales of $270m.

Much of the gain can be chalked up to the company’s decision a few years ago to switch from selling software licenses to a subscription model. (It’s a move that has proved incredibly lucrative for other old-line software companies, as well. Shares of Concur Technologies, which underwent a similar shift in sales model a few years ago, have quadrupled over the past five years and are now valued at $2.8bn.) Ultimate stopped selling new software licenses in April 2009 and recurring revenue (made up of both subscription and maintenance revenue) is now more than three-quarters of total sales.