Author: Brenon Daly

No-go IPO for RedPrairie

Brenon Daly

Contact: Brenon Daly

Scratch another name off the list of IPO candidates. RedPrairie, which had filed to go public in late November, instead sold on Tuesday to buyout shop New Mountain Capital. The sale moves the supply chain management software vendor from one private equity portfolio to another. (We understand that the two book runners on the proposed offering – Bank of America Merrill Lynch and Credit Suisse Securities – both advised RedPrairie on the deal.) In mid-2005, Francisco Partners acquired the company for $237m and subsequently rolled up another half-dozen smaller shops. Ahead of the proposed offering, Francisco owned 90% of RedPrairie.

The trade sale of RedPrairie isn’t all that surprising. (Nor, for that matter, was the fact that it put in its prospectus. We noted a month before the company officially filed to go public that it was getting close to an offering.) Looking at the financial profile of RedPrairie, it was hard to see Wall Street getting too excited about the vendor. Undoubtedly, it is profitable and hums along at a decent 20% EBITDA margin. But the top line leaves a lot to be desired.

Revenue at RedPrairie dropped 12% in the first three quarters of 2009, with license sales declining twice that level. In the first three quarters of last year – which was, admittedly, an extremely tough time to sell enterprise software – RedPrairie sold just $27m of software licenses. Meanwhile, rival JDA Software was able to generate twice as much license revenue ($60m) during the same time frame. JDA even managed a slight increase in sales of its software, compared to a double-digit percentage decline at RedPrairie.

A Mimosa-colored Iron Mountain

Brenon Daly

Contact: Brenon Daly

Adding a major piece to its information management portfolio, Iron Mountain said Monday that it will hand over $112m in cash for Mimosa Systems. (We noted two weeks ago that the market was buzzing on this possible pairing.) The purchase is the largest by Iron Mountain since its October 2007 acquisition of Stratify, a deal that serves as the basis for the company’s Iron Mountain Digital. (Stratify’s founder now heads up Iron Mountain’s digital business. Incidentally, Mimosa chief executive T.M. Ravi will join Iron Mountain Digital as head of marketing.)

The purchase of Mimosa adds on-premises content archiving to Iron Mountain Digital, and brings it more directly into competition with some of the largest suppliers of information management technology, including two companies that bought their way into the market. In mid-2007, Autonomy Corp paid a whopping $375m for Zantaz, and two years ago Dell shelled out $155m for MessageOne. We understand that Dell valued its archiving startup at slightly more than 6x trailing sales, while Autonomy paid about 3.3x trailing sales for Zantaz. According to two sources, Iron Mountain is paying roughly the same multiple that Autonomy paid, valuing Mimosa at about 3.2x its estimated trailing sales of about $32m.

QlikTech looks likely to click on the market

Brenon Daly

Contact: Brenon Daly

Even though the public market has been fairly choppy lately, there seems to be no shortage of companies willing to step into the uncertain waters. We’ve seen a number of recent IPO filings, as companies get their final 2009 numbers in order and look ahead to a possible summer offering. The problem is that few of the would-be debutants actually look all that attractive. Included in the current lineup of IPO candidates are a deeply money-losing company that will stay in the red for at least the next two years (Tesla Motors) and a barely baked company that generated a grand total of $36,000 in revenue last year (Vringo).

Those IPO candidates, along with most of the rest of the recent vintage, hardly approach the caliber of offerings of SolarWinds and Fortinet, among other companies that made it public last year. But we understand that may be about to change as rumors indicate that one of the stronger private tech companies has set its underwriting lineup. QlikTech has picked bankers and will look to put in its IPO paperwork shortly, according to several sources. (Morgan Stanley, CitiGroup and JPMorgan will reportedly be running the books on the offering.)

We noted a possible future offering more than two years ago, coming off a year when the analytics provider increased revenue 80% to $80m. QlikTech followed that up with $120m in revenue for 2008, and we understand that the vendor actually boosted its top line again in 2009. If indeed QlikTech does file its S1 and eventually manages to go public, it will help to replenish a bit of the market that got picked over pretty thoroughly. Recall the shopping spree by tech giants back in 2007 that saw BI vendors Hyperion Solutions, Business Objects and Cognos all get erased from the public markets. The collective tab for that BI shopping spree: $15bn.

Will Google land On2?

Brenon Daly

Contact: Brenon Daly

At this rate, Google may never again go shopping on the public market. Its contentious reach for On2 Technologies, which has been bogged down for a half-year, will come to some kind of resolution after the close of the market today, with shareholders of the video compression software vendor set to vote on Google’s $136m offer. While Google has acquired nearly 50 companies in its history, the proposed purchase of Amex-listed On2 is the first time the search giant has bid for a public company.

When Google initially announced the planned purchase back in early August, it said it hoped to close the deal in the fourth quarter. (As an aside, we’d note that since the original announcement, Google has picked up six private companies, all of them without the drama that has surrounded the proposed On2 acquisition.) The target deadline came and went, and then in early January, Google said it was adding a cash kicker to its original all-equity bid for On2.

Google’s first offer of roughly $106m of its shares for On2 hadn’t drawn enough support from On2’s shareholders. So, the deep-pocketed buyer reached a bit deeper into its pockets to add a $26m all-cash sweetener. Google says the $136m bid is its ‘final’ offer. On2’s board of directors, as well as the three main proxy advisory firms, have all urged the vendor’s shareholders to vote for Google’s proposed purchase this afternoon.

Autonomy and Art Technology: Lower after raising

Brenon Daly

Contact: Brenon Daly

There’s money, and then there’s expensive money. To underscore the difference, consider a pair of recent money-raising offerings from notably acquisitive companies. First, the worst. Art Technology Group announced earlier this month that it intended to hold a 25-million-share secondary, with an undisclosed portion of it earmarked for possible acquisitions. The plan didn’t find many fans on Wall Street, who carped about a profitable company adding 25 million additional shares on top of a base of about 135 million.

Art Technology shares promptly went into a tailspin. By the time the e-commerce firm had priced them, investors had clipped 22% off the stock. So instead of raising about $113m, the vendor had to settle for $88m (excluding overallotments). Even though Art Technology had to take a haircut on the secondary, it did at least get it done. With it, the debt-free company more than doubled the amount of cash it has on hand and could be a serious consolidator in the market. Already this year, Art Technology made a rather smart purchase of InstantService, a startup providing customer service through online chat and email.

And, although the reaction wasn’t nearly as severe, Autonomy Corp also took a mild hit from its investors when it announced plans to raise some $785m in a convertible offering last week. Adding those proceeds into its already well-stocked treasury will give Autonomy more than $1bn to go shopping with, although some of that will have to go to pay for its earlier Interwoven acquisition. Over the past three years, Autonomy has picked up five companies for a total of $1.2bn, although Interwoven accounts for two-thirds of the aggregate spending. As to what Autonomy might be looking to buy with its newfound riches, my colleague Nick Patience says in a recent report that he could imagine Autonomy going into marketing automation and BI, and he even has a few names that could well be on Autonomy’s shopping list.

Informatica parlays MDM bets

Brenon Daly

Contact: Brenon Daly

Informatica’s purchase of Siperian at the end of January marked the data-integration vendor’s first acquisition of a master data management (MDM) company. However, it wasn’t the first time Informatica has put money into the sector. The company held small stakes of both Purisma, which sold to Dun & Bradstreet for $48m in November 2007, and Initiate Systems, which IBM snared last week for what we heard was $425m. Both investments were tiny, with one source indicating that Informatica put less than $1m into Purisma and less than $5m into Initiate.

Though small, the investments certainly paid off for Informatica, coming at a time when most fulltime VCs are struggling to generate any returns. (Never mind the rather dismal, start-and-stop performance of nearly all other corporate venture programs.) We understand, for instance, that Informatica doubled its money on Initiate in less than a year and a half. Who knows, maybe the company just rolled over the proceeds from the sales of both MDM investments (Purisma and Initiate) into an MDM deal of its own. After all, Siperian was the largest buy that Informatica has ever made.

Consistency pays off for JP Morgan

Brenon Daly

Contact: Brenon Daly

Continuing its steady climb up the rankings, JP Morgan Securities emerged as the busiest adviser for US technology deals in 2009. The bank, which worked on three of the four largest transactions last year, moved up from third place on The 451 Group’s league table in 2008 after not even figuring into the top 10 in the previous year. Unlike many of its rivals that owe their standing to one or two key transactions in a specific sector, JP Morgan figured highly across a broad swath of the technology market.

It was that consistency – in a year plagued by inconsistency and uncertainty – that allowed the bank to slightly edge Goldman Sachs, which held onto second place for the second consecutive year. The aggregate value of the 11 deals that JP Morgan advised on last year totaled $23.9bn, just ahead of Goldman Sachs’ total of 15 transactions valued at $22.6bn. Rounding out the podium, Morgan Stanley stands as one of the only major banks that actually bumped up the number of deals and the total value of those transactions, year over year. Look for our full report, including leaders for a half-dozen specific sectors, in tonight’s MIS sendout.

451 Group League Table

Bank 2009 ranking 2008 ranking
JP Morgan 1 3
Goldman Sachs 2 2
Morgan Stanley 3 7
Bank of America Merrill Lynch 4 4
Citigroup 5 5

Source: The 451 M&A KnowledgeBase

Pouring cold water on the latest Sourcefire rumor

Brenon Daly

Contact: Brenon Daly

At the tail end of last week, the market was buzzing that Sourcefire may be back in play. Of course, that’s not all that unusual for the Snort shop, which has seen two publicly disclosed acquisition offers in the past four years come to nothing. (Recall that Check Point Software failed to land Sourcefire because of vague and off-target ‘national security concerns’ in early 2006. And then, in mid-2008, Barracuda lobbed an opportunistic low-ball bid for Sourcefire. Talks between the two sides never really got going, according to at least one source.)

So who’s the new bidder? Rumor has it that IBM may be looking at Sourcefire now. While the pairing has been making the rounds, we have our doubts about whether Big Blue would actually reach for the security company. Its $1.3bn acquisition of Internet Security Systems in mid-2006 has never generated the returns that IBM had hoped. (The ISS business, which was centered on the company’s Proventia boxes, never really fit well inside IBM Global Services.) Having little to show for that purchase of an intrusion-prevention system (IPS) vendor, we doubt that Big Blue would double down on another IPS vendor, Sourcefire.

And while IBM could certainly afford it, Sourcefire has gotten a little pricey. Over the past year, shares have more than tripled, giving the security vendor a market capitalization of about $600m. Backing out the $100m in cash and short-term investments gives Sourcefire an enterprise value (EV) of $500m. Without a takeout premium, Sourcefire commands a valuation (on an EV basis) of five times trailing sales and four times projected sales. Paying a premium on top of Sourcefire’s trailing P/E that’s in the triple digits might be tough for IBM, which trades at a trailing P/E of just 12.

Yahoo: glad for the greenbacks

Brenon Daly

Contact: Brenon Daly

Completing its second divestiture in less than a month, Yahoo said Wednesday that it was selling its online help-wanted site HotJobs to Monster Worldwide. Yahoo will get $225m in cash for HotJobs, roughly half the $436m the search engine paid for the job-listing site back in December 2001. The original acquisition called for Yahoo to cover the purchase with half cash and half stock. On the divestiture, we’re pretty sure Yahoo is glad terms called for straight cash.

We understand that at various points during the process, which played out over the past 15 months, Yahoo considered taking a mix of cash and Monster equity or even Monster shares outright for HotJobs. That would have been a kick in the gut to Yahoo, which has had enough problems with its own equity in recent times. The reason? Monster stock dropped 12% on Thursday after the company came up short of Wall Street earnings expectations for the fourth quarter amid a 27% decline in revenue. Had Yahoo taken Monster shares, the $225m deal would be worth just $198m at the end of its first day.

Will Iron Mountain soon be sipping a Mimosa?

Brenon Daly

Contact: Brenon Daly, Kathleen Reidy, Simon Robinson

For what was once a fairly staid Old Economy business, Iron Mountain has done a better job than most companies in acclimating itself to the digital age. The records management vendor has accomplished that with eight acquisitions over the past half-decade, picking up technology for online backup and e-discovery, among other offerings. The $158m purchase of e-discovery provider Stratify stands, in many ways, as Iron Mountain’s marquee acquisition for its digital business. It has maintained the Stratify name and, last November, turned its whole digital subsidiary over to Ramana Venkata, the founder and former CEO of Stratify.

After that purchase in October 2007, Iron Mountain stayed out of the market for more than two years, despite many adjacent sectors that it could buy its way into. (And, from what we remember of the past two recession-wracked years, prices for startups weren’t particularly steep.) The M&A drought ended last month with the pickup of a San Francisco-based services company, Legal Imaging Technologies, that provides electronic document conversion. Terms weren’t disclosed.

But now we wonder if that small buy might be followed by a large deal. Several sources have indicated that Iron Mountain may be looking to snare a digital-archiving startup. It had relied on its partnership with MessageOne, but since that company’s acquisition by Dell, Iron Mountain has moved on, partnering with Mimecast last April. The partnership – combined with the fact that both businesses deliver their offerings through a subscription model – makes an acquisition of Mimecast by Iron Mountain a logical fit.

However, the market has been buzzing recently with another possible pairing for Iron Mountain – Mimosa Systems. Although Mimosa has talked in the past about going public this year, we have always thought that an acquisition of the company was more likely. (It has raised $50m in backing and, according to one source, was tracking to about $40m in bookings last year.) While Mimosa’s technology is highly regarded, the fact that it’s on-premises rather than on-demand would pose some integration challenges. However, it does have an emerging cloud story that would likely be of interest to Iron Mountain.