Category: investment banking

A parade of big prints pushes Q2 tech M&A spending to record level

Brenon Daly

Contact: Brenon Daly

Blockbuster transactions in the cable, semiconductor and networking equipment industries helped push Q2 spending on tech, media and telecom (TMT) acquisitions to its highest quarterly level in 15 years. In the just-completed quarter, the value of TMT deals across the globe topped an astounding $196bn. That shattered the previous quarterly record and is actually higher than three of the six full-year totals we’ve recorded in 451 Research’s M&A KnowledgeBase since the recent recession ended.

The record Q2 spending rate, which accelerated from an already strong Q1, was boosted by the largest-ever tech deal (Avago’s $37bn purchase of Broadcom) as well as the second-largest telecom transaction since 2002 (Charter Communications’ $57bn rebound deal for Time Warner Cable). On their own, either of those transactions would have been considered a reasonable amount of spending for a full quarter in recent years. Instead, the pair simply led an unprecedented parade of big-ticket deals announced from April to June. The 22 prints in Q2 valued at $1bn or more included eight transactions worth at least $4bn and four worth more than $15bn. All four of the largest deals announced so far in 2015 have come since April.

Taken together, M&A spending in the first two quarters of 2015 hit a high-water mark of $316bn. Although it’s highly unlikely that deal flow will continue linearly at its current record rate, it’s worth noting that spending on TMT for the full year is on pace for an almost unimaginable $630bn. For a bit of perspective, that would be a full $200bn more than the highest annual total since the Internet bubble burst in 2000. 451 Research will have a full report on recent M&A activity, as well as the IPO market, on Monday.

Recent quarterly deal flow

Period Deal volume Deal value
Q2 2015 1,018 $196bn
Q1 2015 1,027 $120bn
Q4 2014 1,028 $65bn
Q3 2014 1,049 $102bn
Q2 2014 1,005 $141bn
Q1 2014 854 $82bn
Q4 2013 787 $64bn
Q3 2013 859 $73bn
Q2 2013 760 $48bn
Q1 2013 798 $65bn
Q4 2012 824 $65bn
Q3 2012 880 $39bn
Q2 2012 878 $44bn
Q1 2012 920 $35bn

Source: 451 Research’s M&A KnowledgeBase

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In a time of sky-high infosec valuations, Sophos goes for down-to-earth debut

Brenon Daly

Contact: Brenon Daly

The tech IPO market is so quiet these days that even those companies that do manage to go public do it understatedly. Consider the almost under-the-radar offering from Sophos, a giant in the infosec market that nonetheless raised a relatively small $125m on the London Stock Exchange (LSE) last Friday. Compared with the noisy funding events we’re accustomed to seeing in this current frothy investment environment, the Sophos IPO was almost refreshingly reserved.

Sophos has been around for 30 years, which makes it positively middle-aged relative to many flashy startups that still haven’t seen the ink dry on their business plans. Also, Sophos was born and raised in the UK, several time zones – and even more distant culturally – from the epicenter of tech hype in Silicon Valley. To illustrate, Sophos spends less than 40% of its revenue on sales and marketing, about half the level of some US-based IT firms (e.g., Apigee, Box) that have also come public in 2015.

Yet even as Sophos runs a business that’s clipping along at nearly a half-billion dollars in revenue, it raised the same amount of money that some startups one-tenth its size have landed from private investors. Another way to look at it: The $125m that Sophos raised in its IPO is also less than half the amount collected by Etsy, which is smaller than Sophos, in its April IPO.

And Sophos is raising money at a very down-to-earth valuation, compared with some of the sky-high valuations garnered by both public and private infosec vendors. Sophos started life on the LSE at a market cap of about $1.6bn, roughly 3.5x its trailing sales of $447m. That’s a sharp discount to many of the infosec providers trading on the NYSE and Nasdaq. For example, Proofpoint, Qualys, FireEye and Imperva, among others, all trade at more than 10x trailing sales.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

A steady Sophos now set to step on public stage

Brenon Daly

Contact: Brenon Daly

After an on-again, off-again march to the public market over the past decade, Sophos finally looks set to sell shares to the public for the first time. The 30-year-old, UK-based security vendor put in its paperwork last week for a $100m IPO on the London Stock Exchange (LSE). It was actually the second time the decidedly middle-aged Sophos filed to go public, and comes five years after it flirted with an IPO before selling a majority stake to Apax Partners instead.

During the half-decade in the private equity firm’s portfolio, Sophos has been a steady acquirer, picking up a company about every year. Its most recent deal, announced earlier this week, is the first time Sophos has acquired a cloud-based vendor. Sophos paid an undisclosed amount for email security and archiving startup Reflexion. The technology is expected to be integrated into Sophos Cloud later this year.

When Sophos does hit the LSE next month, we expect it to create a few billion dollars of market value. In its most recent fiscal year, which finished last March, Sophos increased revenue 18% to $447m. For comparison, Barracuda Networks – a diversified security provider that, like Sophos, serves the SMB market – posted an identical growth rate in its most recent fiscal year. (Although Sophos is growing off a revenue base that is more than half again as large as the $277m that Barracuda put up last year.) Since it went public in November 2013, Barracuda has doubled its market value to about $2bn.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

A monster May for M&A

Brenon Daly

Contact: Brenon Daly

All three segments of tech, media and telecom (TMT) put up gigantic prints in May, pushing spending in the just-completed month to a level we’d typically see tallied over a half-year period in most post-recession years. The record monthly spending of $122bn was boosted by the largest-ever cable deal as well as the biggest pure tech transaction since the bubble burst. Both Charter Communications’ $56.7bn reach for Time Warner Cable and Avago Technologies’ $37bn purchase of Broadcom figure into the 10 largest TMT deals since 2002, according to 451 Research’s M&A KnowledgeBase

Undeniably, the two blockbuster prints dominated last month’s M&A, accounting for roughly three-quarters of the total spending. But even backing out those two acquisitions, spending came in at a robust $29bn, which is higher than the typical post-recession monthly average. More importantly, the activity spread to a broad number of markets, with billion-dollar-plus deals announced in May by hosting provider Equinix, ambitious telco Verizon and even EMC, which has found itself under scrutiny by activist shareholders, among others.

Last month’s astonishing level of spending – the only time in the past 13 years that monthly spending has topped $100bn – pushes total receipts for TMT M&A this year to $286m. That means that in just five months so far in 2015, acquirers have already spent more money on deals than they did for the entire year for every single year except one from 2009-14, according to the KnowledgeBase.

The one surprise from May, however, is the relatively shallow flow of deals. We tallied only 270 transactions, which stands as the lowest total for May since 2009. That’s down about 20% from the average of the preceding four months of 2015, and marks the first time in more than three years that we’ve seen a month-over-month decline in the number of prints.

2015 monthly deal flow

Period Deal volume Deal value
January 2015 357 $11bn
February 2015 332 $48bn
March 2015 336 $61bn
April 2015 358 $44bn
May 2015 270 $122bn

Source: 451 Research’s M&A KnowledgeBase

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Webinar: 451 Research and Morrison & Foerster M&A Leaders’ Survey

Brenon Daly

Contact: Brenon Daly

Even as tech dealmaking clips along at a post-bubble record rate in 2015, the overwhelming view from the M&A Leaders’ Survey from 451 Research and Morrison & Foerster is that business is expected to get even more brisk as the year progresses. To find out more about the forecast, as well as how the survey sentiment maps to both the current M&A market and current M&A practices, join 451 Research and Morrison & Foerster on Tuesday, May 19 at 1pm EST (10am PST) for an information-packed webinar. Click here to register.

The webinar will cover not only the forecast for acquisition activity for the next six months, but also what buyers expect to have to pay to cover their purchases and what strategies will be driving those deals. Additionally, Morrison & Foerster will provide real-world insight on some of the key findings around recent trends in structuring transactions and other practical M&A considerations. To register for the complimentary webinar, simply click here.

M&A activity forecast for the next six months

Survey date Increase Stay the same Decrease
April 2015 61% 30% 9%
October 2014 48% 36% 16%
April 2014 72% 24% 4%
October 2013 50% 43% 7%
April 2013 54% 27% 19%
October 2012 49% 34% 17%
April 2012 59% 33% 8%

Source: M&A Leaders’ Survey from 451 Research / Morrison & Foerster

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Exclusive: An IPO in the works for Dell SecureWorks?

Brenon Daly

Contact: Brenon Daly

When Michael Dell pulled his company off the Nasdaq two years ago, he had very few good things to say about being a public business. Dell first listed his company back in 1988, but as its PC-dominated business fell out of favor among investors, he blasted the ‘short-term thinking’ of most money managers and engineered a $24bn take-private of his company. Now, it seems he’s looking to make a return trip to Wall Street, at least with a portion of his business.

Rumors are now swirling that Dell is planning to sell a minority stake in SecureWorks, a managed security service provider (MSSP) that Dell acquired in January 2011 for $612m. As we understand it, the plan is to sell about one-third of the SecureWorks division in an IPO later this year. We estimate revenue at SecureWorks at just under $300m, with the business running right about breakeven. Assuming it gets a valuation comparable to what has been handed out in recent MSSP transactions, SecureWorks could be valued at roughly $1bn.

Dell was rumored to be a bidder for Trustwave, an MSSP that sold to Singtel for $810m in April. (SecureWorks is roughly one-third larger than Trustwave.) Market sources have also suggested that Dell has looked at smaller regional MSSPs. Raising money through selling a minority stake to the public would give SecureWorks additional currency to pursue acquisitions.

MSSPs have been around in various forms since the late 1990s, but have recently come into favor amid a shortage of skilled infosec workers and IT security technology that hasn’t kept pace with threats. The market appears to have a fair amount of growth in front of it. In a recent study by The InfoPro, a service of 451 Research, slightly fewer than four out of 10 respondents indicated that they were currently using an MSSP.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

April activity keeps 2015 on pace for record tech M&A

Brenon Daly

Contact: Brenon Daly

Tech acquirers stayed busy in April, keeping 2015 on track for post-bubble records for both the number of transactions as well as the spending on them. The just-completed month saw 341 tech, media and telco (TMT) deals valued at $42.1bn announced around the globe, exactly matching the totals from April 2014, according to 451 Research’s M&A KnowledgeBase. However, adding a little bit more perspective on the recent flurry of activity, we would note that the spending of some $42bn in both April 2015 and April 2014 is twice as high as the same month in 2013 and 2012 combined.

While M&A activity was strong across a number of sectors, the top end of the market was particularly active. Last month, 451 Research’s M&A KnowledgeBase tallied nine transactions with an equity value of more than $1bn. Notable big prints included Nokia’s $16.5bn consolidation of telecom equipment rival Alcatel-Lucent; Informatica’s $5.3bn take-private, the largest leveraged buyout in nearly two years; and LinkedIn’s $1.5bn purchase of lynda.com, which is almost 10 times larger than any other deal the employment networking site has done.

With four months of 2015 already in the books, tech acquirers have spent $162bn on transactions. That’s more than they dropped on deals for all of 2009. More significantly, if we annualize activity so far this year, 2015 is on track for just shy of a half-trillion dollars of M&A consideration. That would handily top the previous record of roughly $420bn reached in both 2006 and 2007.

And, we would note that tech acquirers are telling us they plan to be active. In the just-completed M&A Leaders’ Survey from 451 Research and Morrison & Foerster, slightly more than six out of 10 tech dealmakers and investment bankers expect their pace of acquisitions to accelerate over the next half-year, the second-most-bullish response we’ve received in the seven editions of the survey. See our full report on the M&A Leaders’ Survey from 451 Research and Morrison & Foerster.

2015 monthly deal flow

Period Deal volume Deal value
January 2015 357 $11bn
February 2015 332 $48bn
March 2015 332 $61bn
April 2015 337 $42bn

Source: 451 Research’s M&A KnowledgeBase

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Survey: Already busy tech acquirers expect to be even busier

Brenon Daly

Contact: Brenon Daly

Even as tech M&A activity clips along at a post-bubble record rate in 2015, business is expected to get even more brisk as the year progresses. Slightly more than six out of 10 tech dealmakers and investment bankers expect their pace of acquisitions to accelerate over the next half-year, the second-most-bullish response in the seven editions of the M&A Leaders’ Survey from 451 Research and Morrison & Foerster. The 61% of respondents forecasting a pickup in activity over the next six months is almost seven times the number (9%) anticipating a slowdown.

The solidly bullish outlook for 2015 – with nine out of 10 respondents forecasting that their M&A activity will either hold steady or pick up through October – comes as the year has started busier than any year since the Internet bubble burst. In just the first four months of 2015, tech acquirers have announced some $160bn worth of global TMT transactions, according to 451 Research’s M&A KnowledgeBase. The year-to-date spending, which is already higher than the full-year total for recession-wracked 2009, puts 2015 on track for just shy of a half-trillion dollars of M&A consideration.

We would also note that the last time respondents to the M&A Leaders’ Survey from 451 Research and Morrison & Foerster clearly signaled their intent to acquire, the projection did indeed come through in prints. In the survey from April 2014, a record seven out of 10 respondents (72%) indicated that they planned to accelerate their M&A in the year. Last year’s total value of deals hit an astonishing $390bn – a post-recession record that came in at basically twice the average annual spending from 2009-2013, according to the KnowledgeBase.

Look for a full report on the M&A Leaders’ Survey from 451 Research and Morrison & Foerster – including what will be driving deals in the coming years, as well as what buyers expect to have to pay for those transactions – on the 451 Research website later today and in tomorrow’s 451 Market Insight.

M&A spending outlook for the next six months

Survey date Increase Stay the same Decrease
April 2015 61% 30% 9%
October 2014 48% 36% 16%
April 2014 72% 24% 4%
October 2013 50% 43% 7%
April 2013 54% 27% 19%
October 2012 49% 34% 17%
April 2012 59% 33% 8%

Source: M&A Leaders’ Survey from 451 Research / Morrison & Foerster

As RSA kicks-off, IT security M&A hits record rate

Brenon Daly

Contact: Brenon Daly

Opening on Tuesday, the RSA Conference runs its weeklong shindig under the tagline, “Where the world talks security.” When it comes to M&A, however, infosec acquirers are doing more than talking – they’re putting their money where their mouths are and shopping at a record rate.

Already this year, buyers representing a broad swath of the tech M&A community have announced 59 transactions valued at $8.1bn, according to 451 Research’s M&A KnowledgeBase. Annualized, that would put the total number of infosec deals announced this year at right around 200, significantly ahead of last year’s record number of 136.

Keep in mind, too, that infosec M&A activity in 2014 was about 30% higher than any year we’ve seen. (We consider the number of transactions – rather than spending attached to them – as the most accurate gauge of the overall vitality of M&A in what’s a relatively narrow market such as infosec, where a large print or two can dramatically swing aggregate spending. For context, infosec currently accounts for roughly 2% of the overall TMT M&A market, both in terms of annual deal volume and annual deal value.)

The boom in buying shouldn’t really surprise anyone, given the steady increases in infosec budgets coupled with the steady increases in security breaches (Sony and Anthem Inc, among others). Bankers we surveyed last December told us they expected infosec to the be the second-busiest sector for M&A in 2015, trailing only slightly behind mobility.

That bullish forecast is certainly coming through in the prints so far this year, which are running 40% higher than the same period in 2014. Maybe more noteworthy than the number of infosec transactions in 2015 is the breadth of infosec buyers. This year’s record acceleration has been driven by the usual suspects being active (Proofpoint has put up a print, while Checkpoint has inked two deals); PE shops getting busy (Bain Capital acquiring Blue Coat, Marlin Equity Partners purchasing the divested Fidelis business); as well as new buyers stepping into the market, such as Internet vendors (salesforce.com reaching for Toopher, PayPal snagging CyActive).

Information security M&A activity

Period Deal volume Deal value
YTD 2015 59 $8.1bn
2014 136 $8.6bn
2013 99 $8.4bn
2012 88 $1.8bn
2011 101 $3.2bn
2010 107 $19.82bn

Source: 451 Research’s M&A KnowledgeBase

For more real-time information on tech M&A, follow us on Twitter @451TechMnA

An imbalance in the market for unicorns

Brenon Daly

Contact: Brenon Daly

The herd of unicorns gets bigger every day. But as the supply of these startups valued at more than $1bn continues to swell, we can’t help but note that on the other side of the equation, the demand isn’t really keeping pace, at least not outside a handful of elite investors. For the most part, the broader market hasn’t opened the exits for these unicorns to realize the value that’s being lavished on them.

So far this year, for instance, we haven’t seen any sales of VC-backed startups for more than about a half-billion dollars, according to 451 Research’s M&A KnowledgeBase. Further, in a 451 Research survey last December, four out of 10 (42%) corporate M&A executives told us they expect the M&A valuations for privately held companies to actually decline in 2015 compared with their valuations last year. That was the most bearish forecast for exit values of startups from their would-be buyers since the recession year of 2009.

Meanwhile, the IPO market isn’t particularly rewarding these days, either. Box – a unicorn that had been a darling of the late-stage investment community through nearly a dozen rounds of funding – hasn’t created any additional value as a NYSE-listed company than it did as a private company. (And based on the fact that an astounding 40% of Box’s shares are sold short, Wall Street is very clearly betting that its flat-lined valuation is still too high.)

Despite the recent muted returns for VCs, unicorns continue to get fed. For instance, Slack, a collaboration tool that’s less than two years old, has reportedly doubled its valuation since previously notching a $1.2bn price in an October funding.

Obviously, we’re looking at an extremely short exit period of just the first quarter of 2015. And we’re conscious that in most cases, investors are placing bets today that they hope will pay off maybe a half-decade from now. But for right now, when we look at both ends of the market for highly valued startups, we can see how you buy a unicorn but we wonder how you go about selling it.

Projected change in private company M&A valuations

Period Increase Stay the same Decrease
December 2014 for 2015 29% 29% 42%
December 2013 for 2014 29% 55% 16%
December 2012 for 2013 28% 39% 33%
December 2011 for 2012 35% 26% 39%
December 2010 for 2011 71% 20% 9%
December 2009 for 2010 58% 36% 6%
December 2008 for 2009 4% 9% 87%
December 2007 for 2008 39% 28% 33%

Source: 451 Research Tech Corporate Development Outlook Survey

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.