Category: investment banking

Citrix takes a breather from M&A

Ben Kolada

Contact: Ben Kolada

After setting an M&A spending record in 2012, Citrix has stayed on the sidelines. The company announced six acquisitions that year, including two of its three largest deals, and spent more than $750m, the most in its history. It has been pretty quiet since then, announcing only two acquisitions in 2013 for a combined total of just $11m.

The cooldown contrasts the trend we’re seeing among the other large tech vendors, most of which have moved toward fewer and larger acquisitions. (Our recent Tech M&A Outlook webinar talks more about this trend.) Citrix participated in this activity in 2012, when it announced its all-cash acquisitions of Bytemobile for $435m and Zenprise for $327m. What’s especially noteworthy is that those two deals combined were worth more than the free cash flow Citrix generated in all of 2012 (though we note that the Zenprise buy closed in January 2013).

However, poor financial results have derailed Citrix’s dealmaking machine since then. In the 15 months since announcing the Zenprise purchase, Citrix’s quarterly results have been rocky – it has lowered guidance or posted results below analysts’ expectations a half-dozen times.

Its recently released 10-K shows that Citrix paid $5.3m for Byte Squared in September and $5.5m for Skytide in December, its only two deals of 2013. At $28.2m, the lone purchase Citrix has announced so far this year, Framehawk, already surpasses its 2013 total M&A spending, but still falls below its three-year median acquisition size of $45m, according to The 451 M&A KnowledgeBase.

Citrix’s recent acquisitions

Year announced* Target Target abstract Deal value
2014 Framehawk Application mobilization software provider $28.2m
2013 Skytide CDN and streaming video analytics $5.5m
2013 Byte Squared Mobile file-editing software $5.3m
2012 Zenprise Mobile device management software $327m
2012 Beetil Service Management Helpdesk management SaaS Not disclosed
2012 Bytemobile Mobile traffic management software $435m
2012 Virtual Computer Desktop virtualization software provider Not disclosed
2012 Apere Single-sign-on security vendor $25.2m
2012 Podio Team collaboration SaaS provider $45.3m

Source: The 451 M&A KnowledgeBase *In 2012, Citrix also acquired two unnamed companies

 

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451 Research Tech M&A Outlook webinar

Brenon Daly

Contact: Brenon Daly

The momentum that drove tech M&A spending to a post-recession record level in 2013 is continuing to roll into this year. In just the first three weeks of January, we’ve already seen blockbuster transactions such as Google’s effort to reach inside your home with its $3.2bn purchase of Nest Labs; the largest-ever tech acquisition by a Chinese company (Lenovo’s pickup of IBM’s x86 server business); and VMware going mobile, inking the biggest deal in its history by paying $1.54bn for AirWatch.

But what does the rest of 2014 look like? What broad-market trends are likely to continue to impact deal flow this year? And what specific drivers are expected to shape M&A and IPOs in some of the key enterprise IT markets, such as SaaS, mobility and information security? Well, we’ll have a few answers for you as we look ahead in our annual Tech M&A Outlook webinar. The hour-long event is scheduled for Tuesday, January 28 at 1:00pm EST, and you can register here.

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

The buyout bonanza

Brenon Daly

Contact: Brenon Daly

As corporate acquirers work through an increasingly fractured tech landscape, their financial rivals are finding a bonanza of opportunities there. In particular, private equity (PE) firms got busy picking up castoff businesses and unloved companies in a spree of multibillion-dollar transactions in 2013. That sent spending by PE firms in 2013 to a post-recession record, both for the absolute amount spent as well as the proportion of PE dollars in overall spending on acquisitions. Fully one out of every four dollars handed out in tech M&A consideration came from buyout shops – nearly twice the level of any post-recession year.

The record in 2013 was driven by mammoth deals that haven’t been seen since prelapsarian days. Three of the 10 largest transactions in the entire tech sector last year involved PE shops. More broadly, cash-rich buyout firms showed they were ready once again to do big deals, targeting overlooked and out-of-favor public companies or huge units at tech giants that are shedding businesses as they seek elusive growth. There were plenty of big-ticket examples of both of these types of transactions in PE deal flow last year.

In terms of take-privates, Dell obviously topped the list. (Though the MBO stands as the largest PE deal since 2007, we would note that the transaction accounted for less than half of last year’s total PE spending. Even excluding the Dell MBO, spending on buyouts handily topped each of the annual totals since 2008.) Yet, three other LBOs also topped $1bn last year. Add to that, there were massive carve-outs and divestitures that boosted spending totals, including Qualcomm selling its Omnitracs unit to Vista Equity Partners and Intuit punting its financial services unit to Thoma Bravo, among other transactions.

PE activity

Year Deal volume Deal value Percentage of overall tech M&A spending
2013 184 $61bn 25%
2012 161 $25bn 14%
2011 204 $29bn 13%
2010 143 $27bn 14%
2009 103 $13bn 9%
2008 107 $17bn 6%
2007 150 $103bn 24%

Source: The 451 M&A KnowledgeBase

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

FireEye puts the capital market to work in Mandiant deal

Brenon Daly

Contact: Brenon Daly

A little more than three months after going public, FireEye is handing some $883m of that newly minted equity – along with $107m in cash – to acquire Mandiant. We would note this is one of the few times in the past decade that a high-flying debutant has used its IPO to pull off a transaction like this. In fact, most of the other fast-growing enterprise tech companies that have gone public in the past two years and trade at double-digit valuations have done only small tuck-ins (Splunk, ServiceNow) or stayed out of the M&A market altogether (Workday, Tableau Software). And that’s despite having boatloads of cash and richly valued shares thanks to their offerings.

And to be clear, this equity-heavy acquisition wouldn’t have been possible without an IPO, or at the very least, privately held FireEye would almost certainly have had to give up far more of the company if it wanted to acquire Mandiant. (As it is, FireEye is only giving up 13% of the company, but will add about 40% to its revenue this year.) Recall that when FireEye raised a round almost exactly a year ago, the company was valued at slightly more than $1.1bn, according to our understanding. The company is now worth more than $6bn on the Nasdaq.

Based on total consideration of $990m, the deal stands as the eighth-largest infosec transaction. (The largest deal in the sector, of course, is well known to many of many FireEye executives, a number of whom came over from McAfee after its $7.7bn sale to Intel.) Although FireEye is handing over nearly $1bn for Mandiant, by many measures it is getting a bargain. For starters, there’s the currency it is using. FireEye will cover approximately 90% of the purchase of the startup with its own richly valued equity. At a market capitalization of $6.2bn, FireEye is valued at almost 40 times expected 2013 revenue of $157m. (For those who prefer non-GAAP financials, that works out to 25 times projected 2013 billings of $245m.)

The unusual acquisition certainly found solid support on Wall Street. Investors bid FireEye stock up more than 20% to the highest point of its short history. Shares of FireEye, which first traded in the mid-$30s in September, topped $50 in mid-Friday trading. We’ll have a full report on the transaction on the 451 Research website later today.

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

Clouds come into view for top tech deal of 2013

Brenon Daly

Contact: Brenon Daly

Before we flip the final page on the 2013 calendar, we have one unfinished item of business for this year: handing out the annual Golden Tombstone. The award is chosen each year by corporate development executives who look around at the handiwork of their peers in the tech industry, and then vote in our survey for whichever transaction they think had the biggest impact during the year. (It’s like an Oscar in the film industry, except Golden Tombstone isn’t trademarked, yet.)

Our past winners have come from a number of varied and, for the most part, relatively well-established tech sectors. That’s not necessarily the case for this year’s winner. For the first time ever, a cloud deal took top honors: IBM’s mid-2013 acquisition of Softlayer.

The acquisition substantially boosts Big Blue’s hosting and cloud services, particularly around IaaS. That’s a key initiative for IBM, which has struggled to find any growth in the past two years, as competition in the cloud infrastructure arena – led by Amazon Web Services – gets increasingly cutthroat. IBM’s purchase of Softlayer received almost twice as many votes as the runner-up, Microsoft’s purchase of Nokia’s handset business.

And with that, we’ll wrap up 2013. But before we go, we hope all of you enjoy you a healthy and happy holiday season – and wish you nothing but accretive deals in 2014.

Top vote-getter for ‘most significant tech transaction’

Year Deal
2013 IBM’s acquisition of Softlayer
2012 VMware’s acquisition of Nicira
2011 Google’s acquisition of Motorola Mobility
2010 Intel’s acquisition of McAfee
2009 Oracle’s acquisition of Sun Microsystems
2008 Hewlett-Packard’s acquisition of EDS
2007 Citrix’s acquisition of XenSource

Source: 451 Research Tech Corporate Development Outlook Survey

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

Tech companies find it hard to bid against Wall Street

Brenon Daly

Contact: Brenon Daly

Tech companies are increasingly being outbid for the startups they want to acquire by a deep-pocketed rival that hasn’t been heard from in a while: Wall Street. In our recent survey of corporate development executives, nearly half of the respondents (46%) reported that they expected the IPO market to offer more competition in 2014 for target companies. In the seven-year history of the 451 Research Tech Corporate Development Outlook Survey, the threat of dual tracking has never been ranked that high.

A quick look at some of the platinum valuations being lavished on recent IPOs certainly helps explain why startups are looking to exit to the public market rather than sell out. By our count, roughly a dozen tech companies that went public this year – representing, astoundingly, about half of the entire IPO class of 2013 – currently trade at a valuation of greater than 10 times trailing sales. A few recent debutants have been bid up by public investors to the point where they are trading at more than 30x trailing sales.

Looking ahead to next year, corporate development executives, who represent the main buyers in the tech M&A market, expect to see a record number of new offerings. On average, respondents guessed that 29 tech companies would go public in 2014. That’s higher than previous years, when the forecast has ranged basically from the low- to mid-20s. (You can see more on the IPO market outlook, as well as M&A activity and valuation forecast, in our full report on this year’s survey.)

Projected number of tech IPOs

Period Average forecast
December 2013 for 2014 29
December 2012 for 2013 20
December 2011 for 2012 25
December 2010 for 2011 25
December 2009 for 2010 22
December 2008 for 2009 7
December 2007 for 2008 25

Source: 451 Research Tech Corporate Development Outlook Survey

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

Overseas shopping in November drives tech M&A to post-recession record

Brenon Daly

Contact: Brenon Daly

Tech M&A spending in the just-completed month of November nearly doubled from the same month last year, as European shoppers went on an unusually big spending spree. However, the rest of the market was very quiet. The number of announced transactions last month sank to the lowest monthly level since the end of the recession.

Across the globe, the total value of tech deals announced last month came in at $23.3bn, slightly above the monthly average in 2013 but dramatically above the $12.2bn recorded in November 2012. Four of the five largest acquisitions announced last month involved targets based outside the US, including Germany’s Scout24 and Dutch software vendor UNIT4.

The surge in November spending means that 2013 will set a new record for the value of tech deals since the end of the recession. In the first 11 months of this year, buyers announced transactions worth an aggregate value of $222bn, higher than any other full-year total since the credit crisis knocked the economy into a tailspin from which is has only haltingly recovered.

The incomplete recovery shows up dramatically in the number of prints. Consider this: The number of announced transactions has declined, year over year, in every single month in 2013, leaving the total number of deals so far this year down 14% compared with last year. And deal flow is drying up even more. In November, buyers announced just 209 transactions – the lowest monthly total in four years and down nearly one-third from the level in November 2012.

Post-recession deal flow

Period Deal volume Deal value
January-October 2013 2,861 $222bn
January-October 2012 3,338 $163bn
January-October 2011 3,462 $204bn
January-October 2010 3,003 $173bn
January-October 2009 2,758 $137bn

Source: The 451 M&A KnowledgeBase

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

Webinar: Tech M&A trends, valuations and more

Brenon Daly

Contact: Brenon Daly

For those of you not too busy trading freshly printed Twitter shares on Thursday, we invite you to join 451 Research and Morrison & Foerster for a webinar on the results of our semiannual M&A Leaders’ Survey. (451 Research clients can access our full report on the survey.) The webinar will be held at 10:00am PST (1:00pm EST), and you can register here.

Among other topics, we’ll be discussing both the near-term and longer-range M&A plans for many of the tech market’s top dealmakers. (For instance, we have views on whether or not we’ll see another boom in tech M&A – and what it would take to get there.) Additionally, Morrison & Foerster’s Co-Chair of Global M&A Practice, Rob Townsend, will offer insight from our survey topics around the growing trend of ‘acq-hires’ and, more broadly, HR issues that can come up in M&A.

And finally, going back to IPOs, we’ll have the forecast from our senior dealmakers about whether or not they expect to have to outbid the public market for the companies they want to buy over the next year. (Hint: The IPO market has never been more competitive, in their view.) Again, we’d love to have you join us tomorrow for what promises to be an insightful and useful webinar, which you can register for here.

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

An early frost chills tech M&A in October

Brenon Daly

Contact: Brenon Daly

After a rip-roaring summer that pushed tech M&A spending totals back to their highest levels since the end of the recession, an early frost chilled dealmaking in October. The aggregate value for tech, media and telecom transactions announced across the globe last month dropped to $11.2bn, just half the monthly average of 2013. Further, continuing the yearlong trend, the number of announced deals in October ticked lower, too.

The drop-off in spending in the just-completed month is even sharper when compared with October 2012. Last October saw an unusually large number of transactions valued at $1bn or more. The six mega-deals helped to boost spending in October 2012 to $32.7bn, three times higher than the spending this October. In comparison, last month we recorded only one transaction valued at more than $1bn. Somewhat unusually, the buyer in the largest acquisition in both last October and this October was the same: SoftBank. However, the Japanese telco dropped almost $20bn more on its deal last year (Sprint Nextel) than this year (Supercell).

Perhaps more of a concern than tech M&A spending, which is inherently lumpy, is the uninterrupted slide in deal volume. Once again, the number of announced transactions in October declined from the same month last year. That means that deal flow has dropped in every month so far in 2013. The net result: tech buyers have printed more than 400 – or almost 15% – fewer transactions so far this year than last year. In fact, the number of announced deals is tracking only slightly above the number announced in the recession year of 2009.

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

Time is money

Ben Kolada

Contact: Ben Kolada

Novacap Technologies is selling Canadian hosting portfolio company iWeb Group to Internap Network Services for $145m, representing a quick – and solid – return for the Canadian private equity firm. Just two years ago, it took iWeb private for $69.6m (including the assumption of net debt).

Under Novacap, iWeb grew total revenue 50% while maintaining basically the same operating profit margin (only adjusted EBITDA was disclosed in iWeb’s sale to Internap). It also now serves 10,000 SMB customers in more than 100 countries. Though Novocap’s total ROI isn’t immediately clear, the firm undoubtedly did well on its two-year holding. Jefferies advised Internap, while Bank Street Group worked the sell-side.

On the flip side, for Internap, this deal highlights the interplay between two of the most important elements of any transaction: time and money. In this case, waiting longer to buy iWeb meant Internap ended up paying more for it, both on an absolute and relative basis. And Internap will end up paying for it longer: the company is taking on new debt to cover some of the cost of iWeb, which is twice as high as it was the last time the company was on the block.

iWeb’s rising valuation

Metric Sale to Novacap* Sale to Internap
Deal value $69.6m $145m
Price/sales 2.3x 3.3x
Price/EBITDA 9.3x 13.2x**

Source: The 451 M&A KnowledgeBase *Using enterprise value **Using adjusted EBITDA