Category: investment banking

Schneider reaches for Invensys with $5bn proposal

Contact: Andy Lawrence, Tejas Venkatesh

In what could be its largest acquisition in seven years, energy management giant Schneider Electric is proposing to acquire Invensys for $5bn. Although as old as the railways, the industrial automation equipment and software vendor has modernized its product portfolio through divestitures and investment in growing markets, making it a prized target for bidders with deep pockets.

Schneider’s interest in Invensys is mostly about scale, filling out its product lines, and helping build up a base of offerings for its growing interest in software and services. The acquisition of Invensys would bolster its products in monitoring, metering and control software – products that Schneider could deploy across its divisions. Invensys generated $2.7bn in revenue for the year ended March 31.

The offer comes a year after Schneider Electric indicated that it would step up acquisitions to fill out its product portfolio. Although Schneider has been relatively quiet on the M&A front in recent years, the company has a successful history of inorganic growth. Invensys could be another feather in its cap, provided rivals like Emerson Electric don’t get into a bidding war. Siemens, Emerson, ABB and GE are all considered potential suitors for Invensys.

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Western Digital buys a VeloBit chaser for its sTec flash acquisition

Contact: Tim Stammers, Tejas Venkatesh

Following hard on the heels of its pickup of flash hardware vendor sTec, disk drive giant Western Digital has announced the purchase of flash software specialist VeloBit. Like sTec, VeloBit will become part of Western Digital’s wholly owned disk drive subsidiary Hitachi Global Storage Technologies (HGST). VeloBit’s software is complementary to flash drives sold by HGST and sTec, and the acquisition underlines Western Digital’s ambitions in the flash market.

VeloBit sells software that creates caches of hot or frequently demanded data in flash memory installed in servers, as well as in server DRAM. The market for such caching software is becoming crowded and competitive, but is still only nascent. In March, the three-year-old startup declared that its software had been installed on more than 500 servers worldwide. VeloBit raised $5.5m in total funding from Longworth Venture Partners, Fairhaven Capital Partners and undisclosed angel investors.

Caching software boosts the performance jolt achieved by installing flash drives in servers, and its current principal applications are VDI and performance-sensitive databases, as well as server virtualization. For the latter, the software can increase the number of virtual servers or VMs that can be hosted by a single physical server. As a result, caching software is very complementary to server-installed flash drives and PCIe cards – including those already sold by Western Digital’s HGST subsidiary, and by sTec.

Although sTec also sells caching software, Western Digital clearly sees extra value in VeloBit’s software, which incorporates what VeloBit claims is an unusually efficient way of predicting or identifying hot data. Wells Fargo advised VeloBit on its sale. Interestingly, Wells Fargo was on Western Digital’s side when the company acquired sTec three weeks ago.

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IBM shores up its mainframe technology with CSL buy

Contact: John Abbott, Tejas Venkatesh

IBM still occasionally feels the need to make acquisitions that supplement and update (or sometimes help protect) its venerable mainframe technology, even though the mainframe is mature to say the least, with nearly 50 years of history behind it. This time IBM has reached for CSL International, an Israeli company that specializes in virtualization management technology for the zEnterprise mainframe. IBM is seeing strong growth in Linux deployments on its mainframes, and virtualization management makes mainframes a viable platform for hosted cloud services.

CSL is privately held and terms were not disclosed, though Globes reported the value at roughly $20m. That appears reasonable given that nine-year-old CSL is a small company with less than 10 employees. The company’s CSL-WAVE software – which has been piloted at a large US government agency and has been deployed at several financial services firms – is intended to simplify the management of z/VM (the mainframe’s native hypervisor) when used in combination with Linux on System z – and nowadays just about every mainframe that ships includes Linux as well as the proprietary z/VM operating system. CSL has partnered with IBM in the past, but also has a partnership with CA Technologies, the future of which may now be uncertain.

CSL-WAVE is a drag-and-drop tool for creating, monitoring and managing virtual servers and connecting them with CPU, memory, storage and networking resources on the mainframe. The acquisition is a response to the rapid growth in Linux deployments on the mainframe – IBM reports that shipped capacity just about doubled year-over-year in the first quarter of 2013. Easier virtualization management for Linux also makes the mainframe a more viable platform for hosting cloud services. IBM touts the efficiency of running large numbers of virtual machines on the mainframe as its architecture enables very high utilization rates, approaching 100% of computing resources able to be utilized. Virtualization was pioneered on the mainframe architecture back in the 1960s.

IBM’s previous mainframe-related acquisition was that of Platform Solutions in July 2008. That deal was more about protection than advancing the technology. Platform had revived the concept of ‘plug-compatible mainframes,’ advocating the running of IBM’s z/OS on non-IBM hardware. It was fighting a legal battle with IBM at the time of the acquisition.

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SanDisk gets enterprise SMART with $307m buy

Contact: Tim Stammers

To bolster its enterprise business, flash giant SanDisk is acquiring enterprise flash drive specialist SMART Storage Systems for $307m in cash. SanDisk first entered the market for enterprise flash drives in 2011, with the purchase of SSD maker Pliant Technology for $327m. The pickup of SMART Storage should increase SanDisk’s SSD sales and bring the company revenue and OEM relationships, as well as intellectual property.

SMART Storage Systems generated sales of $25m for the quarter ended May 31, 2013. SanDisk indicated that the company was on a rapid growth trajectory. At a revenue run rate of $100m, the $307m price may seem low for a company that is growing quickly, owns competitive technology, and is operating in a fast-growing market. However, the company is operating in a very competitive sector that is heading for commodification, and as a result its prospects as a small, independent supplier are tentative at best.

We do not believe that the deal will significantly alter the landscape of the SSD market. Currently, that market is small and growing, but it is also crowded. This deal will, however, bring SanDisk increased visibility in the enterprise sector, as well as access to technology that it will be able to incorporate into its future products. For a full report on the transaction, subscribers can click here.

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Dialog Semiconductor pays $310m for iWatt

Contact: Tejas Venkatesh

A year after attempting to go public, iWatt has opted for the other exit, selling to fellow power management chip vendor Dialog Semiconductor for $310m in cash (plus contingent consideration of up to $35m). The deal should bolster Dialog’s product portfolio and expand its addressable market.

IWatt designs AC-DC converter chips and LED ICs. While iWatt’s AC-DC chips are used in portable chargers, Dialog’s power management ICs are embedded in mobile devices themselves. The target has grown at a healthy clip recently, wrapping up 2012 with $74m in revenue. That’s a 46% increase from the previous year.

The acquisition values iWatt at 4.1 times last year’s sales. That’s a premium valuation compared with the 3.4x sales valuation its chief rival Power Integrations currently garners in the public markets. IWatt’s superior growth definitely played into its higher valuation (Power Integrations grew just 2.2% last year).

IWatt tried to go public last summer, but the offering never made it to market. (The company even swapped out its lead underwriter – trading Deutsche Bank for Barclays – which is never a good sign.) It would have been fighting against a strong downdraft in the recent IPO market. The last three tech offerings have either priced below expectations or traded down significantly in the aftermarket.

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IPO candidates feel the tremor

Contact: Tejas Venkatesh

Over the past few weeks, it appears sentiment on Wall Street has soured significantly. With the US Federal Reserve planning to wrap up bond purchases, the broader stock market volatility as represented by the CBOE volatility index hit its highest level all year earlier this week. As a result, unknown and unproven IPO candidates are bearing the brunt of that market uncertainty. That was evident today when both IT retailer CDW and video advertising network company Tremor Video priced below their indicated range. In CDW’s case, that came after the company had already cut the number of shares on offer by 16%.

For its part, Tremor Video sold 7.5 million shares for $10 each, below its indicated range of $11-13. In the process, the company raised $75m and debuted at an (undiluted) market cap of $485m. By midmorning, the stock headed further south and was changing hands on the NYSE at $9.50.

Tremor Video analyzes in-stream video content, detects user attributes and uses that information to optimize video ad campaigns for marquee brands like Procter & Gamble, Ford Motor and Walt Disney. The eight-year-old company, which raised about $120m in total funding, generated $113m in revenue for the year ended March 2013.

The sudden souring of sentiment is leading to a difference in expectations between investors and issuing companies. Tremor Video is the first advertising technology (adtech) IPO to price below its expected range. In its case, the performance of recent adtech IPOs didn’t help. Both Millennial Media and Marin Software are trading about 30% below their IPO price.

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For Keynote’s new owners, it’s been buy-and-build buyouts

Brenon Daly

Contact: Brenon Daly, Dennis Callaghan

Sometimes it’s just easier to go shopping behind closed doors. We were reminded of that as Keynote Systems indicated that it plans to go private in a $395m sale to private equity (PE) firm Thoma Bravo. As we look at the PE shop’s portfolio companies, it’s striking how quickly the M&A pace has picked up once the companies can reach into the deep pockets of their new owner, and do so out of the glare of Wall Street.

Consider the M&A activity of Blue Coat Systems. The security company averaged about one acquisition every other year in the decade leading up to its December 2011 take-private by Thoma Bravo. So far in 2013, Blue Coat has already done two outright acquisitions, including paying what we hear is a double-digit multiple for Solera Networks. (451 M&A KnowledgeBase subscribers can see our estimates for terms of the Blue Coat-Solera pairing by clicking here.) Thoma Bravo also rolled Crossbeam Systems, which it already owned, into Blue Coat last December.

Similarly, Tripwire had done only one deal in the nearly decade and a half before it sold to Thoma Bravo in mid-2011. (And the security firm’s sole foray into M&A was a tiny asset purchase that only set it back $3m.) Earlier this year, it made a significant bet of more than $100m on nCircle, which bumped up total revenue by about one-quarter. And based on the early progress on that transaction, we understand that Tripwire may be looking to make another similarly sized acquisition in the coming quarters.

The Keynote leveraged buyout (LBO) isn’t expected to close until fall, and even after that the company’s new owners will probably want some time to more deeply understand and take some preliminary steps to get the test and measurement vendor growing again. Revenue has been flat so far this fiscal year as some customers have recently narrowed Keynote projects or put them off.

But once business is shored up, we could imagine Keynote returning to the M&A market, from which it has been absent since October 2011. My colleague Dennis Callaghan speculated in a report on the LBO that Keynote may also look to expand its capabilities in pre-deployment testing or even add content delivery network technology through acquisition.

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Marketing automation overshadows Web content management

Contact: Alan Pelz-Sharpe

The marketing automation industry is upending the Web content management (WCM) space. Our research tells us that pure-play WCM technology is unlikely to continue to grow as a market in any substantial way. We believe that going forward, the technology is likely to be bundled along with marketing automation platforms, rather than sold as stand-alone WCM systems. That prognosis is reflected in the pattern of M&A activity in the two sectors.

The critical fact missed by the WCM market was that the central content repository was not the be-all and end-all that it was claimed to be – certainly not for all organizations. While having marketing collateral in a single ordered, managed system is important, it is only when that content is connected to a chain of events that it results in a transaction of any value.

The last WCM acquisition of note was that of Day Software by Adobe in July 2010 for $243m. In sharp contrast, the marketing automation sector has been a hotbed of M&A and IPO activity. In the first week of June, salesforce.com announced the purchase of marketing automation provider ExactTarget for $2.5bn. A few weeks prior, rival Marketo came public in a well-received IPO and currently garners a market cap of $750m. Subscribers can click here for a full report on the WCM industry and prospects for existing players.

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Making money with coupons

Ben Kolada

Contact: Ben Kolada

Online coupon directory vendor RetailMeNot, formerly known as WhaleShark Media, filed its IPO paperwork on Monday. A total of seven investment banks crowded onto the offering, which could initially value the company in the ballpark of $800m. Meanwhile, a recent high-priced buyout and a couple of more coupon deals that we hear are in the pipeline could make 2013 a breakout year for the online couponing industry.

RetailMeNot has grown dramatically since its incorporation as smallponds in 2007. Through organic and inorganic growth, RetailMeNot increased total revenue 80% to $145m last year. The company primarily did business as WhaleShark Media throughout its lifetime, but rebranded as RetailMeNot this year, taking the name of a startup it acquired in 2010 and whose websites now account for the majority of its traffic.

No fewer than seven investment banks have piled onto the offering, with Morgan Stanley taking the lead left spot. RetailMeNot plans to trade on the Nasdaq under the symbol SALE.

The midpoint valuation of recent comparable transactions suggests that the company could debut at about $800m, or roughly 5x its trailing sales ($155m as of March 31). RetailMeNot was valued at 5.6x trailing sales in its $159m sale to WhaleShark Media in 2010. More recently, we estimate that Slickdeals was valued at 4.6x sales in its quiet sale to Warburg Pincus at the turn of this year.

At least two other coupon companies will be closely watching RetailMeNot’s debut. We’ve heard that CouponMom and dealnews have also been in the market recently.

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Datawatch acquires Panopticon for its visualization software

Contact: Tejas Venkatesh

Datawatch is buying Swedish data visualization software vendor Panopticon Software for $31.4m in stock (Datawatch ended March 2013 with just $10m in its treasury). The deal fills an important product gap in Datawatch’s portfolio, adding real-time data visualization software to its back-end-oriented portfolio and furthering its positioning around ‘big data’ visual discovery. On the announcement of the acquisition, Datawatch traded up more than 15% on the Nasdaq.

Panopticon adds a presentation layer to Datawatch’s back-end capture and transformation wares for semi-structured and unstructured information. The startup’s technology includes an internally developed StreamCube in-memory OLAP data model and visualization layer, which includes heat maps and tree maps.

Three-fourths of Panopticon’s business comes from partner-driven deals in the financial services industry, due to its applicability for visual analysis with sub-second latency for trading and risk applications, for example. SAP and Thomson Reuters are reportedly Panopticon’s two largest partners. We’ll have a full report on this transaction in our next Daily 451.

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