Category: investment banking

A big ‘DATA’ debut for Tableau

Brenon Daly

Contact: Brenon Daly

Big ‘DATA’, indeed. Tableau Software, which debuted Friday on the NYSE under the ticker DATA, created nearly $3bn of market value in its hotly anticipated IPO. The data discovery and analytics vendor becomes the latest enterprise-focused software company to command a platinum valuation on Wall Street.

Tableau priced its 8.2 million shares at $31 each, raising some $254m in the offering. Not that the company particularly needed the outside cash: It has been running in the black since 2010 and has an accumulated deficit of just $5.8m. And Tableau has been printing black numbers while doubling revenue, a rare combination that clearly resonated with investors.

After pricing at $31, shares changed hands at about $48 each in the early aftermarket. Based on the (non-diluted) share count of 58 million shares from the prospectus, the market is valuing Tableau at $2.8bn.

That’s 14x a loose projection of roughly $200m in sales for 2013. We penciled out that number based on the (probably conservative) assumption of nearly 60% growth in revenue from the $128m recorded in 2012. Whatever the exact numbers, it’s safe to say that Tableau has secured a double-digit multiple of this year’s sales.

The rarified valuation is all the more noteworthy because of Tableau’s throwback business model: It sells on-premises licenses, rather than subscriptions, which typically command higher multiples. Of course, when license sales are doubling – as they have at Tableau in each of the past two years – Wall Street can get comfortable with the model.

As a final thought, we would note that the license model certainly hasn’t hurt Splunk, which went public a year ago. While that company doesn’t compete with Tableau, the fellow self-described ‘big data’ play lines up rather closely with Tableau.

As mentioned, both fast-growing companies sell their software through licenses rather than subscriptions, and both get about 30% of total sales through maintenance and services on that software. Further, the similarities extend to what the market says the companies are worth: Splunk is valued at $4.6bn, or 23x last year’s revenue, compared with Tableau debuting at $2.8bn, or 22x last year’s sales.

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Mellanox buys Kotura for its interconnects

Contact: John Abbott, Tejas Venkatesh

New workload demands from large-scale Internet datacenters are driving M&A activity around interconnects, which are required to move large virtual workloads from server to server. Mellanox Technologies is the latest vendor to buy in this market, announcing on Wednesday an agreement to acquire Kotura for $82m in cash. Mellanox plans to use Kotura’s technology and patents to build end-to-end interconnects for datacenters, supporting 100Gbps Ethernet protocols.

Kotura designs, manufactures and markets application-specific silicon photonics circuits. Silicon photonics technology promises to provide a low-cost, high-performance means of connecting standard system modules together into more fluid pools of system resources. Nine-year-old Kotura raised $39m in venture capital funding from ARCH Venture Partners, ComVentures and other firms.

Mellanox will pay $82m in cash for Kotura, and expects to assume approximately $8m in equity awards. While respectable, our understanding of the price-to-sales valuation for Kotura does fall below what we estimate Lightwire received in its $271m acquisition by Cisco. (Subscribers to The 451 M&A KnowledgeBase can view our estimated revenue for Kotura here and for Lightwire here.)

Demand for datacenter interconnect vendors appears to be growing, as evidenced by a handful of relatively rich exits announced in the past two years. Intel is particularly interested in this market, having reached for Fulcrum Microsystems, Cray’s HPC interconnect hardware assets and QLogic’s InfiniBand assets.

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Altera moves into power management with $134m Enpirion buy

Contact: Tejas Venkatesh

FPGA designer Altera has announced the acquisition of power management chipmaker Enpirion for $134m in cash ($141m including the assumption of debt). The deal should bolster Altera’s FPGA systems by reducing board space and improving power management.

Enpirion makes power system-on-a-chip DC-DC converters that enable greater power densities and lower noise performance compared with their discrete equivalent. The 12-year-old target, which originated as a spinoff of Bell Labs, raised $77m in several rounds of funding from Canaan Partners, Columbia Capital and other firms. Enpirion is expected to generate $20m in revenue this year and $35m next year. The transaction values Enpirion at 7x this year’s sales.

The deal comes nearly a year after wireless semiconductor giant Qualcomm bought programmable power management chipmaker Summit Microelectronics for an estimated $100m. The chip world’s constant pursuit of Moore’s Law results in higher performance, but also creates complexity in power management. These acquisitions are aimed at mitigating that problem.

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Increasing number of partnerships in the DCIM sector

Contact: Rhonda Ascierto, Tejas Venkatesh

The niche datacenter infrastructure management (DCIM) software sector is small, but is expected to grow quickly. It hasn’t yet yielded much in the way of M&A, but that could change as there are several potential acquirers that have an interest in this growing market. However, partnerships are likely to be the preferred means of growth for large DCIM vendors.

DCIM helps managers track and analyze information about their datacenters’ operational status, assets and resource use (space, power, cooling, etc.) So far, there have only been a handful of acquisitions because large DCIM suppliers have managed to rapidly develop capabilities organically. But big IT and systems software companies that have remained on the sidelines to date may make strategic moves into the DCIM market.

In contrast, large DCIM providers are likely to choose partnerships as their preferred route to growth. We expect many partnerships by leading DCIM suppliers to round out their offerings, since no single DCIM product offers all features. Market leader Emerson Network Power, for instance, has already led the way in partnering by announcing significant partnerships with IBM and Joyent. We’ll take a closer look at this emerging sector, including potential acquirers and market-size forecasts, in a forthcoming report. This week, we also have our annual Uptime Institute Symposium , which will highlight the rapid changes in the datacenter industry.

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Cash may be king, but Trulia ‘papers’ its big deal

Brenon Daly

Contact: Brenon Daly

Cash may be king when it comes to M&A, but the currency got dethroned in Trulia’s blockbuster acquisition yesterday. The real estate website is covering almost half of its $355m purchase of Market Leader with stock. Few deals rely that heavily on paper. In fact, stock has accounted for only about 20% of total disclosed consideration in tech transactions so far this year, according to The 451 M&A KnowledgeBase.

A look at the performance of Trulia shares since the company’s IPO last September offers some explanation as to the structure. Recently, the stock has been changing hands at about twice the level the company initially priced them at for the offering. On the acquisition announcement, however, Trulia stock dropped about 8% to $31.68. (One concern on Wall Street? The size of the transaction: Market Leader will add about 60% to Trulia’s top line when the deal closes, which is expected in the third quarter of this year.)

Still, Trulia garners a market cap of about $890m, or an eye-popping 13 times 2012 revenue of $68m. We would note – on the same measure of equity value to last year’s sales – that Trulia is paying only 8x revenue for Market Leader. That bit of valuation disparity may also figure into why Trulia was so keen to put its (relatively richly) priced paper to work in M&A.

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After 25 years as a public company, BMC gets so-so exit in take-private

Brenon Daly3 Comments

Contact: Brenon Daly

After almost a year of agitation by an activist hedge fund, BMC Software has agreed to sell itself to a group of private equity (PE) buyers for $6.9bn. The take-private of the IT systems management giant, which is the second-largest tech PE deal since the end of the recent recession, will end a quarter-century of public trading for BMC. The offer values the company at a fairly conventional, ho-hum multiple, reflecting the struggles BMC has had in finding any growth.

At $6.9bn, the bid from the consortium – made up of Bain Capital, Golden Gate Capital, GIC Special Investments and Insight Venture Partners – values BMC at 3.2x trailing sales and just 10x trailing EBITDA. As a mature company, BMC throws off a lot of cash, generating some $700m in EBITDA on $2.2bn in sales annually. The relatively rich margin prompts the question of how the company’s new PE owners will be able to boost BMC’s already high cash flow.

The consortium has offered $46.25 per share for BMC. That is only slightly above the level where BMC was trading on its own before hedge fund Elliott Management started its campaign to ‘unlock shareholder value’ at the company. (Further, the price is less than where BMC shares changed hands on their own from late-2010 to mid-2011.) Elliott ended up with a nearly 10% stake in the company as part of its campaign.

Coming just three months after the proposed PE-led management buyout of Dell, the take-private of BMC has a decidedly different structure than most recent PE deals. For starters, it is large – nearly twice the size of other recent tech LBOs and, in fact, it trails only Dell’s $24bn buyout on the list of largest post-recession PE deals.

Additionally, it marks the return of the so-called ‘club deal’ where PE firms team up to take on bigger game. Those deals were relatively frequent before the 2008-09 recession tightened the availability and rates for debt, but fell out of favor recently. Of the five take-privates of US publicly traded tech companies announced in the past two years valued at more than $1bn, four of those have been done by single PE shops, with only one club deal, according to The 451 M&A KnowledgeBase.

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Checking the pulse of health IT

Ben Kolada

Contact: Ben Kolada

Healthcare IT is alive and well, as evidenced by the emergence of new consumer technologies, exceptionally high valuations and investments by some of the largest old-line technology vendors. New regulations, advances in sensor technologies and ‘big data’ analytics are driving many aspects of this market for both consumers and enterprises.

New devices that track fitness, sleep and other personal health metrics are driving adoption of healthcare IT by consumers. Nearly every new wearable technology product being introduced offers some health-monitoring component. The consumer healthcare IT market is already moving from hopeful hype to valuable reality, with Jawbone recently reportedly paying more than $100m for BodyMedia. BodyMedia is Jawbone’s third acquisition; all were announced this year and all focused on healthcare.

For enterprises, Cerner’s $50m acquisition (excluding $19m earnout potential) of bootstrapped employee healthcare management software vendor PureWellness shows the variety of businesses that can make money in enterprise healthcare IT. And consolidation in the health information exchange (HIE) sector continues to go off for about 10x sales. Meanwhile, ad-supported electronic health record (EHR) startup Practice Fusion is widely expected to be considering an IPO soon. The company’s growth is attributed in large part by government initiatives incentivizing medical practices to adopt EHRs.

As for investments, Oracle recently participated in the $45m second tranche of Proteus Digital Health’s series F financing (which brought the round’s total to $62.5m). Proteus offers an ingestible sensor, used by patients to monitor internal health and by clinicians to monitor clinical trialists’ drug dosing. The plummeting cost of genome sequencing has led to a rise of big-data bioinformatics startups hoping to help make sense of the mountains of genetic data. Startups such as Bina and Spiral Genetics have recently raised capital from traditional VC firms.

Descartes drains the bank

Contact: Tejas Venkatesh

Supply chain management vendor Descartes Systems Group is shelling out $33m of its own and its creditors’ money to acquire relatively small KSD Software Norway, which provides customs and transportation management software (KSD does just about $10m in annual recurring revenue). Although a bit of a financial stretch, the deal nonetheless makes sense, since KSD’s software will further help Descartes’ shipping customers navigate the complex European compliance market, which is comprised of diverse regulations, languages and systems.

To pay for the $33m transaction, Descartes is drawing $13m from its treasury (which represents one-third of its total cash balance as of January 2013), as well as $20m from a line of credit. In March, Descartes entered into a $50m credit agreement with Bank of Montreal that includes a $48m revolving facility that can be drawn on to accommodate future M&A activity. For the time being, the KSD buy effectively halves Descartes’ ability to acquire additional companies with this facility.

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A single topping bid skews April’s tech M&A spending totals

Brenon Daly

Contact: Brenon Daly

The value of tech transactions announced across the globe in April more than doubled from last year, boosted by a topping bid in what would be the largest tech deal in a half-decade. Overall, tech acquirers spent some $32.8bn on 253 transactions in April, according to The 451 M&A KnowledgeBase.

However, last month’s spending was heavily skewed by DISH Network’s $25.5bn offer for Sprint Nextel. The satellite television provider, in a highly unusual move, is looking to derail the majority sale of Sprint Nextel to Japanese telco SoftBank. That transaction, which was announced last October, valued a 70% stake of Sprint Nextel at about $20bn.

One point to make about the concentrated deal flow: SoftBank’s bid for Sprint Nextel represented about 61% of total announced spending in October, while DISH’s offer represents 78% of all announced April spending. Excluding that blockbuster transaction, spending dropped to just $7.3bn – about half the spending in April 2012 and less than one-third the level of April 2011.

Further, in another sign of weakness last month, the number of announced acquisitions sank to just 253, representing a double-digit percentage decline compared with the same month of the two previous years. April’s paltry deal count continues the year-over-year declines in monthly M&A volume that we have seen in every month so far in 2013.

2013 activity, month by month

Period Deal volume Deal value % change in spending vs. same month, 2012
April 2013 253 $32.8 Up 129%
March 2013 227 $5.2bn Down 76%
February 2013 249 $47.7bn Up 296%
January 2013 305 $10.7bn Up 155%

Source: The 451 M&A KnowledgeBase

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Action in API management

Contact: Carl Lehmann, Tejas Venkatesh

The API management market has been bustling, with three acquisitions and one notable funding round announced just in the past week. APIs and their development, management and integration have become important amid the Internet of Things environment, in which a multitude of connected points communicate via the Web.

The recent acquisitions of Mashery by Intel and Layer 7 Technologies by CA Technologies signal the opening round for an API land grab by all IT vendors that rely on integration to add value to their respective offerings. Players likely to seek similar deals include Software AG, TIBCO, Information Builders, Informatica, Fujitsu, Talend and OpenText. Oracle and SAP could also benefit from having API management capabilities as part of their integration technology portfolios.

In the future, successful API management providers will possess tools and techniques that simplify and automate how APIs are designed, coded and documented, and will also control distribution and use by a community of developers. In addition, these companies will allow existing APIs to be customized, thereby extending their value without having to design new APIs.

The week in API management

Date Company Event
April 24 3scale Networks Raises $4.2m in funding from Javelin Venture Partners and Costanoa Venture Capital
April 23 ProgrammableWeb Acquired by MuleSoft
April 22 Layer 7 Technologies Acquired by CA Technologies
April 17 Mashery Acquired by Intel

Source: Source: The 451 M&A KnowledgeBase, 451 Research