Category: investment banking

IntraLinks finally gets to use its deal room

Brenon Daly

Contact: Brenon Daly

Although IntraLinks is well-known for its ‘virtual deal rooms,’ the company itself hasn’t spent much time in them. That changed on Thursday. After being out of the market for more than a decade, IntraLinks announced a double-barreled deal, picking up two online deal-sourcing platforms, MergerID and PE-Nexus. (And yes, the company did use its own deal room to run the process.)

The addition of the two sourcing platforms makes sense as a way to increase the number of transactions that get executed in IntraLinks’ core deal room. In fact, the company had added sourcing and networking features around the end of 2011, but had only attracted a few hundred users. MergerID and PE-Nexus dramatically increase the number of potential participants, with the two firms having attracted, collectively, some 5,000 firms representing about 7,200 total users.

Further, the two platforms serve very different markets. MergerID – divested by the FT Group’s Mergermarket division – focuses on midmarket deals, primarily in Europe and Asia. Meanwhile, PE-Nexus (as its name implies) largely targets US private equity shops from its Florida headquarters. IntraLinks has indicated that it will pick up 11 employees from the two firms, and we understand that very little revenue will be added from the two subscription-based services.

More broadly, IntraLinks’ move fits with the strategy and recent performance of its business. The M&A unit, which represented 42% of total revenue in 2012, was the only one of the company’s three divisions to post growth last year. The 9% increase in its M&A-related revenue in 2012 helped bump up the overall top line at IntraLinks during what was – by design – a year of stabilization and investment.

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Tableau’s IPO ‘book’ is tech’s next bestseller

Brenon Daly

Contact: Brenon Daly

The prospectus a company files with the SEC in order to go public is nothing more than a book. And like other books, some of them languish on the shelves, collecting dust. Most attract only a little interest, with a handful of curious readers cracking open the covers. But every once in a while, a book so compelling comes along that it literally flies off the shelves. Readers can’t wait to get their hands on it.

Tableau Software, which revealed its IPO paperwork on Tuesday afternoon, is the tech industry’s next bestseller.

The data-visualization vendor had been expected to put in its prospectus about now. If anything, however, the anticipation has increased for Tableau’s offering because of the financials in its filing. The company doubled revenue in 2012 to $127.7m. Last year’s growth rate is notably higher than the mid-80% range Tableau put up in the two previous years, even though it is operating on a much larger revenue base. Its sales in 2012 were nearly 10 times higher than in 2008.

And unlike other hyper-growth tech vendors, Tableau turns a profit. Even on a GAAP basis, the company has been in the black since 2010. It has an accumulated deficit of just $1.5m. That’s pocket change compared with most other IPO wannabes, some of which have burned through tens of millions of dollars – or even more than $100m – to make it to the public market.

When Tableau does hit the market in about a month, we figure it will command a valuation of roughly $2bn. That would put it, rightfully so, on the same shelf as the bestselling IPOs from 2012: Workday, Splunk, Palo Alto Networks and ServiceNow. On average, those companies trade at about 20x trailing sales.

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Rally Software prices itself out of ‘purgatory’

Brenon Daly

Contact: Brenon Daly

It appears that Wall Street is ready to play small ball in the IPO market. Rally Software Development has set the range for its upcoming offering, which will land it squarely in the realm of small-cap stocks. The agile software development shop put its expected pricing at $11-13. Assuming Rally does come to market at that level, it will debut at a valuation of less than $300m.

Typically, companies that garner valuations in the low hundreds of millions of dollars on the market get overlooked by most institutional investors. Without big-money buyers on Wall Street, small-cap companies often trade at a discount to their larger brethren. (Some executives of smaller companies, frustrated by the valuation disparity, jokingly describe their place on Wall Street as ‘purgatory.’)

However, it doesn’t appear that Rally will necessarily be starting life at a discount. The company generated some $57m of revenue in the year that ended in January, meaning it will likely be trading at about 5-6x trailing sales and maybe 4x this year’s sales. (Rally has increased sales roughly 39% in each of the past two years. Assuming that rate ticks down slightly this year, the company could still put up about $75m of sales.)

Clearly, Rally – along with its five underwriters, led by Deutsche Bank Securities and Piper Jaffray – has done a good job telling its story to investors. And it certainly doesn’t hurt that both the broader equity markets are at all-time highs and the tech IPO market has been rewarding new issues. Both of the two previous tech IPOs (Marin Software and Model N) priced above their expected ranges and have traded up in the aftermarket.

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Feast or famine for tech M&A

Brenon Daly

Contact: Brenon Daly

It was feast or famine for tech dealmakers in the first three months of the year. In the first half of the just-completed Q1, M&A spending surged to record levels, driven primarily by the two blockbuster deals announced so far this year: the proposed $24.4bn leveraged buyout of Dell and Liberty Global’s $16bn reach for UK communications provider Virgin Media Group. (Collectively, those two transactions basically equal the typical spending level for a full quarter in 2012.)

But after those early February acquisitions hit the tape, deal flow dried up dramatically. That was particularly true at the top end of the market. In the back half of Q1, we tallied only two transactions valued at more than $1bn, compared with eight 10-digit deals in the first half of Q1.

Overall, the mixed market saw the buyers spend $63bn on 768 deals in the January-March period. That essentially matched the spending from the final quarter of last year, as well as the two summer quarters in 2011. But unlike those earlier periods, Q1 deal value was dominated by the two transactions, which accounted for nearly two-thirds of the total quarterly spending.

In addition to the spending concentration, we would note another sign of weakness during the period. The 768 deals announced in Q1 represents a 16% decline from the same quarter in both 2012 and 2011. In fact, Q1 deal volume slumped to its lowest total since Q3 2009.

2013 activity, month by month

Period Deal volume Deal value % change in spending vs. same month, 2012
March 2013 219 $4.4bn Down 76%
February 2013 246 $47.6bn Up 296%
January 2013 303 $10.7bn Up 155%

Source: The 451 M&A KnowledgeBase

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Cashing in on CDW

Contact: Tejas Venkatesh, Ben Kolada

Although CDW was taken private at the height of the prerecession bubble, when valuations were on the rise, its private equity (PE) owners, led by Madison Dearborn Partners and including Providence Equity Partners, may still profit handsomely from their investment. Based on our assumptions, the PE pair could record a profit of nearly $4bn on their investment. CDW filed its IPO paperwork last week.

Madison Dearborn announced that it was taking CDW off the Nasdaq in May 2007, at a valuation of about 1x trailing sales. At that time, the company was debt-free and generated $7bn in revenue in the preceding 12 months.

At the time of the take-private, CDW indicated that it expected $4.6bn of debt to be outstanding after the $7.3bn deal. Assuming all of that debt was used to finance the deal would mean that Madison Dearborn and Providence Equity would have invested just $2.7bn in equity.

If CDW reenters the public arena at the same valuation it was taken off (1x sales), then Madison Dearborn and Providence Equity’s investment will more than double. If CDW goes public at an enterprise value of $10.1bn (1x sales), backing out its $3.7bn of net debt would mean that the PE shops’ equity would have grown from $2.7bn at the time of the take-private to $6.4bn today.

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

Checkpoint’s deeply discounted divestiture

Brenon Daly

Contact: Brenon Daly

In one of the more financially lopsided divestitures we’ve seen in some time, Checkpoint Systems says it will be pocketing just $5.4m for its North American CheckView business, which is being picked up by buyout shop Platinum Equity. The electronic security unit generated roughly $77m of revenue in 2012, although it did run slightly in the red.

Following a review of its businesses last year, Checkpoint set aside CheckView as a discontinued operation and broke out some of the division’s financials. (We confirmed that Platinum will be acquiring the whole CheckView unit.) At the time of the sale, CheckView employed some 225 people.

Checkpoint’s divestiture comes as the latest bit of portfolio pruning by tech companies so far this year. Similar moves include Oracle shedding the Lustre business it obtained with its acquisition of Sun Microsystems to Xyratex in mid-February and Microsoft, which had already written down much of its aQuantive acquisition, flipping the Atlas Advertiser Suite to Facebook a month ago.

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

The gains — and declines — in the tech IPO market

Brenon Daly

Contact: Brenon Daly

After a four-month drought, the enterprise tech IPO market saw its first new debutants warmly welcomed onto Wall Street this week. Both Model N and Marin Software priced above their expected ranges and traded higher in the aftermarket. Collectively, the two offerings created almost $1bn in market value.

While the strong debuts by Model N and Marin Software may help draw other companies – and their underwriters – to the public market, the IPO market is still running behind where it was at this time last year. In the first three months of 2012, we saw five enterprise tech vendors go public, including ExactTarget, Demandware and last year’s unexpected top-performing offering, Guidewire Software. Altogether, the class of early 2012 is now valued at about $5.5bn on the public markets.

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

Packet Design picked up by PE shop with networking know-how

Brenon Daly

Contact: Brenon Daly, Peter Christy

Adding a second company to its portfolio, private equity (PE) firm Lone Rock Technology Group has picked up network analytics firm Packet Design. The acquisition of Packet Design brings the Austin, Texas-based PE shop much closer to its roots in networking than its other investment, business process automation vendor iGrafx.

Lone Rock was cofounded by Joel Trammel, who spent a decade as head of network flow monitor NetQoS before selling that business to CA Technologies for $200m in September 2009. A number of former NetQoS executives are now working at Packet Design, including the company’s newly appointed CEO Scott Sherwood, who ran sales at NetQoS. Packet Design was advised in the process by Mooreland Partners, while Northside Advisors worked the buyside. (Subscribers to The 451 M&A KnowledgeBase can click here for the full record on the transaction, including our proprietary estimate on the terms of the deal.)

In its decade in business, Packet Design pulled in about $65m in equity and debt backing. Like many other startups, however, it was heavy on technical expertise but light on business acumen. Packet Design sold elegant technical tools to a few of the most complex network operators but never truly expanded into much larger markets. The company has about 200 customers and, according to our understanding, roughly $10m in sales.

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

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Springtime stirrings in tech IPO market

Brenon Daly

Contact: Brenon Daly

With US equity markets hitting all-time highs and volatility sinking to post-recession lows, Wall Street appears ready to embrace new issues. Even the fitful offering of smart grid vendor Silver Spring Networks, which had been collecting dust as the company’s revenue declined over the past year, found buyers earlier this week. However, few observers would put Silver Spring forward as a ‘tech’ IPO, much less an offering that should necessarily be emulated.

But we won’t have to wait long for a bellwether for the sector. Both Model N and Marin Software are expected to price their IPOs next week, a pair of offerings that could create a cool $1bn in market value. And coming behind those debutants are a host of companies hoping to hit the market this summer, including Violin Memory, SilkRoad Technology and Tableau Software. (Of the trio, data-visualization provider Tableau looks to be the next ‘hot’ enterprise IPO, and will almost assuredly command a double-digit valuation when it begins trading.)

The rumored offerings by all three of those enterprise tech vendors have come through a so-called ‘confidential filing,’ a recent regulatory change by the SEC that allows companies to put in their IPO paperwork – and work through the inevitable revisions – without disclosing the filing until they are ready to hit their roadshow. Most companies are opting to file on the quiet – but not all of them. Somewhat confusingly, for instance, Marketo publicly announced that it had privately filed. And earlier this week, agile development shop Rally Software Development put in its paperwork for all the world to see.

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

Silver Spring (finally) makes it to Wall Street

Contact: Tejas Venkatesh

A year and a half after first filing its IPO papers, Silver Spring Networks has finally debuted on the public markets. The smart grid network company sold 4.75 million shares at $17 each, raising $81m and creating $750m in market value. The stock then promptly surged about 30% in its first hour of trading today.

The amount raised is only half the amount Silver Spring originally planned to raise when it filed its S-1 in the summer of 2011. It also pales in comparison to the money the company had already raised in the private markets. In its 11-year history, Silver Spring previously raised $330m in equity and debt capital from Foundation Capital, Kleiner Perkins Caufield & Byers and other firms.

Despite the first-day pop in trading, Silver Spring has attracted some bearish sentiment. For starters, the company, which has a high degree of customer concentration, reported that revenue actually declined 17%, year over year, to $197m in 2012.

Nonetheless, the offering valued Silver Spring at 3.8x trailing sales. That appears to be a fairly rich valuation, at least compared with recent acquisitions and even current trading multiples in the sector. In May 2011, Toshiba acquired energy management systems provider Landis+Gyr for $2.3bn, or 1.4x sales. Energy control networking platform vendor Echelon currently garners a market valuation of less than 1x sales. However, when we compare the three vendors, Silver Spring is the only pure-play smart grid network company.

Silver Spring’s valuation is also a recognition of the business opportunity in front of it. The company’s business rationale is straightforward: energy is an expensive and essential resource, for which demand is rising and supply is constrained. Silver Spring offers an IP-based network infrastructure that connects devices on a power grid, providing timely information to utilities and helping reduce energy costs and waste. Its hardware and software also allows utilities to bill consumers in an automated fashion, eliminating the need for manual reading of meters. Goldman Sachs and Credit Suisse, which also advised Landis+Gyr on its sale, led the offering, with Silver Spring trading under the ticker ‘SSNI’ on the NYSE.

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