Category: investment banking

Cadence bulks up IP business with $380m Tensilica buy

Contact: Thejeswi Venkatesh, John Abbott

Cadence Design Systems on Monday reached for configurable silicon intellectual property vendor Tensilica for $380m in cash. Not only is this Cadence’s biggest acquisition, it is also paying the highest valuation in its M&A history. Tensilica generated $44m in sales in 2012, valuing the company at 8x trailing sales. The purchase bulks up Cadence’s IP business, pushing it over the $100m mark. Previous IP acquisitions include Denali Software in May 2010 (for verification IP) and Cosmic Circuits just last month (for silicon IP).

Its exit did not come easy for Tensilica. The IP core vendor raised roughly $100m in six funding rounds in its 16-year history. Investors include Foundation Capital, Altera and Cisco, among others. Tensilica makes money through license fees for its IP and also via royalties on unit volumes its customers sell. The company’s client list includes marquee tech names such as Intel, Broadcom, Cisco and Samsung. Qatalyst Partners advised Tensilica on the transaction.

Tensilica’s data-plane-processing units are programmable and allow customers to develop customized system on a chips (SoCs) and differentiate themselves in the mobile and wireless network infrastructure markets. These IP cores are complementary to standard processor architectures from companies like ARM Ltd, a fact highlighted by a quote in the PR from the microprocessor provider itself. Potential overlap between ARM and the EDA giants as they move further into the silicon IP and SoC business is a sensitive point.

The deal comes just four months after rival MIPS Technologies sold itself to Imagination Technologies and Allied Security Trust for a combined $450m. CEVA, which unsuccessfully bid for that business against Imagination, is now the last remaining stand-alone company. Its revenue for 2012 dipped to $54m, down 11% compared with $60m in 2011. Cadence’s larger competitor Synopsys has been buying into silicon IP steadily since the acquisition of Virage Logic for $315m in June 2010. Virage had previously acquired ARC International for its configurable IP, a more direct rival to ARM. Both Cadence and Synopsys are looking to take advantage of faster growth rates beyond their mature EDA tools businesses.

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JDSU buys Arieso for location-specific telecom network intelligence

Contact: Tejas Venkatesh, Ben Kolada

JDS Uniphase has acquired UK-based Arieso, a provider of location-based telecom network intelligence software. The transaction is meant to help carriers alleviate bandwidth constraints caused by limited spectrum capacity.

Arieso provides location intelligence software that produces maps showing network traffic down to building-level resolution. This information, based on actual measurements from consumer devices, allows mobile operators to deploy small cells strategically or even offload traffic to Wi-Fi networks.

JDSU is paying $85m in cash for Arieso, which put up $27m in bookings last year. Assuming actual revenue is slightly below bookings, the deal probably values Arieso in the upper end of 3-5x revenue. That valuation is about one-quarter of what we estimate Intucell received in its sale to Cisco, but that valuation was certainly an outlier.

Perhaps a closer comparable would be Optimi’s sale to Ericsson in 2010 for $99m. We’ve previously heard the Optimi deal was valued at roughly 2-3x sales. Arieso raised $14.5m in funding from Add Partners Ltd and Qualcomm, among others. The company has marquee customers including AT&T, Telefónica and Vodafone. Arma Partners advised Arieso on its sale.

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Consolidating the Google Apps ecosystem

Ben Kolada

Contact: Ben Kolada

The Google Apps ecosystem saw continued consolidation on Wednesday as UK Google Apps developer and reseller Ancoris announced that it was acquiring Appogee for an undisclosed sum. Google and other enterprise apps providers are using resellers to target the SMB market, a strategy that has spawned a plethora of application systems integrators. Consolidation in this sector has taken off in the past few years and is providing extremely fast growth for some companies.

Application software OEMs, such as Google but also including salesforce.com, have focused their efforts on targeting the enterprise segment, and instead have used resellers to penetrate the SMB market. Meanwhile, cloud services are now affordable for SMBs, and millions have migrated away from their old premises-based systems to modern cloud services.

VARs like Ancoris and Cloud Sherpas add functionality to the apps they resell, such as multiple domain setup, administrative capabilities and more fleshed-out instant messaging capabilities. Essentially, they’re making paid Google Apps more suitable for SMBs by answering shortcomings not addressed by default by Google.

Increasing adoption of cloud services combined with consolidation has played out particularly well for Cloud Sherpas, which has acquired eight companies in the past two years, including two so far this year. The company’s CEO has publicly said he expects revenue to break $100m this year, up from about $75m last year and less than $1m in 2009.

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Lexmark’s Perceptive continues its buying spree

Contact: Alan Pelz-Sharpe

Perceptive Software, the document and content management division of printer giant Lexmark, continued its M&A spree Tuesday with the acquisitions of San Francisco-based Twistage and Seattle-based AccessVia for a combined total of $31.5m. Lexmark has now spent more than $600m buying software companies since it started its M&A machine in May 2010 with the purchase of Perceptive Software.

Twistage provides a cloud-based video ingestion and management system, and AccessVia sells retail industry point of sale-focused printing (signage) software. Both acquisitions come as a bit of a surprise because, previously, Perceptive had focused on building out document-centric case management and pure-play document management functionality, which extends Perceptive’s own heritage of providing document and form management capabilities to legacy business applications such as JD Edwards, PeopleSoft and SAP.

Twistage and AccessVia appear to take the firm in very new directions because they both could be described as providing Perceptive with more input and output options. Quite how these will be integrated – and leveraged by the firm – is unclear right now. We believe that Twistage mainly brings technology and AccessVia a substantial customer base, and will watch closely to see how this all pans out. But it’s likely that new industry-focused applications and solutions will come from a combination of these and existing technologies.

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What else will VMware sell?

Contact: Tejas Venkatesh

VMware is selling SlideRocket, the presentation creation and collaboration startup it acquired two years ago, to ClearSlide as it refocuses on its core business. The deal comes at a time of refocus for the virtualization giant, which in 2012 saw its growth rate decline to 22% – a full 10 percentage points lower than the previous year. (It also recently revealed plans to lay off some 900 employees.) As VMware returns to its roots, other assets that it acquired in recent years could also end up on the chopping block.

The company’s focus in the near term is on its Pivotal Initiative, which brings together a number of ‘big data’ and cloud assets that EMC and VMware have acquired and developed to capitalize on the impact that cloud computing is having on emerging markets such as application development and big data.

Meanwhile, the focus placed here will come at the expense of some of VMware’s noncore assets. In its Q4 earnings call, the company said it would deemphasize SlideRocket as well as ‘other products’ not central to what customers value from VMware. That could mean that some outlier assets, such as Socialcast and Zimbra, may be available for sale. Any divestitures at VMware would also be eased, politically, by the fact that acquisitions were done during the tenure of former CEO Paul Maritz, who moved from the top spot at VMware to run the Pivotal Initiative last year.

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Taking advantage of the times

Ben Kolada

Contact: Ben Kolada

While the real estate industry overall is still hurting, M&A in the construction and facilities management software space is growing. Driving deal flow is the same factor that depressed the real estate market – the macroeconomy. Companies are continuing to seek new ways to cut costs, and increasing facilities’ efficiency is becoming a popular option. Growth, alongside fragmentation in the facilities management software sector, is leading to increasing consolidation.

Similar to trying to squeeze additional productivity out of employees, companies are now trying to squeeze additional efficiencies out of their facilities. In fact, as IBM stated in its acquisition of TRIRIGA, property and real estate are the second-largest costs to a business after employee compensation.

As a result, many vendors in the facilities and property management software segment are experiencing significant growth. Accruent, which claims to be the largest facilities management software provider, expects to grow revenue approximately 50% this year. (However, we’d note that M&A has helped the company’s upward revenue trajectory. Accruent has announced four acquisitions since 2011.)

The sector’s growth potential has even attracted some of the largest acquirers. IBM paid $108m for TRIRIGA in 2011 and last year Oracle acquired Skire’s assets. Beyond growth potential, vendors will consolidate the fragmented market, and acquire to add complementary offerings to their portfolios. Accruent, for example, bought Evoco in part to add construction management software to its existing facilities management software products.

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Rackspace acquires freshly launched ObjectRocket

Contact: Tejas Venkatesh

Rackspace has acquired MongoDB hosting specialist ObjectRocket, expanding its portfolio of database services to non-relational data. The move adds a NoSQL cloud database offering, and should improve Rackspace’s ability to compete with Amazon Web Services.

ObjectRocket launched January 15, just 42 days ago. The company had only raised a round of seed funding from an undisclosed set of investors. ObjectRocket’s cofounder and chief architect Kenny Gorman is one of only 35 MongoDB contributors and community members considered MongoDB Masters.

ObjectRocket is differentiated by a managed services approach, advanced features and focus on high performance. The deal is a natural fit for Rackspace, which already offers MySQL-based Cloud Databases for relational applications. Bringing ObjectRocket onboard adds the ability to support non-relational operational applications, for which MongoDB is emerging as the primary NoSQL database of choice. We’ll have a full report on the transaction in our next Daily 451.

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Marketo looks to the market

Brenon Daly

Contact: Brenon Daly

Looking to join a recent run of well-received marketing automation IPOs, Marketo said Tuesday that it has filed its prospectus. Like most other recent would-be debutants, Marketo took advantage of regulatory changes and has filed its paperwork confidentially. Somewhat unusually, however, it did note its IPO filing on its website.

Although Marketo didn’t reveal its financials, we understand that the company has doubled revenue in each of the past three years: $14m in 2010, $30m in 2011 and about $55m in 2012. Marketo has raised some $107m from five different VC firms since 2006.

Last summer, rumors were swirling that Oracle might be looking to acquire Marketo. Instead, the acquisitive software giant reached for Eloqua, paying almost $1bn for that marketing automation vendor. (Meanwhile, we hear that other large enterprise software companies – notably, SAP, Intuit and salesforce.com – continue to sniff around the marketing automation market.)

Assuming Marketo goes ahead with its offering, it will join ExactTarget and Eloqua as IPOs from the sector. (Although, as noted, Eloqua got snapped up just four months after its offering.) As one indication of Wall Street’s bullish view on marketing automation, consider that ExactTarget trades at $1.5bn value on sales of about $300m.

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Informatica’s shy M&A

Ben Kolada

Contact: Ben Kolada

Those merely glancing at the headlines of Informatica’s press releases would see that on Wednesday the company unveiled the latest version of its cloud-integration PaaS product, Cloud Spring 2013. However, only by reading further would an interested party see that the company has also quietly acquired cloud process automation vendor Active Endpoints. This isn’t the first time Informatica has been shy with its M&A announcements, but recent financial results could give the company the confidence to be much louder with its future acquisitions.

Informatica’s previous small tuck-in of Data Scout only came to light with the launch of Informatica Cloud MDM in September 2012 and the subsequent release of Informatica Cloud Winter 2013. Perhaps that deal didn’t deserve significant attention, as it cost Informatica just $6m.

In fact, with the exception of Heiler Software, Informatica’s dealmaking since 2011 has involved mostly small, sub-$10m tuck-ins. Its median deal size from the beginning of 2011 to today (including Heiler Software) is just $7m. That compares with a median deal size of $55m for the 11 transactions it announced before then.

The turn toward smaller acquisitions, and hiding some of them in product announcements, could be explained to a degree by the unfolding economy in Europe. Europe’s struggling economy eventually hit home and weighed heavily on Informatica’s Q3 2012 profit.

Although Europe is still experiencing economic turmoil, Informatica seems to have been able to cushion the continent’s effect on its top line. After a downturn in profit in the third quarter, the company recently released results that showed better-than-expected revenue in the fourth quarter. (However, net income still came in below the year-ago period.) If future results continue to play to Informatica’s favor, we could see the company becoming more boisterous with its M&A announcements in the future. We’ll have a longer report on Informatica’s acquisition of Active Endpoints in our next Daily 451.

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Xyratex acquires Lustre IP from Oracle

Contact: Tejas Venkatesh, Peter ffoulkes

Xyratex has announced a fairly rare deal with the acquisition of some of Oracle’s assets. Specifically, Xyratex is picking up the intellectual property related to the Lustre file system from Oracle, which the database giant itself obtained as part of its Sun Microsystems buy. Having already made significant investments in Lustre-based high-performance storage systems, the move helps Xyratex stabilize the Lustre community, and thus strengthen its product strategy.

The deal is a natural fit for Xyratex following its purchase of Lustre-based file storage management systems vendor ClusterStor in November 2010. ClusterStor CEO Peter Braam, the original developer of Lustre, joined Xyratex as part of the transaction and remains with the company today.

Xyratex is trying to build a reputation for itself as a leading storage systems provider. To do that, the company is leveraging its expertise in high-performance storage systems, for which Lustre is an appropriate parallel file system technology. Xyratex generated sales of roughly $1.2bn for the 12 months ended November 2012. For its part, Oracle divests a business that it hadn’t been investing in anyway.

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