Category: investment banking

Tableau tees up an IPO

Brenon Daly2 Comments

Contact: Brenon Daly

After a pair of tech companies publicly announced their intent to hit the market late last week, we understand that a high-profile private company is coming up right behind them. Tableau Software is rumored to have quietly filed its IPO paperwork under the JOBS Act, according to a number of sources. It’s the first step toward an offering that could value the data-visualization company in the neighborhood of $2bn.

Founded a decade ago, Tableau has grown quickly and steadily as customers snap up its software that helps makes sense of the ever-increasing levels of data. According to our understanding, Tableau was running at less than $10m in 2007, but finished last year at about $110m in sales. The company, which has raised only $15m in venture backing, has also been generating cash in recent years even as it scales its business.

In addition to its stunning growth, Tableau has a number of other characteristics that should play well on Wall Street. It has a larger rival, QlikTech, that enjoys a healthy valuation of 6x trailing sales, even as it grows roughly 20%, or about one-quarter the rate of Tableau. (QlikTech recently forecasted sales for 2013 of roughly $470m, nearly three times Tableau’s expected sales this year.) Further, Tableau is likely to have broad support in the investor community thanks to its long list of rumored underwriters: Goldman Sachs, J.P. Morgan Securities, Morgan Stanley and Credit Suisse, among other banks.

By filing under the recently passed JOBS Act, Tableau can put in a prospectus without publicly revealing it has done so. Assuming the offering goes according to plan, Tableau would likely announce the filing in the next few months and then go on its roadshow. We expect the company to be well received in that process, and it is likely to join the richly valued quartet of enterprise vendors that went public in 2012: Workday, ServiceNow, Palo Alto Networks and Splunk. The cheapest of those four companies trades at 13x trailing sales.

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Opera’s cautious move into video optimization

Ben Kolada

Contact: Ben Kolada

Coinciding with its fourth-quarter earnings release, mobile Web developer Opera Software has announced the acquisition of mobile video optimization startup Skyfire Labs for $50m in cash and stock, with an earnout potentially tripling that price. The deal is a strategic combination – bringing together Skyfire’s carrier-focused mobile video optimization offerings with Opera’s mobile browser products – but its conservative structure suggests that Opera isn’t yet confident enough to put all of its eggs into the video optimization market.

Using an enterprise value of $50m (Skyfire had $8m cash on its balance sheet), the purchase – Opera’s largest ever – is valued at 12.2x trailing revenue. However, if Skyfire’s sales live up to expectations, its price-to-projected revenue valuation would be a more palatable 2.9x. Architect Partners, which helped Skyfire raise its $8m series C round, advised the company on its sale. Skyfire had raised $41m in venture capital. (We’ve made our M&A KnowledgeBase record on the transaction, which includes full financial details and round-by-round funding information, freely available here.)

Besides the $50m upfront payment, Opera is on the hook for an earnout of up to $105m in cash and stock. We’d note that although Opera also just announced a $100m credit facility, it could elect to pay $79m of the earnout in stock.

Opera is no stranger to earnouts, using them in all six deals we’ve recorded for the company, but the sheer size of this earnout suggests that the company isn’t fully confident in the video optimization market’s potential. And rightfully so – nearly every video optimization vendor we know of has seen total revenue flatten over the past few years, and many are anxiously seeking exits. (For a longer report on the mobile video optimization market, click here.)

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IPO drought lifts, as Marin Software and Model N reveal their paperwork

Brenon Daly

by Brenon Daly

Both Marin Software and Model N revealed their IPO paperwork Wednesday evening, setting the pair up to be the first new technology companies to come to market since mid-November. Both planned offerings have a $75m cover raise, and given the new regulations around IPOs, won’t actually hit the market until mid-March at the earliest. But at least the end to the recent IPO drought is (apparently) near.

Although they share the same filing date, the two companies are very different. Model N sells revenue management software, primarily to the life sciences industry although it has also expanded to tech vendors recently. Model N, which is almost twice as old as Marin Software, sells both perpetual licenses and a subscription product. License sales and related maintenance account for the majority of Model N’s revenue, which totaled $89m in 2012. J.P. Morgan Securities and Deutsche Bank Securities are leading the offering.

Founded in 2006, Marin Software only really began selling its subscription-based digital advertising platform in 2009. Since then, the company has been growing quickly. Through the first nine months of 2012, it recorded $43m in sales, up 72% from the same period in 2011. Marin Software’s revenue retention rate has topped 100% in each of the past two years. Bookrunners are Goldman Sachs & Co and Deutsche Bank.

With the different vintages, business models and markets, Model N and Marin Software will undoubtedly appeal to different investor classes on Wall Street. Along with that, they will undoubtedly garner different valuations. Loosely, we figure Model N will debut at about a $400m valuation and Marin Software may come out at roughly $600m. After the dry spell that we’ve seen in the IPO market recently, $1bn or so of value creation from the two companies will be a welcome development in Silicon Valley.

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Corsair acquires streaming audio systems provider Simple Audio

Contact: Tejas Venkatesh

Its IPO plans may not have materialized, but high-performance hardware designer Corsair is continuing to add to its product capabilities. In its first-ever acquisition, Corsair has reached for Simple Audio, a maker of streaming systems that enable consumers to remotely listen to music stored on computers and mobile devices. With audio being an integral part of gaming, the deal adds complementary audio products to Corsair’s stable of headsets, speakers and memory modules.

Corsair should also be able to use its worldwide distribution channels to drive sales of Simple Audio’s products. Terms of the transaction were not disclosed but the target described it as a ‘multimillion-dollar’ deal. According to a press release from Young Company Finance, which tracks and reports on early-stage high-growth companies in Scotland, Simple Audio generated about $2.1m in revenue for the nine months ended September 2012. The company only started selling its products in January 2012.

Corsair designs high-performance DRAM modules and other gaming peripherals for personal computers, with a focus on gaming hardware. The low-margin DRAM business accounts for more than two-thirds of its revenue. The company was on track for an IPO before pulling its paperwork in May 2012, citing poor market conditions. For the year ended March 2012, Corsair generated a top line of $480m, with a gross margin in the mid-teens.

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In tech M&A, it’s go big or go home

Brenon Daly

Contact: Brenon Daly

Tech buyers aren’t actually doing much buying so far this year, but when they close the deals, they have been big purchases. At least that’s the early read on deal flow so far in 2013. To put some numbers on the activity: Through the first five weeks of this year, the number of announced transactions by tech buyers around the globe was running about 15% lower than the comparable level in either 2011 or 2012.

However, the total spending from January 1-February 8 hit a whopping $55bn, which is higher than we would typically see for an entire quarter. Indeed, the year-to-date total is 2.5 times higher than the $22bn recorded for the same five-week period in the two previous years combined.

The surge in spending is being led by a flurry of big-ticket purchases. So far in 2013, we have tallied eight transactions valued at more than $1bn, up from just one in the same period in 2012 and four in 2011. Topping this year’s list, of course, is the proposed $24.4bn buyout of Dell, which stands as the largest announced tech deal since mid-2007. Also of note, Liberty Global reached across the Atlantic for Virgin Media Group in a $16bn acquisition and Oracle announced the $2bn purchase of networking vendor Acme Packet.

As is evidenced by those transactions, however, the activity at the top end of the market is hardly what we would call precedent-setting. (The Dell buyout – with the cash and equity participation of a company founder, plus a $2bn loan from Microsoft – is hardly a model for other take-privates.) Below those mega-deals, we aren’t seeing many signs of strength in activity that could sustain a recovery in tech M&A for the full year. Keep in mind, too, that we’re coming out of 2012, a year where we saw the value of tech transactions drop 20% from 2011 to end even slightly below the level of 2010.

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Silver Lake’s two very different elephants

Brenon Daly

Contact: Brenon Daly

Silver Lake has placed its bet, and it’s a big one. As noted, the planned $24.4bn take-private of Dell is the largest tech leveraged buyout (LBO) since the end of the recession. It’s also twice the price of Silver Lake’s previous mega-LBO, the $11.3bn club deal for SunGard Data Systems.

As we look at the two mammoth transactions, they don’t line up very closely at all. For starters, they belong to different eras: SunGard was an early, prelapsarian private equity (PE) transaction, while Dell comes as the credit markets have only recently returned to health after the worst economic recession in several generations.

Further, the two companies find themselves exiting the public market with very different outlooks for their business. SunGard has been riding the steady trend of business services, while Dell has been taking steps to catch emerging trends but still relies on PC sales for more than half its revenue.

The separation between the pair of companies is clear when we look at their financials: Unlike Dell, SunGard was growing at the time of its LBO, not to mention the fact that it ran at a 28% EBITDA margin compared with about 8% at Dell. (SunGard also got valued at twice the price-to-EBITDA multiple that terms give to Dell.)

Finally, we would note that since the Silver Lake-led LBO, SunGard has acquired some 45 companies. The steady M&A, along with organic growth, has seen SunGard bump its top line from about $3bn when it went private eight years ago to about $4.5bn now. We highly doubt that Dell will put up that kind of performance, at least not right away. There’s a lot of work to do at Dell.

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Once indelibly on the market, Dell looks to go private

Brenon Daly

Contact: Brenon Daly

In the third-largest tech leveraged buyout (LBO), Dell will end a quarter century as a public company in a $24bn take-private led by Silver Lake Partners. The private equity firm will be joined by Michael Dell, who is maintaining a significant minority stake in the company that he will continue to lead once it goes private. The LBO comes after Dell has struggled for much of the past half-decade to recast its business away from the rapidly diminishing PC market.

As part of that shift, Michael Dell returned as CEO to his namesake firm in early 2007 and (somewhat belatedly) began an M&A spree that eventually totaled some 20 transactions with a tab of $10bn. The acquisitions got Dell into virtually every part of the tech landscape, including IT services (Perot Systems), security (SecureWorks, SonicWALL), networking (Force10 Networks), storage (Compellent, AppAssure) and infrastructure software (Quest Software).

However, the acquisitions and other strategic shifts that Dell has made have yet to show up in the company’s financials. Dell, which just wrapped its fiscal year, is likely to post revenue that’s nearly 10% lower than the previous year. The company’s operating income has dropped by about one-third.

Since Michael Dell returned to the corner office six years ago, shares of the company have lost about half their value. Rightly or wrongly, Wall Street still views Dell – which gets half its revenue from PC sales – as a low-value ‘box maker’ rather than a strategic supplier of IT products and services. In the end, Dell is exiting the market at just one-quarter the value it once commanded.

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Oracle sets its sights on networking, reaches for Acme Packet

Brenon Daly

Contact: Brenon Daly

After consolidating huge swaths of the software landscape, Oracle has turned its attention to networking with a landmark acquisition. The company will hand over about $2bn in cash for Acme Packet, which Oracle hopes will allow it to capture more business with service providers and enterprises as networks look to deal with higher-level traffic like voice and video in which Acme specializes. Acme – which gets about three-quarters of its revenue from product sales and the remaining one-quarter from maintenance and support – counts about 1,900 service providers and enterprises as customers.

However, Acme has run into difficulties recently. Sales dropped almost 10% through the first three quarters of 2012, and the company has found itself running in the red after years of profitable operations. Before Oracle’s bid, Acme shares had dropped more than 20% over the previous year, underperforming nearly all of the company’s beaten-down networking rivals. Even reflecting the premium, Oracle is acquiring Acme at just half the level that Acme commanded on its own as recently as mid-2011.

Not that Acme is ending its six-and-half-year run as a public company on the cheap. Oracle will hand over $29.25 for each share of Acme, or an enterprise value of $1.7bn. That works out to 5.9x Acme’s trailing sales, which is roughly inline with most of Oracle’s other big-ticket purchases. However, we would note that the 5.9x valuation is more than twice the median valuation for the 50 largest transactions over the previous year, according to The 451 M&A KnowledgeBase.

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The ‘fiscal cliff’ hangover

Ben Kolada

Contact: Ben Kolada

Talks of a ‘fiscal cliff’ and potential changes in capital gains taxes spurred company executives and their bankers into action in the final hours of 2012. In a way, that anxiety spilled over into the beginning of this year when we saw a flurry of acquisition announcements in the first few weeks of January.

However, many of the announcements in early January were deals that closed in December. Throughout the month, we saw a continuation of the downward trend in deal volume. On the heels of a 6% decline in total deal volume for full-year 2012, the total number of transactions announced in January 2013 dropped 15% from the year-ago period. It was the fewest number of announcements in the first month of a year since the recession year of 2009.

Contributing to the slowdown in M&A activity is the fact that, according to the US Department of Commerce, the US GDP shrank 0.1% in the fourth quarter (though that number is subject to revision). Although many consider the dip a one-time slump due to declining government spending, much of the tech industry is struggling to find any growth.

In a survey conducted at the end of 2012 by ChangeWave Research, a service of 451 Research, 26% of respondents expected their IT spending to decline in the first quarter of 2013 – a full 10 percentage points higher than the level of respondents who projected increased IT spending in the quarter.

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Sierra Wireless sells AirCard business to NETGEAR for $138m

Contact: Tejas Venkatesh

NETGEAR is acquiring Sierra Wireless’ AirCard business for $138m in cash, adding external modems that it will sell to mobile network operators such as Sprint and AT&T. AirCard modems plug into PC Card slots or USB ports in laptops and other electronic devices to help them connect to the Internet through cell phone networks. NETGEAR will use its global distribution capabilities to increase sales of AirCard products in emerging markets, while allowing Sierra to focus on machine-to-machine (M2M) connectivity for the ‘Internet of things’ future.

The AirCard business generated revenue of $247m in 2012, giving the deal a valuation of 0.6x trailing sales. The ho-hum valuation reflects the low-margin profile of the business as well as declining sales. According to Sierra’s regulatory filings, the AirCard business has shrunk every year since 2008, when it generated revenue of $409m. However, most of the future growth lies in parts of the emerging markets, where cell phone networks are the only way to access the Internet, due to a lack of wired infrastructure.

In its conference call, Sierra made clear that it intends to deploy the proceeds from the sale toward M2M acquisitions. That is consistent with the direction of its previous M&A activity. In December 2008, Sierra acquired Wavecom for $277m for its GSM/GPRS, CDMA, EDGE and 3G Wireless CPUs. More recently, last June Sierra purchased Sagemcom’s M2M business for $56m, adding 2G, 3G, GPRS and EDGE wireless semiconductors.

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