Category: investment banking

End of an encryption era?

Ben Kolada

Contact: Ben Kolada

There has been considerable consolidation in the drive encryption sector over the past half-decade, most recently with Dell acquiring OEM partner Credant Technologies. However, with Dell taking Credant off the table, meaningful consolidation may be complete as there are few potential buyers left.

Dell is buying its OEM disk encryption software partner Credant in what could be seen as a tech tuck-in. The acquisition provides Dell with the IP rights to technology it already sells – Credant’s Data Protection Suite was available on Dell’s laptops and workstations as a preconfigured option. Terms weren’t disclosed, but we’re hearing that Credant generated trailing revenue in the $20-30m ballpark. (We’ll have a full report on the transaction in our next Daily 451.)

After earlier rounds of consolidation in this sector by security giants Symantec, McAfee and Check Point Software, there aren’t many potential acquirers left. In fact, it appears that the number of likely targets may outnumber the likely acquirers. Although M&A in this sector seems to be either at its end or near it, two remaining targets we would point to are still-independent vendors WinMagic and Zecurion.

Similar acquisitions to Dell buying Credant

Date announced Acquirer Target Deal value TTM revenue
September 22, 2011 Wave Systems Safend $12.8m Not disclosed
April 29, 2010 Symantec GuardianEdge Technologies $70m $18m
April 29, 2010 Symantec PGP $300m $75m
October 8, 2007 McAfee SafeBoot $350m $60m*
November 20, 2006 Check Point Software Technologies Protect Data [dba Pointsec] $586m $63.8m

Source: The 451 M&A KnowledgeBase *451 Research estimate

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A bearish outlook for tech IPOs in 2013

Brenon Daly

Contacts: Brenon Daly

In our just-published report on our annual survey of corporate development executives, the shoppers told us they don’t expect to have to outbid the public market when they consider acquisition targets. Almost half (47%) said they anticipate the IPO market to offer ‘less competition’ in 2013, which is three times higher than the 15% that predicted ‘more competition.’ (For comparison, last year one-third of responses (33%) forecasted more competition from IPOs, while one-quarter (26%) indicated less competition.)

The chilly outlook for offerings underscores just how difficult the IPO market has become. In the back half of 2012, there have been only about a half-dozen tech offerings. Although there have been some eye-popping market caps created (for instance, Workday, which came public in mid-October, now trades at $8.5bn), there just haven’t been enough to see a real threat of ‘dual tracking,’ according to corporate buyers.

If anything, the IPO market will be even quieter in 2013. The median forecast from our corporate development executives called for just 20 offerings, down from about 25 offerings in each of the two previous surveys. Click here to see our full report on the outlook for tech IPOs and M&A in 2013 from a key market participant: corporate development executives.

Projected number of tech IPOs in coming year

Period Median response
December 2012 for 2013 20
December 2011 for 2012 25
December 2010 for 2011 25
December 2009 for 2010 15
December 2008 for 2009 5

Source: 451 Research Tech Corporate Development Outlook Survey

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Tech buyers pull in their M&A plans for 2013

Brenon Daly

Contact: Brenon Daly

Even as 2012 is shaping up to be a lackluster year for tech M&A, next year could be even quieter. In 451 Research’s annual survey of corporate development executives, these buyers dramatically pulled in their acquisition plans for 2013. Just 38% of corporate shoppers said they would be increasing their M&A activity in the coming year – the lowest forecasted activity level in the six years of our survey.

On the other side, fully one out of five respondents (20%) indicated they would be slowing their purchases in the coming year, up significantly from the previous two years. It’s also important to note that the dour forecast for 2013 is coming off an already low base. With just two weeks of the year remaining, tech M&A spending for 2012 is all but certain to come in below the level of both 2011 and 2010. That would snap two straight years of increased spending.

The views of corporate development executives are an important indicator of the overall health of the tech M&A community, as they go a long way toward setting the tone in the market. We will have a full report on the survey results – including the outlook for valuation and specific types of acquisitions – in tomorrow’s Daily 451.

Projected change in M&A activity

Period Increase Stay the same Decrease
December 2012 for 2013 38% 42% 20%
December 2011 for 2012 56% 30% 14%
December 2010 for 2011 52% 41% 7%
December 2009 for 2010 68% 27% 5%
December 2008 for 2009 44% 33% 23%

Source: 451 Research Tech Corporate Development Outlook Survey

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

Oracle buys DataRaker, adding energy analytics software

Contact: Tejas Venkatesh

Continuing to acquire software companies that target specific industry verticals, Oracle on Thursday announced the acquisition of smart energy meter analytics vendor DataRaker. The enterprise software giant has used M&A to buy its way into specific markets such as retail, financial services, healthcare and energy.

Five-year-old DataRaker provides smart energy meter analytics that enable utilities to integrate smart grid systems and analyze the resulting flood of new data. The software also helps utilities diagnose problems, forecast demand and detect tampering. Oracle’s purchase comes almost exactly a year after Siemens bought DataRaker rival eMeter for an estimated $200m. However, the two energy startups differ in one key area: DataRaker appears to have raised no outside funding, while eMeter took in a fair amount of venture capital.

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

A return to dealmaking for Epicor?

Ben Kolada

Contact: Ben Kolada

After Apax Partners combined ERP giants Epicor Software and Activant Solutions last year, the new firm has been fairly quiet in the M&A market. Now that the dust has settled on the $2bn combination and declining revenue has been reversed, we wonder if the ‘new’ Epicor might return to the M&A market in fuller force.

Neither Activant nor Epicor had fully recouped the losses they suffered during the recession. But Apax’s Epicor announced fiscal 2012 results today that show revenue is steadily growing. On a trailing basis, Activant and Epicor combined posted revenue of $813m in the 12 months leading up to their pairing. Revenue for the just-closed fiscal year, which ended September 30, rose 5% to $855m.

After having some time to digest the merger, we wonder if the new Epicor may return to dealmaking. In their previous lives, Epicor and Activant were fairly frequent acquirers. The two companies combined had announced a dozen deals in the decade leading up to their merger. Since selling to Apax, the new Epicor has done just three, two of which were sub-$10m tuck-ins.

However, Epicor recently made a move that signals it may return to big-ticket M&A. In October, Epicor closed its $155m acquisition of ERP, SCM and BI software vendor Solarsoft Business Systems, which was doing about $90m in annual revenue.

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It’s war over MIPS Technologies

Contact: Tejas Venkatesh

The bidding war over mobile and embedded chip IP company MIPS Technologies continued Tuesday as CEVA upped the ante again, offering $90m for the operating business of MIPS. The topping bid came just one day after Imagination Technologies raised its offer to $80m. MIPS will give CEVA a boost in its existing markets and a chance to extend into system-on-chip products from simple digital signal-processing (DSP) cores, which aren’t seeing much growth.

CEVA’s latest offer is a 50% premium to Imagination’s initial agreement with MIPS three weeks ago. The current round of bidding values the company at 1.1x trailing sales. MIPS is a solid fit for either suitor. While CEVA is motivated by declining prospects in its core single-function DSP market, MIPS will help Imagination better compete with ARM Holdings. There is little overlap with their products and customers, and the deal will help Imagination enter brand-new niches in networking and infrastructure. MIPS is also already directly supported by the Android OS.

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

A mixed November for tech M&A

Brenon Daly

Contact: Brenon Daly

Lifted by three deals each valued at more than $1bn, tech M&A spending in November jumped 63% to $11.4bn. That marks the second consecutive month where spending increased, year-over-year, and only the fourth month that has been the case in 2012.

With just one month to go in the year, overall spending in 2012 is almost certain to come in lower than each of the past two years. So far this year, the aggregate value of transactions is about 20% lower than the first 11 months of last year and 7% lower than the same period in 2010.

In November, a trio of significant deals – each representing distinctly different strategies – contributed to the year-over-year increase in spending. (Although we should note, on an absolute basis, the November total came in lower than the average spending of about $15bn in the preceding 10 months of 2012.)

The largest transaction of the month, RedPrairie’s $2bn take-private of JDA Software Group, was an old-fashioned consolidation move. Meanwhile, Priceline.com’s $1.8bn reach for Kayak.com represented a platform expansion, while Cisco Systems made a pricey cloud play with its $1.2bn purchase of Meraki.

2012 monthly activity

Month Deal volume Deal value % change in spending vs. same month, 2011
January 342 $4.1bn Down 65%
February 280 $10.4bn Up 16%
March 292 $16.8bn Down 30%
April 282 $14.1bn Down 47%
May 314 $15.6bn Down 47%
June 301 $13.3bn Down 20%
July 338 $21.1bn Up 52%
August 279 $10.3bn Down 74%
September 281 $5.8bn Down 38%
October 289 $32.6bn Up 125%
November 278 $11.4bn Up 63%

Source: The 451 M&A KnowledgeBase

Zillow steps up its shopping

Contact: Tejas Venkatesh

After going public in the summer of 2011, real estate website Zillow has gone on an acquisition spree, purchasing five companies for an aggregate value of more than $80m. On Monday, it announced its latest buy: rental search website HotPads for $16m in cash. The San Francisco-based company, which took in just $3m in funding from Meakem Becker Venture Capital, helps Zillow access a younger and more rental-focused audience.

The deal comes just three weeks after Zillow announced the acquisition of mortgage-pricing SaaS provider Mortech for $17.5m. Sensing increased competition, Zillow has picked up the pace of its M&A program, buying three companies in the past two months. (The vendor has been able to cover those purchases, in part, by a well-timed secondary offering in September. It raised more than $150m – twice as much as it landed in its mid-2011 IPO – in early September, selling shares at about $40 each. The stock is now roughly $25.)

Zillow isn’t alone in stepping up its M&A activity. Move Inc, the owner of REALTOR.com, has inked two pickups of real estate websites in the past two months, after being out of the market for more than a year. We wonder now if fellow real estate website Trulia will also go shopping. The company certainly has the money, following its IPO two months ago in which it raised about $100m.

Imagination faces challenge over MIPS bid from CEVA

Contact: John Abbott

It may not be all done and dusted for the proposed acquisition of semiconductor IP company MIPS Technologies by Imagination Technologies, as MIPS has received an unsolicited better offer. CEVA, one of the oldest developers of licensable IP cores for communications, mobile handsets and multimedia, is offering $75m, compared with the $60m Imagination put on the table.

This shouldn’t affect the separate deal MIPS put in place to sell its patents for $350m to Bridge Crossing, an acquisition vehicle formed by patent consortium Allied Security Trust. What CEVA is bidding for is the operating MIPS business (with $83m in revenue and 160 employees), plus full licensing rights to the MIPS architecture, including just those patents directly related to MIPS products.

From a product portfolio perspective, CEVA is a very good fit for MIPS. Formed in November 2002 by the merger of two veteran chipmakers, DSP Group and Parthius Technologies, CEVA has focused steadily on developing and licensing digital signal-processing (DSP) cores for mobile, consumer and networking devices. Having shipped one billion CEVA-powered devices in 2011, it is one of the major suppliers of DSPs alongside much larger rivals such as Texas Instruments and Freescale. Its 200 licensees include Broadcom, Intel, Samsung, Sony, ST-Ericsson and Toshiba.

Given all that, it’s something of a shock to see that CEVA’s recently announced revenue for Q3 2012 was just $12m, down 19% compared with the same quarter last year. CEVA says the economic climate impacted licensing revenue but claims robust demand for DSPs to be used in next-generation products. It also claims to be making significant inroads into the lucrative 3-D smartphone space, with design wins from Huawei, Lenovo, Samsung and ZTE. And while CEVA may be smaller than MIPS in terms of revenue, it does have $156m of cash in the bank and no debt.

There’s little growth nowadays in sales of single-function DSP devices, although demand for DSP capabilities isn’t going away – it’s just becoming embedded in broader devices, such as system-on-chip (SoC) products. Hence the motivation behind CEVA’s bid for MIPS, which, despite a fairly late start in the SoC device sector compared with its primary rival ARM Holdings, has at least been pushing in that direction since 2006. Combining with MIPS would give CEVA a boost in its existing markets and a chance to broaden out from simple DSPs. Imagination, whose shares fell 3% on the news, may well come back with a revised offer of its own.

Dell’s down, but still dealing

Brenon Daly

Contact: Brenon Daly

Undeterred by a sharp slump in business, Dell continues to shop. Just a day after reporting an 11% decline in fiscal Q3 revenue, the tech giant on Friday reached for infrastructure automation startup Gale Technologies. Gale should help bolster Dell’s recently launched Active System Manager (ASM) by adding an automation layer above the hypervisor, extending ASM beyond on-premises enterprise systems to support hybrid clouds.

The addition of Gale makes sense for Dell both operationally and competitively. The acquisition furthers Dell’s push toward ‘convergence,’ pretty much the only area of the company’s business that is expanding. (Through the first three quarters of this fiscal year, the servers and networking business unit has increased revenue 9%, compared with a 9% decline in total revenue at Dell.) The transaction also matches a similar purchase by Cisco of Cloupia just one day earlier.

However, beyond the Gale acquisition, there are growing questions about the broader M&A program at Dell. Although the company has been spending steadily to buy into markets beyond its historic PC business, the results have yet to show up in its top line.

Granted, the purchases are part of a multiyear transition and it may be too soon to expect full returns on them. But, with Dell shares bumping along at their lowest level since the end of the recession, Wall Street is getting impatient with the company’s turnaround. The stock has dropped 40% over the past year.

Over the past two years, Dell has spent more than $7bn on M&A, expanding into areas such as storage, security, services and software. And yet, despite that not-insignificant financial outlay, Dell is shrinking. The company is likely to put up about $57bn in sales in this fiscal year, which wraps at the end of January. That would be roughly $5bn, or 8%, less than it generated in the previous fiscal year.

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