Category: investment banking

Ruckus debuts amid equity market uncertainty

Contact: Tejas Venkatesh

Even as the equity markets have been roiled by uncertainty and slowing corporate growth recently, Ruckus Wireless made it public on Friday. After pricing at the high end of its indicated range of $13-15, the stock edged lower in midday trading. Nevertheless, the Sequoia Capital-backed wireless provider raised $126m and debuts at a market cap of $1.1bn, valuing it at 5.7 times trailing sales. The robust value creation comes at a time when network operators are looking to Wi-Fi networks to offload data traffic that is crowding their wireless 3G and 4G/LTE networks.

With its Wi-Fi wares, Ruckus is capitalizing on concerns about how to handle the rapid expansion of traffic generated by mobile devices. High-performance wireless is clearly in high demand and Ruckus specializes in large-scale deployments that suit high-volume and high-density applications.

And Ruckus’ growth reflects that market opportunity. The 10-year-old company has more than doubled its top line in less than two years, going from $75m in calendar-year 2010 to $194m for the 12 months ended September 30. And even while ramping up sales and marketing, Ruckus has been running solidly in the black for two years. It raised $76.1m in venture funding from Sequoia Capital (which holds a 24% stake) and Motorola Mobility Ventures (5.4% stake), among others. Goldman Sachs and Morgan Stanley were lead underwriters on the offering.

Ruckus has established itself as a distinct player in the crowded Wi-Fi market, and competes against bigger vendors like Cisco Systems, Ericsson, Hewlett-Packard, Motorola Mobility and Aruba Networks. Unlike Cisco and HP, Ruckus builds its devices using standard chipsets from Qualcomm’s Atheros and then uses its own intellectual property to more effectively manage the radios and data operations to improve performance.

The wireless startup’s successful offering comes less than a year after its archrival BelAir Networks was snapped up by Ericsson. While both companies were born at the same time in 2002, Ruckus was clearly the more successful of the two. BelAir had 120 employees at the time of its sale and Ruckus has five times that number, at 606.

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Priceline gets KAYAK for a good price

Ben Kolada

Contact: Ben Kolada, Brenon Daly

For a price comparison website, KAYAK.com appears to be settling for a relatively low price in its purchase by online travel giant Priceline.com. At first glance, Priceline’s offer for KAYAK appears respectable. The $40-per-share bid is the highest KAYAK’s shares have seen in its short life on the Nasdaq. Using an enterprise value of $1.65bn, KAYAK is being valued at 5.8 times trailing revenue and about 5.6x full-year 2012 revenue.

But as we look closer, we see that KAYAK is being valued only slightly higher than Priceline’s current trading valuation, and that’s excluding any takeout premium for the acquirer. With an enterprise value of roughly $28bn, Priceline trades at about 5.5x trailing revenue and 5.3x 2012 revenue. (Priceline shares, which have tacked on roughly 15% so far this year, were unchanged on the news of its largest-ever acquisition.)

Valuation – especially for the acquirer – is a key concern in this transaction because unlike most tech deals, Priceline is covering almost three-quarters of the cost of its purchase with equity. Under terms, Priceline will hand over $1.3bn in stock and $500m in cash for KAYAK. As mentioned, paying with paper is relatively rare these days, because cash is king when it comes to M&A. In fact, according to The 451 M&A KnowledgeBase, Priceline’s acquisition of KAYAK is one of only 12 deals done by US public acquirers so far this year where stock has accounted for more than half the total consideration.

Despite faster growth, KAYAK’s valuation is only slightly above Priceline’s

Company EV EV/2012 projected revenue 2012/2011 revenue growth
Priceline $28.03bn* 5.3 21%
KAYAK $1.65bn 5.6 31%

Source: The 451 M&A KnowledgeBase, 451 Research estimates. *Calculated as of 11/8/12.

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The campaigning continues, at least on Wall Street

Brenon Daly

Contact: Brenon Daly

The election may be over, but some campaigns are continuing. At least that’s what’s happening on Wall Street, where two would-be buyers are trying to sway the electorate (directors and shareholders) in order to close acquisitions of two Nasdaq-listed tech companies. Whether or not either of these unsolicited efforts actually comes to a vote, well, that remains to be seen.

In the newest case, j2 Global earlier this week put a bear hug on Carbonite, pitching a (nonbinding, preliminary) offer of $10.50 for each share of the consumer-focused backup vendor. (J2 already owns almost 10% of Carbonite, having picked up the stake for about $20m in the open market in recent weeks.) Carbonite, which has traded mostly lower since its August 2011 IPO, rejected j2’s bid.

Meanwhile, Actian is not giving up on its two-month-old effort to land Pervasive Software. Earlier this week, it added 50 cents per share, or about $10m, to its original bid for the data-integration vendor. The $9-per-share offer from the buyout-backed company that used to be known as Ingres values Pervasive at its highest level in more than a decade.

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Talking M&A, once again

Brenon Daly

Contact: Brenon Daly

It’s hard to get a read on the M&A market right now. For instance, many companies are struggling to put up any growth – and yet are still getting rewarded with above-market valuations. Meanwhile, overall M&A spending is currently running about one-quarter below last year, but we just recorded the single largest tech deal in a half-decade.

To get a view on the M&A market – from the actual participants in it – please join us Thursday, November 8 at 1:00pm EST for our semiannual webinar on the M&A Leaders’ Survey, a joint survey from 451 Research and law firm Morrison & Forrester. (451 Research subscribers can also see our full report on the recent survey.) To register for this free webinar, click here.

In the webinar, we’ll cover what’s happening in the market right now as well as the outlook for the next half-year, both in terms of M&A activity and valuations. We’ll also have specifics on where deals are getting hung up. In addition to the broad market overview from 451 Research, Morrison & Foerster will offer insight on key findings about term sheets, escrow and other fundamental parts of M&A agreements. Please join us for the webinar on Thursday at 1:00pm EST by registering here.

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

GFI may face IPO headwinds

Brenon Daly

Contact: Brenon Daly

Undeterred by a chilly reception to similar firms, GFI Software has put in its paperwork for a $100m IPO. The company, which is based in Luxembourg, sells a variety of infrastructure and collaboration services to the SMB market. GFI was originally founded in 1992 as an e-fax software vendor, and has steadily built out its portfolio through internal expansion and a handful of acquisitions.

However, it is still primarily known for its security offerings, with that product line accounting for about 60% of total revenue in 2010. Since then, the company has been rapidly expanding into other areas, most notably collaboration. In its prospectus, GFI said collaboration now generates almost one-third of all revenue.

Still, Wall Street may well put GFI into the bucket of ‘European IT security vendor.’ If that’s the case, it could hurt the company’s debut, because investors haven’t backed IPOs from other infosec firms from across the Atlantic. AVG Technologies, for instance, has never traded above its offer price since coming public in February. And AVAST Software had to pull its IPO paperwork in July.

Additionally, there are some concerns with GFI itself. The company’s growth rate has cooled so far this year, with revenue ticking up just 27% in the first half of 2012 after increasing 46% in 2011. (The falloff in billings growth has been even sharper.) Further, GFI is not profitable and has not been generating as much cash as it had been.

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

Tech M&A spending doubles in October

Brenon Daly

Contact: Brenon Daly

Boosted by the largest technology deal in more than a half-decade, spending on tech M&A around the globe more than doubled in October from the previous year.

The whopper deal, of course, was Softbank’s $20bn purchase of a majority stake in Sprint Nextel, which accounted for nearly two-thirds of last month’s spending. Without that one transaction – the largest tech deal since Alltel went private in a $27.5bn buyout in mid-2007 – the total spending would have come in basically where it has in October in each of the past three years.

Overall, acquirers spent $32.6bn on 285 transactions in October, compared with $14.5bn spent on 342 deals in October 2011. The 125% spike in aggregate deal value in October marks only the third month in 2012 where spending has increased, year over year.

In addition to the blockbuster telco transaction, noteworthy deals last month included ASML Holding’s $2.5bn purchase of Cymer, a transaction that featured a 70% premium; the $1.6bn take-private of Ancestry.com; and Riverbed Technology’s $1bn acquisition of OPNET Technologies, a gamble on portfolio expansion that Wall Street didn’t particularly like.

Even with those big-ticket deals in October, however, M&A spending in the first 10 months of 2012 is running one-quarter lower than where it was in 2011.

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

A quickly to Z

Ben Kolada

Contact: Ben Kolada

Rather than go for the quick exit, Andreessen Horowitz’s investing thesis focuses on the long haul, investing in companies that have the potential to become tech giants. Its investment in anti-fraud startup Silver Tail Systems counters that thesis, but that’s what happens when the money comes knocking early.

Andreessen Horowitz first disclosed that it invested in Silver Tail in June 2011. The thought was that, like the malware wave, sophisticated fraud attacks would first hit the largest enterprises and eventually move downwind to SMBs. However, the market has greatly expanded, as a variety of fraud attacks are now hitting businesses of all sizes.

Noticing the market’s potential, EMC moved to take Silver Tail’s capabilities in-house. Terms were not officially disclosed on EMC’s acquisition of Silver Tail, although the price was reported to be in the $300-400m range.

As we understand it, though, Silver Tail was initially looking for the opposite of an exit. The story we’re hearing is that Silver Tail was out on the fundraising circuit, looking for upward of $30m, but EMC made a table-clearing offer. That reported price, if true, would have been about twice the post-money valuation Silver Tail was seeking in its round. As it is, the midpoint of the reported price is actually about five times the post-money valuation it took in its last round, according to our understanding.

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

Riverbed looks to extend to application management with OPNET acquisition

Brenon Daly1 Comment

Contact: Brenon Daly

Looking to extend its network performance optimization business into application management, Riverbed Technology said Monday, October 29, that it will spend $1bn in cash and stock for OPNET. Riverbed will roll OPNET into its nascent Cascade business line, offering deeper application monitoring and end-user experience to its existing network-focused product portfolio.

While there certainly is a logical extension between the network and the applications that run on it, the transaction brings a number of risks to Riverbed. For starters, it is by far Riverbed’s largest acquisition – almost ten times bigger than its second-largest deal. While Riverbed said the OPNET transaction is expected to close this year, it indicated the financial ‘synergies’ probably wouldn’t show up until 2014.

Further, the formerly debt-free company will take on debt and issue new equity to cover its purchase of OPNET. According to terms, Riverbed will pay $43 for each OPNET share, composed of $36.55 in cash, and the rest in Riverbed equity. That means Riverbed will have to issue seven million shares and take out a $500m term loan.

Beyond the financial impact, there are also questions about the business it is acquiring. Riverbed is focused on the application performance management (APM) portion of OPNET, but that business only accounts for about half of the company’s overall sales. The other half is network performance management (NPM), which is what Riverbed already sells.

Riverbed highlighted the fact that OPNET’s APM business is growing at more than 30%. However, because of the sluggish growth in the company’s legacy NPM business, OPNET’s overall revenue is only increasing in the mid-teens. (In the first two quarters of its current fiscal year, OPNET has bumped up the top line only 11%.) That’s an acute concern for Riverbed, which will only grow in the mid-teens in 2012 – half the level it expanded at in 2011.

‘Dual track’ an empty threat as IPO window closes

Brenon Daly

Contact: Brenon Daly

If not shut, the tech IPO window is too narrow for most would-be debutants to get through right now. It’s been two full weeks since Workday soared onto the market in one of the hottest offerings in recent times. But since that IPO, there’s been nothing but crickets in the tech sector.

Perhaps that shouldn’t be surprising, given that the equity market has ticked lower while volatility has ticked higher over the past two weeks. In any case, the IPO drought certainly isn’t surprising to any of the respondents of the semiannual M&A Leaders’ Survey, which we sent out earlier this month and wrote up earlier this week.

Of the dozen reasons why deals aren’t getting done, survey respondents ranked ‘competition from IPOs’ dead last. (Not only that, the response also showed the single biggest decline since our earlier survey in April.) Fully seven out of 10 respondents said the IPO market isn’t really having an impact on M&A activity, up from 51% who said that back in April.

Competitive impact of IPO market on M&A

Survey period Strong Neutral Weak
April 2012 24% 25% 49%
October 2012 12% 18% 70%

Source: M&A Leaders’ Survey from 451 Research / Morrison & Foerster

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Will TeleNav be a buyer or a seller?

Ben Kolada

Contact: Ben Kolada

TeleNav’s revenue is expected to decline significantly in 2013, but the company is making attempts to expand into growth markets, as evidenced by its recent acquisition of local mobile advertising startup ThinkNear. With its shares continuously battered on the public market, could TeleNav spurn public scrutiny and seek a private equity buyer? Its mountain of cash could enable the company to go in either direction – buyer or seller.

TeleNav stumbled onto the Nasdaq in May 2010. After repeatedly issuing guidance below analysts’ estimates, the company’s shares are currently trading nearly one-third below their IPO price. Revenue for its fiscal 2013, which ends in June, is expected to decline 13% to $190m. The company’s revenue primarily comes from providing GPS navigation software to wireless carriers, though it also serves the automotive vertical and enterprises, and recently began targeting the local advertising market.

Although TeleNav is rarely an acquirer, its $22.5m ThinkNear pickup could be the beginning of a buying spree meant to propel growth in its local mobile advertising business. The mobile advertising market is in hyper-growth mode, and TeleNav has an audience of 34 million users accessing its services that it hasn’t yet materially targeted for advertising purposes.

Meanwhile, the debt-free company is sitting on nearly $200m of cash and short-term investments that it could use to fuel its M&A machine and inorganically grow this business segment, which represents less than 10% of its fiscal 2012 revenue.

Conversely, though, TeleNav’s treasury could attract buyout bidders. Its market value is currently about $260m, but its cash and short-term investments reduce its enterprise value to just about $60m. A lofty 30% per-share premium would give the company an enterprise value of less than half projected fiscal 2013 revenue. However, we expect that if the company is taken private, its newfound parent would continue to invest in its mobile advertising business because of that market’s growth potential. TeleNav reports fiscal 2013 first-quarter results after the bell tomorrow.

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