Category: investment banking

Renewed rumors in MDM M&A, spotlight on Fiberlink

Ben Kolada

Contact; Ben Kolada

Rumors are swirling again about a possible takeover of one of the largest mobile device management (MDM) vendors. While we previously reported on speculation that AirWatch was nearing a sale to BMC, rumors this time put the spotlight on Fiberlink Communications.

Several industry sources have told us that mobile and laptop management veteran Fiberlink, better known nowadays for its MaaS360 mobile management product line, has been shopping itself. If a deal comes to fruition, it would most likely be the largest sale yet of an MDM provider.

We’re hearing varying rumors regarding the Blue Bell, Pennsylvania-based company. A couple of sources noted that Fiberlink had been shopping itself for a while, and that talks at one point fell apart, until an unknown suitor unexpectedly came back to the table. The company declined to comment on those rumors.

No word yet on who may be bidding for Fiberlink. Last year we wrote that the 21-year-old company was profitable, with revenue in the $50-100m range. Fiberlink has not taken funding since 2003, when it secured a $50m round led by Technology Crossover Ventures.

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A vacation from M&A in August

Brenon Daly

Contact: Brenon Daly

Tech M&A slowed dramatically in August, plummeting to just one-quarter the amount registered in the same month last year and half the level of two years ago. With a total deal value of just $10.3bn, spending on tech transactions around the globe in August fell to its second-lowest monthly total of the year.

The weak August activity – coming as the Nasdaq Index moved consistently higher all month, ending with a 4.3% gain – continues the sluggish spending that we have seen throughout 2012. The value of announced deals has now dropped in six of the eight months so far this year. We would add that the falloff in August ($10.3bn worth of transactions in the just-completed month, down a whopping 74% from August 2011) was the sharpest of any month in 2012.

Buyers announced just two acquisitions valued at more than $1bn in August, down from five in July and an average of about three in the first half of 2012. The big-ticket purchases: The Carlyle Group’s $3.3bn acquisition of Getty Images and IBM’s $1.3bn reach for HCM vendor Kenexa.

Finally, we would note that private equity (PE) firms were unusually active in August. The Getty Images deal, which had PE firms on both sides of it, stands as the largest transaction of the month and the third-largest so far in 2012. Other PE deals last month included Thoma Bravo taking home Deltek, which was majority owned by a buyout firm; Trimble Navigation acquiring PE-backed TMW Systems; a secondary transaction for UC4 Software; and the pairing of two buyout-backed consolidators, with CDC Software rolling up Consona.

2012 monthly activity

Month Deal volume Deal value % change in spending vs. same month, 2011
January 340 $4.1bn Down 65%
February 266 $10.4bn Up 16%
March 292 $16.8bn Down 30%
April 277 $14.1bn Down 47%
May 310 $15.6bn Down 47%
June 298 $13.3bn Down 20%
July 336 $20.5bn Up 49%
August 276 $10.3bn Down 74%

Source: The 451 M&A KnowledgeBase

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Co-founders set Workday IPO as ‘PeopleSoft 2.0’

Brenon Daly

Contact: Brenon Daly

Despite the initially abrupt and ultimately acrimonious end of PeopleSoft in the mid-2000s, many of the executives are back with another run at the public market. Workday put in its IPO paperwork late Thursday in what’s shaping up to be the most anticipated post-Facebook offering.

As a sign of that anticipation, Workday plans to raise $400m, nearly twice the amount of most ‘big’ tech IPOs and about four times more than the typical tech offering. To move all that paper, the human capital management (HCM) startup has enlisted no fewer than nine underwriters, led by Morgan Stanley and Goldman Sachs & Co.

Workday was founded in 2005 by Dave Duffield and Aneel Bhusri after Oracle pushed through its contentious $10.5bn deal for the first-generation ERP vendor. Perhaps conscious of how ‘their’ company got rolled into Oracle against their wishes, Workday’s two cofounders have concentrated ownership in their hands (collectively owning almost three-quarters of the company) and created two classes of stock. The structure effectively gives Duffield and Bhusri absolute control of all matters that go to a shareholder vote.

The rivalry with Oracle – and to a degree, SAP as well – also carries over into how Workday does its business. During pre-roadshow presentations, Workday executives noted that they typically pitched their on-demand product when enterprises were considering an upgrade of their current license-based ERP or HCM offering, such as Oracle’s PeopleSoft product. Workday has 325 enterprise customers.

So far, that approach has paid off in stunning growth for the company. It doubled revenue to $134m in the year ended January 31, and has more than doubled revenue in the two quarters since then: Workday recorded $120m, up from $55m in the year-earlier period. (It also has a mountain of nearly $250m in deferred revenue that it has piled up from its contracts that range from three to five years.)

The revenue growth so far in 2012 puts Workday loosely on track for revenue of about $250m. For comparison, that would make the fast-growing ‘redo’ about one-tenth the size of PeopleSoft when it was erased from the market.

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Rackspace acquires Mailgun in appeal to hosted app developers

Contact: Thejeswi Venkatesh, Jason Verge

Hosted services provider Rackspace isn’t known for big M&A. Instead, it has focused on tuck-in acquisitions that build off of its hosting platform. In keeping with that strategy, the company on Wednesday announced the purchase of email-enabling API provider Mailgun. The deal should help make the Rackspace cloud more attractive to app developers.

Terms of the transaction were not disclosed, but Rackspace typically pays relatively low prices for small assets. Founded in 2010, Mailgun raised $1.1m in seed funding and reportedly had six employees. The Y Combinator startup was increasing revenue at 20% a month prior to the acquisition.

Mailgun provides APIs that allow users to send, receive and track emails easily from within their own applications. In a report detailing the deal, my colleague Jason Verge notes that the ability to add email to apps is a key feature in widespread demand. Rackspace looks to provide all of the tools customers need to build their technology stack on their cloud, and Mailgun adds to this toolbox.

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LifeLock plans life as public company

Brenon Daly

Contact: Brenon Daly

Despite consumer technology names falling largely out of favor on Wall Street, LifeLock has announced plans for a $175m IPO. The identity theft prevention vendor, which has 2.3 million customers, ran at basically breakeven on sales of $125m in the first half of 2012. The offering is being led by Goldman Sachs & Co, which owns 11% of LifeLock, along with Bank of America Merrill Lynch and Deutsche Bank Securities.

LifeLock’s filing comes as other consumer-focused technology IPOs have had a rough go of it. That’s true across a number of markets, from social networking (Facebook) to gaming (Zynga) to online backup (Carbonite has been nearly cut in half during its first year on the public market) to information security (AVAST Software pulled its IPO paperwork last month). Fairly or not, LifeLock – a company that spends about half its revenue on sales and marketing – will have to work its way through that bearish sentiment in the market.

Still, the company has been steadily increasing its subscriber base (at about a 20% rate) as well as bumping up its average revenue per subscriber (currently $9 per month). That has helped LifeLock get to a point where it generated $21m of free cash flow in the first half of 2012, which is only slightly less than it generated in all of last year. Also, we recently noted that LifeLock used some of that cash to take its first step into the enterprise market, acquiring ID Analytics. Although that business is still less than 10% of total revenue, it’s a welcome hedge for LifeLock, both in terms of technology and end markets.

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Another market, another wave of multibillion-dollar M&A

Brenon Daly

by Brenon Daly

A half-decade ago, tech giants SAP, Oracle and IBM went on a $15bn shopping spree that essentially consolidated the upper end of the business intelligence (BI) market. Now, the trio has done the same thing in another slice of the application software space, human capital management (HCM). On Monday, Big Blue joined the other two vendors with a billion-dollar HCM purchase of its own, paying $1.3bn for Kenexa.

Formerly a company that didn’t acquire application software providers, IBM nonetheless is set to hand over $46 for each share of Kenexa. (IBM valued the transaction at $1.3bn on a ‘net’ basis, which would exclude the roughly $50m in net cash that Kenexa held.) With its HCM acquisition, IBM follows SAP’s $3.6bn purchase of SuccessFactors last December and Oracle’s $2bn reach for Taleo last February.

IBM’s acquisition brings the trio’s total HCM spending on the deals to about $6.9bn – less than half the amount the three vendors paid in the consolidation of the BI market. However, the valuations paid for the flurry of HCM transactions have been significantly richer, ranging from 4-11.7 times trailing sales. For comparison, the BI deals went off at range of 3.7-5x trailing sales. Interestingly, in each of the consolidation waves, the last of the three transactions in the sectors garnered the lowest multiple: Kenexa at 4x sales and Hyperion Solutions at 3.7x sales.

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Accounting for M&A

Ben Kolada

Contact: Ben Kolada

As accounting software giant Intuit buys beyond its traditional roots, it is leaving the door open for competition from a new breed of accounting startups. A handful of accounting companies have popped up over the past few years in the US and abroad to target consumers and SMBs, some with freemium models. These Davids are walking in Goliath’s giant footsteps, and are announcing a number of their own expansion plays.

Over roughly the past year, accounting startups Wave Accounting (based in Toronto), Xero (based in New Zealand) and FreeAgent (based in the UK) have each announced at least one acquisition. For the most part, these companies’ purchases have been done to expand beyond their core accounting focus. Wave, for example, recently announced the pickup of small stock analysis startup Vuru.

Xero has been particularly acquisitive, announcing four acquisitions since its founding in 2006. The company, publicly traded on the New Zealand Stock Exchange, has been doing deals to both complement its products and expand geographically. Its purchase of PayCycle in July 2011 helped the company enter the nearby Australian market. Through organic and inorganic growth, Xero has grown its revenue to about $16m in its 2012 fiscal year, which ended in March.

Beyond M&A, some companies have developed new products as an offshoot to their businesses. Ruby on Rails developer LessEverything, based in Fort Lauderdale, Florida, is now offering LessAccounting. And Toronto-based invoice vendor 2ndSite now offers FreshBooks.

Meanwhile, Outright Inc was recently acquired by Go Daddy Group. Though, if you ask LessEverything, it could have very well been its LessAccounting product. The company purported on its blog that Go Daddy approached it two years ago with interest in buying its LessAccounting product.

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As shares of salesforce.com continue to grow, could its M&A follow suit?

Ben Kolada

Contact: Ben Kolada

Salesforce.com continues to satisfy investors, even after paying up for its largest-ever acquisition. Shareholders barely blinked after the company forked over $689m for Buddy Media – the highest-valued acquisition in the social media marketing segment. As long as its shares continue to appreciate, salesforce.com has received a vote of confidence to continue to announce large deals.

The company reports its fiscal third-quarter earnings after the close of business today. Equity analysts on average are expecting the company to report about $738m in revenue for its fiscal Q3, above the company’s previously reported guidance, which was already above analysts’ estimates. CRM shares have already appreciated 46% since the beginning of the year, and analysts are predicting a median price target for each salesforce.com share of $170.

As long as it keeps growing the value of its shares, investors may not mind the company doing more – and larger – acquisitions. We’d also note that they apparently don’t mind salesforce.com covering those deals with its own stock – one-third of Buddy Media’s total purchase price was covered with its own equity. The Buddy Media buy is also only the third time that salesforce.com has covered a portion of a transaction with its own equity.

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In HP’s earnings call, M&A talk expected to be muted

Contact: Thejeswi Venkatesh

Under the stewardship of its new CEO, Meg Whitman, who took the executive seat almost a year ago, Hewlett-Packard has been cautiously quiet when it comes to M&A. The usually acquisitive firm hasn’t announced a single deal this year, and likely won’t announce a large acquisition anytime soon, since many of its previous plays are widely regarded as blunders.

Following the purchase of Autonomy Corp, the largest software acquisition in seven years, and admitting failure in some of its previous transactions, most expect that HP won’t do another big deal in the near future.

The company is still reeling from some of its prior acquisitions. HP shuttered its Palm Inc business just one year after paying $1.4bn for the company. And HP recently announced that it would take an $8bn goodwill charge on its 2008 acquisition of Electronic Data Systems. Investors expect that write-downs in goodwill may continue because the value of HP’s goodwill ($45bn) exceeds its own market cap ($38bn).

Further reinforcing analysts’ expectations that HP will stay out of M&A is the fact that the company is struggling with its own operations. HP reports its fiscal third quarter after the closing bell today. The company has already indicated that it expects a loss of $4.31-4.49 per share. Over the past six months, HP’s shares have lost one-third of their value, while the Nasdaq has gained 5%.

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Kony Solutions acquires SAP app developer Sky Technologies

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

After providing offline sync features for applications connecting to SAP’s ERP systems, Kony Solutions has decided to bring those apps in-house with the acquisition of Sky Technologies. Melbourne-based Sky provides preconfigured apps that integrate with SAP software. IBM, SAP and Kony competitor Appcelerator have also recently announced purchases that bolstered their app development platforms.

Terms of the deal were not disclosed, but we feel this should be viewed as a tiny tuck-in for Kony, which has 900 employees. Sky’s headcount is reportedly in the 30-40 range.

Kony is increasingly targeting the internal business requirements of enterprises after working with them to develop their customer-facing apps. Sky aids this initiative. By tucking in Sky, Kony can now offer customers a broader range of business-to-employee apps, including those that integrate with SAP environments.

Respondents in our April 451 Enterprise Mobility Survey said that their organizations place higher priority on development of apps that serve employees than apps that serve customers. To a degree, SAP acknowledged this sentiment when it announced that it was acquiring Syclo, which provides mobile work order software for field workers. Underscoring the value of these companies, we’re hearing that SAP paid roughly $100-150m for bootstrapped Syclo.

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