Category: investment banking

General Dynamics nabs networking cybersecurity vendor Fidelis

Ben Kolada

Contact: Ben Kolada

General Dynamics on Monday announced the acquisition of network security vendor Fidelis Security Systems. Fidelis’ customer profile and proximity to security operations at federal agencies appealed to General Dynamics as the defense giant looks to expand its cybersecurity capabilities against several competitors that have already announced inorganic moves in this market.

General Dynamics isn’t disclosing terms of the all-cash deal, but did say that Fidelis has approximately 70 employees. When we last wrote about Fidelis in February 2011, we noted that it had 52 employees and that its average deal size had steadily grown from $200,000 in 2008 to $350,000. At the time, the company had 62 customers (up from 21 in 2008).

We’ve written before about traditional military contractors moving toward cybersecurity as the government cuts back on traditional military spending. In June, Northrop Grumman printed a similar transaction, reaching for Australian network security systems integrator M5 Network Security. And in October 2011, ManTech International announced that it was acquiring network, security and systems integration and software development vendor Worldwide Information Network Systems for $90m. General Dynamics also bought Fortress Technologies, which provides wireless mesh network access points and software that enable US defense agencies to establish secure wireless LAN connections, in July 2011. We’ll have a full report on this deal in an upcoming Daily 451.

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FICO adapts its BI software with $115m Adeptra acquisition

Contact: Thejeswi Venkatesh

Credit risk analytics giant FICO is acquiring Adeptra for $115m in order to get its hands on the target’s customer service issue-resolution SaaS software. The deal is FICO’s largest in eight years, and culminates a five-year reseller relationship between the two companies.

Adeptra provides customer service automation software using a SaaS delivery model to enable two-way mobile SMS, email and voice messaging as well as alerts between banks, card issuers, utilities and telcos and their customers. The company also provides related risk analytics software.

FICO will combine Adeptra’s software with its own predictive analytics decision management software in order to automate and expedite customer service resolution. FICO says Adeptra’s products are a natural fit with its Falcon Fraud Manager and Debt Manager products.

After reselling Adeptra’s software since 2007, FICO is now buying the company for $115m in cash, or 2.6 times trailing 12-month revenue. Adeptra had amassed more than 50 customers, including Citi, Barclays, Telstra and Sabre. The company lists ABS Ventures, ACT Venture Capital, Advent Venture Partners, Barclays and Foresight Group as its investors. Arma Partners advised Adeptra on its sale.

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Increasing interest in Internet M&A, as Getty Images sells for $3.3bn

Ben Kolada

Contact: Ben Kolada

In another sign of growing interest in the digital media sector, and in Internet companies in particular, Getty Images has announced that its management and The Carlyle Group are acquiring the company from Hellman & Friedman for $3.3bn. The consortium is paying nearly 40% more for the company than H&F did just four years ago when it took Getty private in a $2.4bn deal. The deal is the largest Internet content and commerce acquisition since Silver Lake Partners and Warburg Pincus announced in May 2010 that they were taking Interactive Data Corp private for $3.4bn.

With the exception of a dip in 2003, M&A volume in the broad Internet content and commerce category has risen every year since we began tracking tech acquisitions in 2002. Unlike the greater tech sector, Internet deal volume was even resilient during the recent recession. According to The 451 M&A KnowledgeBase, while overall yearly tech M&A volume dropped 25% from its high of 4,032 transactions announced in 2006 to 3,020 in 2008, Internet M&A volume rose 10.5% over the same period.

Both older Internet properties and hot upstarts are attracting interest. The advent of social media has enabled today’s Internet startups to rapidly market their products to millions of consumers through powerful word of mouth marketing. Meanwhile, older Internet vendors that survived the tech industry’s nuclear winter a decade ago have now matured, and many are seeking liquidity.

Also driving M&A activity is the rise of serial Internet acquirers such as Google, which has picked up 31 Internet firms. And we’re seeing a resurgence of Internet consolidation shops, such as Rebellion Media and MITRE.

Internet content and commerce annual deal volume

Year Deal volume % change
2012 YTD 441 N/A
2011 787 26%
2010 625 9%
2009 572 13%
2008 504 4%
2007 485 6%
2006 456 53%
2005 298 62%
2004 184 8%
2003 170 -36%
2002 265 N/A

Source: The 451 M&A KnowledgeBase

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JDS Uniphase tucks in GenComm as Wall Street focuses on earnings

Contact: Thejeswi Venkatesh, Ben Kolada

JDS Uniphase (JDSU) on Tuesday announced that after reselling GenComm’s test and measurement products, it has decided to acquire its OEM partner. GenComm provides wireless test and measurement hardware and software for troubleshooting, installation and maintenance of wireless base stations and repeaters.

Terms of the deal were not disclosed, but JDSU positioned the pickup as a tech and talent play, and further stated that revenue from GenComm’s products accounted for more than $7.5m of JDSU’s Communications Test and Measurement business division revenue in its fiscal 2012. The acquisition of Seoul-based GenComm will expand JDSU’s reach in the Asia-Pacific region.

The small tuck-in is likely to be quickly overshadowed by JDSU’s earnings call, which is scheduled after the closing bell today. Wall Street analysts expect the company’s fiscal year revenue to dip 7% to $1.67bn, due to the economic slowdown. JDSU isn’t the only company struggling in this sector, however. Danaher, a competitor to JDSU’s communications test and measurement business, recently reported Q3 earnings per share (EPS) below analysts’ estimates, and lowered its full-year 2012 EPS expectations.

Actian persuading Pervasive to go private

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

After a tough 15 years in the public spotlight, Pervasive Software may have finally found a graceful exit. The data integration vendor, whose revenue has flattened since the turn of the century, today announced that it has received an unsolicited $154m buyout offer from Actian.

Pervasive would be wise to accept the offer, as the Austin, Texas-based company had done little to excite investors during its public lifetime. The company’s annual revenue has been roughly in the $40-50m range ever since 2000, and its shares have appreciated less than the broad, tech-heavy Nasdaq.

The lackluster performance factored into today’s offer. Actian’s bid values Pervasive at 2.3 times trailing sales. The best comparable deal is IBM’s Cast Iron Systems pickup in May 2010, which we estimate was valued at 6.7x revenue. And Boomi took an estimated 20x valuation in its sale to Dell in November 2011, though that target was much smaller. In fact, had it not been for Pervasive’s strong cash balance, the deal value would have been much less palatable. Pervasive held $42m in cash and no debt as of June. That treasury reduces the acquisition’s total cost to Actian by more than one-third.

Pressuring Pervasive’s shareholders to act on the offer, Actian is taking an unusually persuasive tone in its acquisition announcement, blatantly pointing out that its offer is the highest closing price reached by Pervasive’s common shares in the past 10 years. The deal carries a 30% premium to Pervasive’s closing share price on Friday, August 10.

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Dell as a mobile manager?

Ben Kolada

Contact: Ben Kolada, Rachel Chalmers, Chris Hazelton

Dell hasn’t hidden its intentions of leveraging its hardware legacy to extend into the enterprise IT market, particularly in regards to software. The PC and server giant recently reinforced its goals with the $2.6bn acquisition of systems management vendor Quest Software. But, as we point out in a recent report, its next move is likely to be in mobile management.

Former CA Technologies CEO and current head of Dell’s software division, John Swainson, made our job a bit easier. Swainson hasn’t been explicit with his plans, but we read some of his recent statements as a signal that Dell may make an imminent move into mobile device management.

That makes sense. Connected devices are the primary target for new applications. They’re also fountains of data that can be gleaned and distilled into BI – which is among the four focus areas for Dell’s software group: security, systems management, business intelligence and applications. In a report detailing the possible future of Dell’s mobile management, we prognosticate about how the company may move into this sector, and with whom. Click here to read the full report.

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Vista Equity rolls up the rollups

Brenon Daly

Contact: Brenon Daly

Just a half-year after Vista Equity Partners dropped a quarter-billion dollars on bankrupt enterprise software vendor CDC Software, the buyout shop has significantly bulked up the platform with the addition of Consona. The combined entity, which is the collection of more than 30 separate acquisitions by the two companies over the years, also got a name change. It now does business as Aptean.

With the double-barreled deals, Vista Equity now has a fairly sizable ERP and CRM business. CDC was generating about $220m in sales when Vista Equity picked it up earlier this year. The addition of Consona will push Aptean’s top line to nearly $350m, according to our understanding. (Terms of the transaction weren’t officially released.)

Perhaps more important to Vista Equity, however, is the fact that Consona probably throws off as much – if not more – cash than the much larger CDC. Our understanding is that Consona ran at an EBITDA margin in the 30% range, meaning it generates about $40m of cash flow each year. And that level is almost certain to go up when Vista Equity consolidates some of the duplicate operations of CDC and Consona.

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A modest recovery in the tech M&A market

Brenon Daly

Contact: Brenon Daly

Spending on tech M&A in July rose about 50% from July 2011, only the second month so far this year where the value of deals around the globe increased from the previous year. In fact, the $20.6bn we tallied last month stands as the busiest July in a half-decade, only slightly trailing the $21.7bn recorded in July 2007.

The boost last month came from the top end of the market, where we saw five transactions valued at more than $1bn. That compares to an average of about three 10-digit deals each month in the first half of 2012.

More broadly, last month saw a number of significant acquisitions, including Dell’s $2.6bn purchase of Quest Software (the company’s second-largest deal); VMware’s high-risk move into networking with the $1.2bn acquisition of pre-revenue startup Nicira Networks; Ingram Micro’s largest-ever transaction, bolstering its mobile offering through the $650m pickup of BrightPoint; and Apple’s first reach for a fellow publicly traded company, AuthenTec.

Of course, even with the acceleration in July, year-to-date spending on deals is still running roughly one-quarter lower than where it was last year. Assuming that level continues through the remainder of the year, 2012 would come in with the lowest total deal value since the recession year of 2009. That would snap the streak of two consecutive years of recovery in the tech M&A market.

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 291 $13.3bn Down 20%
July 326 $20.5bn Up 49%

Source: The 451 M&A KnowledgeBase

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InronPlanet throws its IPO paperwork on the scrap heap

Brenon Daly

Contact: Brenon Daly

The road to the public market is turning into a dead end for an increasing number of companies. IronPlanet has pulled its IPO paperwork, just days after AVAST Software also scrapped its planned offering. The two companies operate in wildly different markets, with IronPlanet serving as an online marketplace for industrial machinery and AVAST selling security software to consumers. While both cited ‘market conditions’ as the reason for their withdrawals, it’s a bit of a stretch to see it applied to both.

In the case of AVAST, the company almost certainly could have gotten public, if it were willing to take a bit of a discount on its pricing. (AVAST, which was growing at about 40% annually and richly profitable, was nonetheless dinged by concerns over its focus on the consumer, rather than enterprise, market as well as a less-than-robust IPO by fellow European security software provider AVG Technologies.) But rather than cut its value to convince investors to buy into the offering, AVAST will stay private until ‘market conditions’ change.

On the other hand, IronPlanet won’t make it to the Nasdaq anytime soon. Although the company filed its prospectus in March 2010, it hadn’t updated its financials in more than a year. And the numbers it revealed then would have gotten it roughed up on Wall Street. In 2010 (the latest full-year results available), IronPlanet grew just 7%, down from 56% in 2009. (The paltry growth rate continued in the first half of 2011, too.) Meanwhile, IronPlanet has swung to a loss after posting black numbers in the past. That’s clearly not the profile of a company that will appeal to investors, particularly ones that have been burned on their investments in recent IPOs that have posted slowing growth and declining margins.

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Eloqua hits right message at right time

Brenon Daly

Contact: Brenon Daly

The key to marketing is the right message at the right time. And in that regard, marketing automation vendor Eloqua hit both points squarely as it came public on Thursday. The company priced its shares at the high end of its expected range ($11.50 each) and then registered a mid-teen percentage gain in the aftermarket. The IPO created some $420m in market value.

Eloqua’s pitch is fairly simple: Its subscription-based platform makes the sales process for its roughly 1,100 customers more efficient. As corporate budgets continue to flow to marketing, Eloqua has actually been able to accelerate its growth rate as its revenue has increased.

The company was putting up revenue growth in the 30% range in late 2010, but has bumped that up to the 40% range over the past year. (It finished 2011 with sales of $71m, putting it on track for about $100m in sales this year. Assuming it does hit that level, it would represent a doubling of revenue since 2010.)

Wall Street, of course, pays for growth, so Eloqua is delivering the right message on the top line. Further, the revenue is coming in a relatively predictable manner: Eloqua sells only through subscriptions, which is a lot smoother than the traditional big-or-bust license model. Subscriptions account for roughly 90% of total revenue at Eloqua, with another coming 10% from professional services.

The timing of the offering, which has been on file for almost a year, also fits fairly well in the broader market right now. While consumer Internet offerings continue to get roughed up, investors have been supportive of enterprise-focused companies. Eloqua sells primarily to the B2B market, with enterprise customers accounting for about 60% of total revenue, and the remaining 40% coming from SMB customers. Add all that together, and it’s a solid start for Eloqua in its debut.

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