Category: investment banking

Google’s admission of failure?

Ben Kolada

Contact: Ben Kolada

Google has finally found a way to monetize Facebook’s platform. After failing to acquire Facebook when it had the chance several years ago, and now with its own attempts at social networking a bit spotty, official word came on Tuesday that Google is acquiring social marketing startup Wildfire Interactive. Google is reportedly paying $250m for Wildfire, a respectable price tag that likely values the target at 7-10x revenue.

Google’s own ‘Insights for Search’ search analysis engine shows interest in Orkut, its attempt at a social network that found most of its popularity outside the US, and its Google+ social network trending downward over the past 12 months. Meanwhile, interest in Facebook has remained remarkably high.

In acquiring Wildfire, Google is recognizing its social shortcomings, and not a moment too soon. There has been rapid consolidation of social marketing startups in just the past three months.

Sector stalwarts Vitrue and Buddy Media have already been acquired by Oracle and salesforce.com, respectively, leaving only a few hot startups left. Beyond Wildfire, we’d point to GraphEffect, Hearsay Social, Syncapse and Lithium Technologies as the next to go. And there will likely be bidding competition for these firms. Large CRM vendors SAP and Microsoft could make a play here, as well as Teradata, which could buy into social to build on top of its recent purchases of marketing specialists Aprimo and eCircle.

Recent select M&A in social marketing

Date announced Acquirer Target Deal value
July 31, 2012 Google Wildfire Interactive Not disclosed
July 10, 2012 Oracle Involver Not disclosed
June 4, 2012 salesforce.com Buddy Media $689m
May 23, 2012 Oracle Vitrue $325m*
April 18, 2012 Marketo Crowd Factory Not disclosed

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

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After setting sail for IPO, Avast changes its tack

Brenon Daly

Contact: Brenon Daly

In the half-year leading up to AVAST Software pulling its IPO paperwork on July 25, the market moved steadily against it. A number of high-profile consumer-focused offerings – and, importantly, their subsequent after-market trading – have burned a lot of investors, making them hesitant to buy shares of a security vendor selling entirely to consumers. Additionally, there’s the overhang about the health of Europe, where AVAST has its headquarters and where it still does half its business.

In terms of perception, it also didn’t help AVAST that the IPO of fellow European security software vendor AVG Technologies earlier this year has been a money-loser. AVG priced its shares at the low end of its expected range, and has been underwater since then. The stock is currently changing hands at about $10, one-third lower than where the company initially sold it.

Amid those bearish grumblings on Wall Street, business at AVAST also started to slow. After soaring along with 50% bookings growth in 2011, the pace in the first quarter dipped to 38%. Meanwhile, its margins also ticked lower this year compared with 2011.

Granted, both the revenue growth and the company’s incredibly rich margins are at levels that most companies could only aspire to reach. For instance, AVAST – a company that generates around $100m in bookings with just 207 employees – runs at around a 65% Free Cash Flow (FCF) margin. It currently nets more than $10m each quarter.

But we suspect that business model wouldn’t have gotten much appreciation on Wall Street – at least not initially. If AVAST had gone ahead and priced at the high end of its expected range, it would have debuted at about eight times trailing bookings and 13x trailing FCF. That’s hardly an outrageous valuation, particularly when compared to the rich multiples enterprise-focused vendors have drawn in their recent IPOs. To put a point on that, consider this: at around an $800m debut valuation, AVAST would be worth just one-fifth the amount of the most-recent security IPO, Palo Alto Networks.

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With new CEO at Symantec, is Big Yellow planning a big unwind?

Brenon Daly

Contact: Brenon Daly

Is Big Yellow planning to slim down? That’s the question that was echoing around Wall Street on June 25 after Symantec showed Enrique Salem the door following another lackluster quarterly performance.

Symantec reported fiscal Q1 revenue was essentially flat with the year-earlier period, as its storage and server management unit (the company’s largest single business) actually shrank in Q1. Even when the unit grows, it lags Symantec’s other main business of security. For the full previous fiscal year, the storage business increased just 4%, compared to a 20% rise in security sales.

That discrepancy – along with the fact that Symantec shares have lost about one-third of their value since the security company got into the storage business with its mid-2005 acquisition of Veritas – has prompted calls from investors to unwind Veritas. We understand Symantec has been exploring that option since Salem took the top spot three years ago. One of the more intriguing ideas we heard was Symantec swapping its storage business for the RSA unit at EMC. However, we gather the separation of the units, along with tax implications, made that too complicated.

Incoming CEO Steve Bennett, who has been chairman of Symantec for a year, has indicated that he will review Symantec’s portfolio. Wall Street, of course, read a fair amount into that, as well as the CEO changeover. One source noted that Bennett had overseen a handful of divestitures during his tenure as chief executive of Intuit, including shedding the construction management software unit and unwinding the company’s Blue Ocean acquisition. However, we would characterize those moves as a typical bit of corporate housecleaning – a far cry from the teardown that some investors are calling for at Symantec.

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RealPage getting social, acquiring RentMineOnline

Ben Kolada

Contact: Ben Kolada

With seemingly all consumer-facing tech now trending toward social, why shouldn’t property management software vendor RealPage get in on the game as well?

The company took a step in that direction on Monday, when it announced the $6m acquisition of SaaS startup RentMineOnline, a rental-marketing startup that enables property managers to set up campaigns that residents use to recommend their rental property to friends through email and social networks.

RealPage is handing over $6m, with an earnout of up to $3.5m based on an unspecified revenue milestones. Excluding the earnout, the deal values RentMineOnline at 4x trailing sales (it generated approximately $1.5m in revenue for the 12 months ended June 30). The San Francisco-based company was founded in 2007 and had taken funding from fbFund, Partners in Equity, Seed Camp, and Alex Hoye, the former CEO of GoIndustry, which closed its $31m sale to Liquidity Services earlier this month.

The deal is a complementary addition to RealPage’s LeaseStar service. In announcing the acquisition, RealPage stated the intent was to build up its LeaseStar multichannel managed marketing service, which enables property owners and managers to market and secure rental leads more effectively.

And for a bit of irony, although RentMineOnline was headquartered in San Francisco, we expect its platform will have a greater effect in almost any market but the City by the Bay. Rental costs in San Francisco have skyrocketed recently, leading to a ‘beggars can’t be choosers’ environment where apartment seekers are likely to take whatever option is available, whether the apartment was recommended or rejected.

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NetScout pleases investors, telco customers

Ben Kolada

Contact: Ben Kolada

NetScout Systems on Thursday found itself in the fortunate position of pleasing both investors and customers. The company reassured its investors by announcing better-than-expected revenue in its FY 2013 first quarter, and in a separate announcement, also reassured its telco customers with the tuck-in acquisition of certain of Accanto Systems’ service assurance assets.

On the financial front, NetScout reported that revenue came in at the high end of its previously reported guidance. The company generated $76.4m in its FY 2013 first quarter, a 21% increase over the year-ago period and above the $74.7m that analysts had been expecting on average. Net income for the quarter grew 109%, to $5m. Shares of NetScout were up 12% in midday trading.

Somewhat overshadowed by NetScout’s earnings call was the small tuck-in acquisition of certain of Accanto’s service assurance assets. Accanto provides service assurance products that enable telcos to monitor and manage the delivery of voice services over converged telecom networks. NetScout is purchasing Helsinki-headquartered Accanto’s Pantera hardware probes and middleware and session analysis applications assets, which are based in Modena, Italy.

Although the acquisition announcement was secondary to the earnings release, the deal is still welcome news to NetScout’s telco customers. NetScout claims that the intent of the deal is to extend its own nGenius Service Assurance product’s control plane and data plane monitoring capabilities. NetScout said in the press release announcing the transaction that Accanto’s assets will bolster nGenius Service Assurance’s support for NGN voice services, including IP multimedia subsystems, and add incremental support for legacy circuit-switched voice, including SIGTRAN and SS7.

The acquisition, which includes the assumption of approximately 35 Accanto employees, is expected to be EPS-neutral. Mooreland Partners advised Accanto on the sale, which is expected to close this month.

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Mayer leaves M&A-happy Google for M&A-shy Yahoo

Brenon Daly

Contact: Brenon Daly

Well, we have to assume that Marissa Mayer knew what she was doing Monday when she abruptly jumped from Google to take the top job at Yahoo. But one thing we figure she won’t be doing at her new job (at least not right away) is deals. Beyond simply the typical ‘M&A freeze’ that comes with a new boss setting new strategies and processes, Google and Yahoo represent polar opposites when it comes to acquisitions.

Yahoo, which is struggling to find its direction, has been out of the M&A market since last November, when it dropped $270m in cash on interclick. That’s eight months without an acquisition at the onetime Internet search kingpin. When it was healthier, Yahoo would typically do a half-dozen deals or so each year.

During that same eight-month span, Mayer’s now-former employer, Google, announced 11 transactions. And it isn’t just the rapid-fire pace of a deal every three weeks that’s remarkable. It’s also the far-flung variety of the transactions. Since last November, Google has done acquisitions around mobile technology, social networking, online advertising, Web application development and other areas.

And if Mayer needed any more reason to be cautious with M&A when she steps into the corner office at Yahoo, we might recall what happened the last time a high-profile CEO who was brought in to rescue a tech stalwart did a make-or-break acquisition. In many ways, Hewlett-Packard still hasn’t recovered since Leo Apotheker’s $11bn gamble on Autonomy Corp a little more than a year ago. All the more reason we don’t expect Yahoo to be doing big deals anytime soon.

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Gigamon eyes IPO even as a market stalls

Brenon Daly

Contact: Brenon Daly

Despite the crosscurrents in the IPO market, Gigamon has put in its paperwork for a planned $100m offering. The network traffic management vendor runs solidly in the black and has been increasing revenue at about a 50% clip in recent years. It finished 2011 with revenue of $68m and, assuming its growth rate continues, will wrap this year at roughly $100m. (Most of the revenue – between two-thirds and three-quarters of overall sales – comes from products, with associated services generating the remainder.)

Eight-year-old Gigamon competes with network heavyweights such as Cisco Systems and Juniper Networks, while a number of other companies have acquired technology that makes them rivals as well. Just in the past two months, Ixia paid $145m for Anue Systems while Danaher added VSS Monitoring. (Subscribers to 451 Research can see our full report on the transaction, including our estimate of the undisclosed terms.)

The proposed offering from Gigamon comes at a time when the IPO market is still struggling to find its footing: On the same day Gigamon put in its S-1, MobiTV withdrew its. And while the market should get a bit hotter this week with the expected debut of Palo Alto Networks, many investors are still underwater on their Facebook shares. The IPO of the fast-growing social networking firm was supposed to serve as a catalyst for the market, but instead deteriorated into a mishandled offering that has sparked lawsuits and losses.

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To remain relevant, Neopost acquires GMC Software

Contact: Thejeswi Venkatesh, Ben Kolada

In an attempt to remain relevant in the 21st century and beyond, French mailing and shipping systems provider Neopost announced on Thursday that it is acquiring its Swiss partner, GMC Software Technology. GMC provides customer communications management software that enables businesses to design and publish print and online marketing content as well as create and manage customer surveys.

By now, everyone knows that physical mail is a thing of the past. Consumers across the globe have turned to email and other digital communication methods. Unless Neopost modernizes its product line, it risks becoming obsolete. The GMC pickup is an attempt to remain relevant in a digital world. Right now, four of the five products Neopost lists on its website are postage meters, folder inserters, addressing systems and letter-opening systems. Not exactly futuristic products.

GMC’s software helps combine data from different databases to create customized communications for each customer in a dynamic manner. The software also helps measure and track customer responses to improve future communications. The Swiss company, which has had particular success in the banking and insurance verticals, generated revenue of about $45m last year (based on year-end exchange rates). The headcount-heavy firm employed 300, including 130 engineers.

Neopost hasn’t yet disclosed the price it is paying for GMC, but in the conference call discussing the transaction the company said it paid about 2 times revenue, and noted that the deal also includes a significant earnout based on aggressive revenue goals.

KANA Software sharpening M&A blade, acquires Ciboodle

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Contact: Thejeswi Venkatesh, Ben Kolada

Since being taken private by Accel-KKR in early 2010, KANA Software has revved its M&A engine. On Tuesday, KANA announced its fourth acquisition since its take-private, picking up call-center software veteran Ciboodle from Sword Group to bolster its agent desktop, business process management and social CRM capabilities. The Ciboodle buy is KANA’s latest deal as it inorganically moves to become a more robust platform for customer-centric support processes across channels and devices.

KANA’s acquisitions have focused on adding social capabilities to its platform and better serving the SMB market. In April 2011, the company bought social media monitoring company Overtone. KANA then integrated the target’s social analytics and infused key areas of its core platform with its own social CRM capabilities, resulting in a simple-to-use tool for support agents to identify issues or receive service requests via popular social networks. Last April, in an attempt to better serve the midmarket, KANA added more cloud clout by reaching for Trinicom. Arma Partners, which advised KANA on its acquisition of Lagan Technologies in October 2010, advised the company again on the Ciboodle purchase. We’ll have a longer report on KANA’s Ciboodle buy in tonight’s Daily 451.

KANA M&A since its take-private by Accel-KKR

Date announced Target Target abstract
July 10, 2012 Ciboodle Call-center software provider
April 24, 2012 Trinicom Customer service automation SaaS
April 5, 2011 Overtone Social media monitoring SaaS
October 6, 2010 Lagan Technologies Call-center software provider

Source: The 451 M&A KnowledgeBase

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A tale of two IPO markets as Palo Alto Networks and Kayak hit the road

Brenon Daly

Contact: Brenon Daly

To understand the relative health of consumer and enterprise IPOs in the aftermath of the Facebook offering, consider the rather stark contrast between KAYAK.com and Palo Alto Networks. Both technology vendors set terms for next week’s debuts on Monday, but only enterprise-focused Palo Alto can expect to run with the bulls.

For starters, take a look at the gestation period for each of the offerings. Palo Alto set its range in only its third amendment to its S-1, which it filed just three months ago. (For the record, Palo Alto plans to sell 6.2 million shares at $34-37 each). In contrast, KAYAK’s paperwork has a lot of dust on it. The online travel site originally filed in November 2010 and set its range in its 12th update to its S-1. (For its part, KAYAK intends to sell 3.5 million shares at $22-25 each.)

But the contrast will come out even more sharply in terms of valuation. Although the companies are roughly the same size (Palo Alto did $220m in trailing 12-month (TTM) revenue, compared with $245m in TTM revenue for KAYAK), Palo Alto is more than doubling sales each quarter while KAYAK is posting growth in the mid-30% range.

Wall Street always awards fast-growing companies a premium, but the gap between these two offerings is substantial. Assuming both Palo Alto and KAYAK come to market at the high end of their expected price ranges, the security vendor will begin life with a market cap of about $2.5bn while the online travel site will start life as a public company at a valuation of roughly $1bn. That means Palo Alto will be valued at more than 11 times TTM sales, while KAYAK will garner just 4x TTM sales.

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