Category: investment banking

EMC buys Syncplicity for mobile file sharing in the enterprise

Ben Kolada1 Comment

Contact: Ben Kolada, Simon Robinson

EMC on Tuesday announced that it is taking another swing at backup and file synchronization. However, this time the company is aiming primarily at mobile users in the enterprise. EMC is acquiring four-year-old startup Syncplicity, which provides file-sharing and storage software as a service that enables synchronization to and from computers, mobile devices and online services.

In announcing the acquisition, EMC noted that it chose Syncplicity over the competition because Syncplicity is focused on the enterprise segment, while most other competitors are still targeting consumers. (EMC had previously tried its hand at the consumer backup market. In 2007, it paid $76m for online storage startup Mozy, but has since handed over much of the responsibility for those assets to VMware.) Like so many of its rivals, Syncplicity started in the consumer space but turned its attention toward enterprises in the past year or so. The company now claims about 200,000 users, including roughly 50,000 businesses.

We’d also note that the deal was driven by EMC’s Information Intelligence Group (i.e., Documentum), which makes sense from a collaboration/workflow/app space, but it does have the potential to cause some internal conflicts. For example, the EMC Atmos team is working closely with Oxygen Cloud, and VMware has Horizon/Octopus.

EMC isn’t disclosing terms of the acquisition, but we were recently told that Syncplicity is still in its early days and is nowhere near the size of competitor ShareFile, which sold to Citrix last year. ShareFile had nearly double Syncplicity’s headcount, and generated an estimated $12m in revenue during the year leading up to its sale. Citrix paid $54m for ShareFile, and is now using the target’s technology in its recently updated CloudGateway 2 product for mobile app management and file sharing. We’ll have a longer report on EMC’s Syncplicity buy later this week.

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

Google finally cleared on its ‘defensive’ deal

Brenon Daly

Contact: Brenon Daly

Like any weapon, intellectual property (IP) can be wielded both for offense and defense. That’s worth remembering now that Google has basically been cleared to (finally) close its $12.5bn acquisition of Motorola Mobility, which it announced last August. The purchase adds some 17,000 Motorola Mobility patents to an ever-growing portfolio at Google, which has been a busy buyer of IP from IBM over the past year, as well.

In order to win regulatory approval in various jurisdictions around the globe, the search giant went out of its way to assure government bodies – as well as mobile handset manufacturers located around the world – that its Android operating system would remain freely available to all. More than a few of the 50-odd vendors that put out Android-based mobile devices expressed fear that Motorola phones and tablets might get ‘favorite child’ status from Google as the OS provider got into the hardware business in a big way.

But Google has eased those concerns (for now, at least) and seems to be focusing on shoring up the defense of Android so that other OEMs can use it without worrying about legal fallout. There’s a fair bit of irony in that, as Google itself is currently a defendant in a patent-related lawsuit that came about because a tech giant announced a multibillion-dollar deal in part driven by IP. Oracle purchased Sun Microsystems in 2009 – at the time referring to Java as the ‘most important’ software Oracle had ever acquired – and then brought a case alleging that Google infringed on Java copyrights and patents in mid-2010.

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

Facebook’s $16bn IPO: raised above the Valley

Brenon Daly

Contact: Brenon Daly

As IPOs go, Facebook is far more Silicon Valley than Wall Street. That was clear from the social networking giant’s roadshow this month, where 20-something CEO Mark Zuckerberg could hardly be bothered to meet with the institutional investors who do most of the buying of new offerings. (When Zuck did attend the meet and greets with the pinstripes, he wore a hoodie.) And if there was any lingering doubt about it, consider the fact that Zuck stayed at home at the company’s headquarters in Menlo Park, California rather than travel to New York City to ring the opening bell on Nasdaq.

And yet, Facebook is hardly representative of a Valley company – much less a Valley IPO. First, there’s the not-so-small matter of its $100bn market capitalization. But even beyond the valuation, the $16bn that Facebook just raised in its offering is probably more than all the tech companies that go public in the next three years or so will raise, collectively.

Our rough math: Facebook took in $16bn in today’s debut (of that amount, nearly $7bn will go to the company, with the remaining $9bn or so going to company executives and investors). In comparison, the typical tech IPO brings in, say, $100m or maybe $150m. In our surveys, investment bankers and corporate development executives have been consistently forecasting about 25 tech IPOs in each of the recent years. So assuming that rate holds – or even increases slightly – we’re still looking at roughly four years of IPOs to get to the more than 100 offerings to raise the same amount as Facebook.

Even a blockbuster IPO like Splunk had just a month ago raised just dimes compared with Facebook. Underwriters ended up selling 13.5 million shares in the enterprise data search firm at $17 each, which was roughly twice the price of the original range. That meant Splunk raised $321m in its IPO – or only about one-fiftieth the amount Facebook just raised.

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

Equinix increasing inorganic growth, nabs ancotel

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

In its latest geographic consolidation move, colocation giant Equinix announced on Wednesday the acquisition of Frankfurt-based ancotel. Although previously an atypical acquirer, the ancotel buy is Equinix’s second purchase this month, following the pickup of certain assets from Hong Kong-based Asia Tone for $230m. Equinix recently said its dealmaking isn’t done yet. At the Deutsche Bank Securities Media & Telecommunications Conference in February, the company said it plans to place more emphasis on M&A.

Equinix didn’t disclose the price of the acquisition, but did say the valuation is in line with its projected 2012 adjusted EBITDA trading multiple. With a current enterprise value of $9.7bn, Equinix itself is valued at 11 times this year’s projected adjusted EBITDA. Assuming ancotel’s cost structure is similar to Equinix’s, we’d loosely estimate the deal value at $100-110m. Ancotel generated $21.4m in revenue in 2011, with a three-year CAGR north of 20%. The transaction adds a datacenter with 2,100 meters of capacity, 400 network customers, 200 new networks and 6,000 cross connects. Ancotel also has a presence in both London and Hong Kong.

In a departure from its usual practice of making just one acquisition per year, Equinix recently indicated that it intends to use more M&A to fuel growth. The company already dominates the American colocation market, so future M&A activity will likely continue to be overseas. Equinix has a lofty goal of being in 50 markets in the long term, with immediate priorities being India and China. The company has also expressed interest in growing its presence in South Korea and Australia.

Equinix’s international M&A, past five years

Date announced Target Deal value Target headquarters
May 16, 2012 ancotel Not disclosed Frankfurt
May 1, 2012 Asia Tone (certain assets) $230m Hong Kong
February 15, 2011 ALOG Data Centers* $127m Rio de Janeiro
February 6, 2008 Virtu Secure Webservices $22.9m Enschede, Netherlands
June 28, 2007 IXEurope $555m London
January 10, 2007 VSNL International (Tokyo datacenter) $7.5m Tokyo

Source: The 451 M&A KnowledgeBase *90% stake

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

Some unlikely M&A agitation against BMC

Brenon Daly

Contact: Brenon Daly

Having already agitated for the sale of at least five tech businesses over the past few years, Elliott Associates has set its sights on a significantly bigger target: BMC. The hedge fund said on Monday that it has acquired 5% of the systems management giant and will push for a sale of the company.

For its part, BMC retained Morgan Stanley to advise it on its defense against the unwanted approach and, more importantly, adopted a poison pill that makes any unsolicited deal highly unlikely to succeed. Nonetheless, the idea that BMC could get sold goosed the company’s shares, which added 9% in mid-Monday trading.

From our view, however, it’s highly unlikely that 32-year-old BMC, which has been public since August 1988, will get snapped up. The first – and most obvious – hurdle is the poison pill, or ‘shareholder rights plan’ in the company’s description. But even beyond that, there aren’t very many companies or (probably more relevantly) buyout shops that could write the $10bn or so check that it would take to clear BMC.

For a strategic buyer, we’ve always thought Cisco Systems would be the logical home for BMC. The two companies have partnered around the datacenter, with Cisco providing the gear and BMC serving up the management layer. However, the returns on that partnership haven’t been overwhelming, and Cisco has taken to acquiring small management vendors on its own over the past year and a half. (To bolster its management portfolio, Cisco has reached for startups such as LineSider Technologies, Pari Networks and newScale.) But Cisco, which reported weak financial results last week while also forecasting a ‘cautious’ IT spending environment, is hardly in a place to do its largest-ever acquisition.

That would leave private equity firms as the most likely acquirer of BMC. Those shops have been the buyers of the other companies that Elliott has put in play, including Epicor Software, Blue Coat Systems, Novell and others. However, the collective value of all those Elliott-inspired deals would likely be only half the size of a BMC purchase, which would be a whopper for any single firm. (That goes double because of the reserved credit markets right now.)

The last point underscores one of the other large problems with a BMC takeout: even though its shares have lost nearly 20% of their value over the past year, the company isn’t particularly cheap. It garners a $7.2bn market capitalization, so throwing a 35% premium on that takes the (hypothetical) acquisition price to about $10bn. That works out to about 4.6 times 2011 revenue (10x maintenance revenue) and more than 12x the $800m in cash flow from operations that BMC generated last year. Even with the $1.4bn cash ‘rebate’ from BMC’s treasury, any potential buyer is still looking at paying a double-digit cash-flow multiple for a single-digit grower.

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

Stick with what you know

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

Some moves just don’t pan out as planned, such as basketball legend Michael Jordan playing baseball or actor Joaquin Phoenix attempting to become a rapper. While those moves may have dented personal pride, when companies make failed moves, it hits their bottom line. Videoconferencing giant Polycom is experiencing that pain today. The company announced on Friday that it is divesting its enterprise wireless communications assets for just $110m to Sun Capital Partners, or about half the price that it paid for the business five years ago.

Polycom entered the wireless communications market in 2007 when it paid $220m for then publicly traded SpectraLink – it’s largest-ever acquisition (today’s divestiture also includes the assets of Kirk Telecom, which SpectraLink acquired for $61m in 2005). While we had doubts, Polycom argued that its rationale for the deal was sound. Polycom thought it would be able to boost revenue by leveraging the two companies’ complementary sales channels as well as by merging their server-side software products into a single platform.

Polycom, however, wasn’t able to generate the revenue that it expected from the acquired assets. The SpectraLink and Kirk Telecom assets dwindled within their newfound parent, falling from $144m in revenue in 2006 to about half that, $94m, in 2011.

Not to pick on Polycom, but its SpectraLink divestiture is just the most recent reminder of the risks involved in attempting game-changing acquisitions. Companies use M&A to enter new markets all the time, and often fail. HP shuttered its Palm Inc business just one year after paying $1.4bn for the company. And in 2010, Yahoo divested its Zimbra collaboration assets for $100m, or less than one-third of the $350m that it paid for the company in 2007. Cisco attempted to move into the consumer video segment when it paid $590m for Pure Digital Technologies, maker of the Flip video camera, but shut down that division two years later.

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

So far, so good for Astaro inside Sophos

Brenon Daly

Contact: Brenon Daly

When Sophos reached for Astaro exactly a year ago, the two companies lined up very well on paper: Both Europe-based security vendors go to market entirely through the channel, selling primarily to SMBs. Yet they both addressed different aspects of security, with Sophos shoring up endpoints and Astaro focusing on the network.

While the two approaches appear complementary, the infosec landscape is fraught with endpoint/network pairings that haven’t gone to plan. (That goes for M&A both on a large scale, such as IBM-Internet Security Systems, and a small scale, such as Sourcefire-ClamAV.) So what’s the verdict on Sophos’ purchase of the German unified threat management (UTM) vendor? So far, so good.

As a company, Astaro has been fully integrated into Sophos over the past year while also maintaining its historic growth rate of about 30%. (We understand that the UTM business is currently running at about $70m.) Astaro’s growth would basically match the rate of UTM kingpin Fortinet, although that company will do more than a half-billion dollars of sales in 2012.

Sophos is currently in beta with a product that combines Astaro’s UTM technology and Sophos’ core endpoint security offering. The integrated product is due this summer. That offering will hit the market just as Dell works through the integration of its purchase of UTM provider SonicWALL. That deal, which represents Dell’s largest security acquisition, closed Wednesday.

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

Audience tries to make IPO noise before Facebook debut

Contact: Thejeswi Venkatesh, Ben Kolada

Although Facebook’s road show may have delayed some companies’ IPO itineraries, audio processing vendor Audience is continuing with plans to begin trading on the Nasdaq on May 10. Facebook has dominated recent IPO chatter (a quick Google search for ‘Facebook IPO’ generates more than 312 million results, versus just five million for ‘Audience IPO’), but Audience’s market opportunity should help the company create some noise of its own.

Audience designs digital signal processors and associated algorithms that help separate human voice from background noise, thereby helping to improve voice quality on mobile phones. The technology also helps improve the responsiveness of speech-recognition software. Apple, for example, uses Audience’s chip in the iPhone 4S.

So far, the market has been receptive. The patient firm, which was founded in 2000 but didn’t start pushing product until 2008, has grown revenue fifteenfold over the past few years, from $6m in 2009 to $97m in 2011. That growth story should pay off in spades for its selling shareholders, notably NEA, Tallwood Venture Capital and Vulcan Capital, which collectively own 87% of the company (combined, they poured $75m into the firm).

Audience plans to raise $80m by offering 5.3 million shares in the range of $14-16 per share. Assuming it prices at the midpoint, Audience will garner a market cap of just under $300m, or three times trailing sales. That valuation is in the ballpark of where rival Maxim Integrated Products currently trades in the public markets. J.P. Morgan, Credit Suisse and Deutsche Bank are leading Audience’s IPO. This is likely to be the last tech IPO before Facebook’s debut.

Facebook sucks the air out of the IPO market

Brenon Daly

Contact: Brenon Daly

All the breathless coverage of Facebook’s kickoff of its IPO roadshow bordered on the ridiculous, even for Wall Street. The reports flew as Facebook made its way along the well-trod path to becoming a public company, a journey that thousands of other companies have already made. But each step (even the most inconsequential) apparently merited coverage: Which door did CEO Mark Zuckerberg use to get into the meeting with potential investors? Did he wear his trademark hoodie as he met the button-down types?

Given this, it’s pretty clear that Facebook hasn’t left any room on the IPO stage for any other would-be debutant. That was underscored by the fact that – according to our understanding – another tech company was originally thinking about making the rounds to buyside institutions this week. Word was that Eloqua was loosely targeting mid-May for its roadshow, but understandably stepped back as the Facebook carnival rolled into town.

Whenever Eloqua does get a chance to tell its story to Wall Street, however, we think it’ll get a pretty good hearing from investors. The on-demand marketing automation vendor is growing about 40% annually (the rate in Q1 actually came in above that level, outstripping full-year 2011) and is likely to finish this year at roughly $100m in sales. It’s right on the cusp of profitability, too. Beyond that, Eloqua has a highly valued rival that recently made its debut: ExactTarget, which currently garners a market value of $1.6bn.

So it’s probably a prudent move by Eloqua and its underwriters not to try to compete with all the noise and flash from the once-in-a-generation offering from Facebook. After all, Wall Street isn’t known for its patience, much less a long attention span. Once Facebook does get listed, many investors will be off looking for the next shiny object.

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

Tech M&A slump continues in April

Brenon Daly

Contact: Brenon Daly

The deal drought continued into April, with spending on tech transactions around the globe during the just-completed month coming in at only $12bn. That’s less than half the level of spending on tech M&A that we recorded in April during the same month last year.

Spending on deals this year has now dropped in three of the four months, compared with 2011. (The $12bn of spending in April essentially matched the monthly average of the previous three months so far this year.) Additionally, the number of acquisitions in April slumped to its lowest level this year.

The low spending and light volume goes against what most observers projected for 2012. Many buyers – flush with cash and enjoying their highest stock price in a decade or so – indicated that they would be active in the M&A market after many deals got knocked off the table due to the European debt crisis in the back half of 2011.

But now, it seems like pricing is the problem. In the recent M&A Leaders’ Survey from 451 Research / Morrison & Foerster, two-thirds of respondents said rich valuation expectations at target companies were keeping deals from getting closed. Only 10% of the survey respondents said pricing wasn’t a hindrance in closing deals. (See the full report.)

In terms of the acquisitions that did get announced last month, we couldn’t help but notice the stark contrast between the two targets of the largest (non-patent) deals in April.

On the one hand, we saw Vodafone Group’s $1.7bn purchase of Cable & Wireless Worldwide, a company that traces its roots back to the 1850s, generates nearly $3.5bn of sales and has 6,000 employees. And on the other hand, there was Instagram – a company with no revenue, only a dozen employees and a 2010 vintage that nonetheless fetched $1bn in its sale to Facebook.

2012 activity, month by month

Month Deal volume Deal value % change in spending vs. same month, 2011
January 340 $4.1bn Down 65%
February 272 $11.1bn Up 16%
March 289 $19.9bn Down 30%
April 267 $12.3bn Down 55%

Source: The 451 M&A KnowledgeBase

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