Category: investment banking

Will patience pay off for RGB Networks?

Contact:  Thejeswi Venkatesh

On its way to an IPO, Envivio tripled its top line in just two years, reflecting increased demand for high-quality video content on a range of platforms and devices. Yet with just $50m in sales in its last fiscal year, we’re not sure if the video-processing and distribution provider was quite big enough to be a public company. That was evident in Wall Street’s chilly reception of Envivio as it made its way to the Nasdaq. Unlike many other recent tech IPOs, the company had to price its offering below the target range. Then, for most of its first few days as a public company, it traded below the reduced offer price. With a market cap of less than $250m, Envivio won’t quite make the list of hot stocks on Wall Street, which tends to favor larger companies and higher liquidity.

Meanwhile, Envivio’s primary competitor RGB Networks continues to grow its business steadily. We understand that RGB generated $56m in revenue for 2011, which is slightly higher than Envivio’s top line during the same period. Perhaps learning from its rival’s travails, RGB wants to wait before putting in its papers to go public. If all goes according to plan, the company is likely to be much larger at the time of its public debut, which seems to be what Wall Street is buying these days.

Intuit pays up for SMB-focused Demandforce

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

Intuit on Friday announced its largest M&A move in six years, acquiring SMB-focused marketing automation startup Demandforce for $423.5m. The deal, and Demandforce’s valuation, was primarily driven by the target’s market traction. The company, founded just in 2003, has amassed a customer roster of more than 35,000 SMBs. The transaction also demonstrates the accounting and tax giant’s desire to further penetrate this market with additional products and services – this is its first major play in marketing automation.

The Demandforce acquisition complements Intuit’s QuickBooks software and expands its offerings for SMBs. (We’d note that Intuit already offers a marketing management and productivity application called QuickBase, though that product is for enterprises.) Demandforce provides marketing automation SaaS and helps businesses maintain an online profile and better communicate with their customers. The company has grown considerably over its short lifetime. According to Inc.com’s annual survey of the fastest-growing companies, Demandforce generated $15.3m in revenue in 2010, up from $6.4m in 2009. Continuing that growth rate would put its 2011 revenue at roughly $25-30m.

Intuit is handing over $423.5m in cash for Demandforce, making this deal Intuit’s largest since it forked over $1.35bn for transaction processor Digital Insight in 2006. Demandforce’s growth certainly factored into its valuation. Assuming that Demandforce maintained historical growth rates, Intuit’s offer would value the target at a whopping 15-20 times trailing sales. If our initial estimates are correct, that valuation is double and even triple some precedent valuations. For example, in 2010, IBM bought Unica for 4.4x sales. Unica had flatlined during its final years as a public company, with revenue remaining in the $100m ballpark for the four years before its sale. The valuation is also double Teradata’s Aprimo acquisition, also announced in 2010. Teradata paid $525m for Aprimo, or 6.3x sales.

Survey: lots of M&A talk, but few prints

Brenon Daly

Contact: Brenon Daly

Although key members of the broad dealmaking community indicate they have stepped up their activity in the M&A market recently, actually closing deals has proven challenging so far this year because of pricing and renewed concerns about the stability and growth outlook across the globe. That’s one of the main findings from the inaugural survey by 451 Research and Morrison & Foerster of more than 300 executives, corporate development officials, lawyers/bankers and other dealmakers.

In the survey, slightly more than half of the respondents (52%) said they are seeing more activity over the past half-year than they have during the same period in either of the two previous years. That’s more than twice the number who said activity has tailed off recently. Further, respondents projected that the heightened activity will translate into actual prints at some point this year: Nearly six out of 10 (59%) respondents said they expected to be busier in 2012 than they were last year, compared to just one out of 10 (8%) who said the opposite. We’ll have a full report on the survey in tonight’s Daily 451, including what’s driving current dealmaking and what’s keeping respondents from doing deals.

M&A spending outlook

Period Increase Stay the same Decrease
2012 forecast 59% 33% 8%

Source: M&A Leaders’ Survey from 451 Research / Morrison & Foerster, April 2012

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Spirent secures its testing platform with Mu

Brenon Daly

Contact: Brenon Daly, Eric Hanselman

A relatively infrequent shopper, Spirent Communications has picked up Mu Dynamics, adding security testing for applications to the company’s performance-testing portfolio. The deal, which is only the British company’s second acquisition in the past half-decade, was announced last week and closed Monday. Spirent paid $40m in cash for Mu, which is projected to contribute about $18m in sales next year. (We understand that talks got going only in December, with Duff & Phelps’ Pagemill Partners unit advising Mu.)

The purchase of Mu Dynamics should also help Spirent expand its market, both in terms of customers and products. Traditionally, Spirent has sold its performance analysis offering as a hardware-based platform to network equipment manufacturers that use it to test the performance of products before they launch them. (It primarily competes in this market with Ixia, although Spirent is much larger and more profitable than its rival.) With Mu, Spirent will get a software product that can be more quickly and easily deployed, even within corporate IT departments.

As more and more applications are run on virtualized infrastructure, the process of testing is adapting. Where hardware-based systems have traditionally been used in test environments, it’s much more difficult to connect them to the virtual and ‘cloudy’ application deployments that are predominating. Spirent’s move will give it tools to address these environments. Ixia has also developed product capabilities in this area. Software versions of testing products can also scale well to match the increased scaling demands placed on applications.

Additionally, Spirent obtains Mu Dynamic’s small – but potentially disruptive – cloud-based testing division called Blitz.io, which bumps up against startups such as SOASTA, Apica, AppDynamics, LoadStorm and other SaaS testing providers. Blitz.io already has some 15,000 users.

While both the performance and security of applications is important to increased cloud application adoption, security is turning out to be a far more significant factor. In a survey earlier this year, ChangeWave Research, a service of 451 Research, found that companies gave higher marks to the reliability of cloud apps than they did to the security of them. Further, of the companies that are not currently running cloud applications, one-third of them cited ‘security concerns’ as the reason they have passed so far. That was twice as high as any other concern voiced by the more than 1,500 respondents to our survey.

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

Persistence may not pay off for Vodafone

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

After three deadline extensions and interest from competitor Tata Communications, Vodafone Group announced on Monday its latest attempt to acquire Cable & Wireless Worldwide (CWW). Vodafone is offering £1bn, or approximately $1.7bn, to buy CWW. However, its offer has already hit a roadblock. CWW’s largest shareholder, Orbis, which owns 19% of the company, has rejected the bid on the grounds that it undervalues CWW. Vodafone initially expressed interest in acquiring CWW on February 13.

Orbis’ argument does hold some ground. Although Vodafone’s offer represents a 92% per-share premium to when the deal was originally announced, it still values CWW below some precedent transactions. Vodafone is valuing CWW at half times revenue and just 2.7x EBITDA for the 12 months ending September 30, 2011. In comparison, US cable company Knology recently sold to WideOpenWest for 2.8x sales and 8x EBITDA, while SureWest Communications was valued at 2.2x revenue and 6.8x EBITDA in its sale to Consolidated Communications in February. For more business-focused comparisons, PAETEC was valued at 1.3x sales and 8.4x EBITDA in its sale to Windstream Communications in August 2011. Level 3 Communications paid 1.1x revenue and 7.3x EBITDA for Global Crossing in April 2011.

Given the strategic significance of this deal to Vodafone, we expect that the company could appease Orbis with a higher bid. We’ve previously written that Vodafone, which is light on its fixed-line capacity in the UK, would likely use the acquisition to enable more bandwidth availability for its mobile users. The UK wireless operator will be able to take advantage of CWW’s vast infrastructure to backhaul its own cellular services, rather than rely on third-party operators. Throughout the wireless industry, cellular operators are increasingly feeling their networks squeezed as users consume more and more high-bandwidth data. Further, with £7.7bn ($12bn) of cash and marketable securities in its treasury, Vodafone could certainly afford a higher offer.

Splunk soars in rip-roaring IPO

Brenon Daly

Contact: Brenon Daly

In a rip-roaring debut, Splunk soared onto the public market Thursday in an IPO that created more than $3bn of market value for the data analytics vendor. That’s a heady, double-digit valuation for a company that’s likely to generate only about $200m in sales this year. (Just as we predicted in last week’s special IPO report, the company has captured the attention of Wall Street. Subscribers can click here to read what else we see coming in the IPO pipeline in the next few months, and how the offerings are likely to fare.)

But Splunk’s rich pricing simply reflects the tremendous opportunity that the company has in front of it. If the name ‘Splunk’ conjures up images of exploring a cave, or ‘spelunking,’ we might suggest that a more accurate way to view the company is one ready to run – and run quickly – into a wide-open greenfield.

The company, which has already garnered 3,700 customers across a broad number of industries, makes the pitch that any company with large amounts of data is a potential customer. Splunk’s core offering is a search product that helps users make sense of the ever-increasing volumes of data, much of it machine-generated.

After it got going in 2003, Splunk had most of its use cases around IT operations and security. However, the company has expanded its product to also cover application performance management, online customer experience monitoring, marketing and beyond.

Originally, Splunk’s seven underwriters set a range of $8-10 for each share, but then ended up pricing at double that level at $17 each. In the aftermarket, the stock nearly doubled again, changing hands in the low $30s in mid-Thursday trading on the Nasdaq. (It trades under the ticker SPLK.)

A final interesting little market anecdote about the offering: With roughly 100 million shares outstanding, Splunk is starting its life as a public company at almost exactly the same amount ($3.3bn) that Hyperion Solutions finished its life as a public company. Splunk’s current CEO Godfrey Sullivan was previously CEO at Hyperion, which sold to Oracle five years ago.

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

Columnar database provider SAND Technology puts itself up for sale

Contact: Matt Aslett, Thejeswi Venkatesh, Ben Kolada

Following years of flat revenue and attempts at realigning its business, Canadian columnar database dinosaur SAND Technology has announced that it is exploring strategic alternatives, including an outright sale. The announcement comes barely six months after SAND sold its SAP Information Lifecycle Management product line to Informatica for $8m.

That divestiture was part of the company’s attempt to refocus its core business on its massively parallel columnar database technology, which it acquired back in 1993 with its Nucleus International acquisition(SAND itself was founded nearly a decade earlier, in 1982). However, SAND has long struggled to grow revenue and has been consistently running deeply in the red. Revenue for the Pink Sheets-listed company has hovered at about $7m for the past five years and it suffered a net loss of $2m in its latest fiscal year.

SAND’s prospects for a sale look dim, however. In the past two years, most of the big database vendors have either acquired or developed their own massively parallel columnar technology. In the off chance that SAND does find an interested buyer, it shouldn’t hope for a high valuation. Most precedent M&A transactions in the data-warehousing space were done for rich multiples, including Teradata’s takeout of Aster Data in March 2011 for an estimated 13.6 times sales, HP’s pickup of Vertica in February 2011 for 11x sales and EMC’s reach for Greenplum in July 2010 for an estimated 14x sales. But SAND’s sale would probably be best compared to Kickfire’s sale to Teradata in August 2010, which we suspect was done for scraps.

IBM reaches into the app layer for Varicent

Brenon Daly

Contact: Brenon Daly

IBM has mostly stayed away from acquiring application vendors, reaching instead for companies that typically either bolster its sprawling Global Services division or infrastructure software business, particularly in the management layer. Big Blue stepped a bit out of its regular acquisition area on Friday with the purchase of sales performance management (SPM) vendor Varicent Software. IBM is adding Varicent, which helps companies manage quotas and incentives for sales agents, into its Smarter Analytics division.

Although IBM didn’t disclose terms of the deal, we estimate that nine-year-old Varicent was generating about $35m in sales, give or take a few dollars. That would make it less than half the size of its publicly traded SPM rival, Callidus Software, which increased revenue 18% in 2011 to $84m. Callidus currently trades at slightly north of 3 times trailing sales. Slapping that multiple on Varicent gives a price in the neighborhood of $100m, which is probably a reasonable starting point for valuation.

Of course, Callidus’ current valuation doesn’t reflect any acquisition premium that an acquirer would have to pay. Also, we would probably make the case that Callidus has a more valuable revenue stream, given that more than half of its revenue comes from subscriptions. (Last year, Callidus reported that SaaS revenue hit $45m of the $84m in total sales. More importantly, the subscription business grew twice as fast as the company’s overall revenue.) Varicent was more of a traditional software provider, with license and maintenance plus a bit of consulting. Finally, one other SPM vendor to keep an eye on is Xactly. We understand that company, which has raised roughly $70m in venture backing, may be looking to go public in 2013.

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

Tech IPO market looks to next week’s triple-header

Brenon Daly

Contact: Brenon Daly

Although the US equity market has been a bit choppy over the past week or so, shares are still generally inching higher. Sure, it hasn’t necessarily been the uninterrupted ascent of the Nasdaq that we saw in the first quarter, which recorded the strongest start to a year in two decades. But the sentiment – despite renewed concerns about the economies of Europe as well as the quality of some Q1 results, which will begin trickling in over the coming weeks – has been bullish. That goes double for the newest entrants into the equity markets, IPOs.

We have already highlighted the warm reception that Wall Street has given the companies that have come to market so far this year. We expect that to continue next week, which is shaping up to the busiest week in tech underwriting in a long time. Splunk, Infoblox and Proofpoint are all scheduled to price their offerings next week. (The trio set preliminary ranges earlier this week. A fourth tech company, Envivio, also set its range this week but will likely be heading out later in the month.) Of the IPOs on the calendar, Splunk is all but certain to capture a disproportionate amount of attention as it steps onto Wall Street.

Splunk, which plans to trade under the ticker SPLK on the Nasdaq, will almost certainly be valued at more than $1bn on its debut. (This week, it set the range for its 13.5 million shares at $8-10 each, although we suspect that the actual price will be north of that range.) Splunk finished its most recent fiscal year (ending January 31) with $121m in sales, an 83% increase over the previous year. The growth rate for the second half of the year actually accelerated at the company, so it will hit the market with a lot of momentum. (And with four bulge-bracket bookrunners, Splunk’s performance will be trumpeted loudly across Wall Street.)

We’ll have an in-depth look at Splunk and next week’s other two IPO candidates in tonight’s Daily 451. Additionally, the report will look ahead to what’s coming in the pipeline after this trio hits the market. If anything, the second round of IPOs this year will be even hotter than this current round. Look for the special IPO report tonight.

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

Citrix consolidates collaboration

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

In its third collaboration deal in the past 18 months, Citrix Systems said Wednesday that it will acquire small Copenhagen-based startup Podio. The target provides team collaboration SaaS for SMBs, apparently mostly through a ‘freemium’ model. Its product is used for project management, social information sharing, sales lead management and employee recruitment management. It also provides related Apple iPhone and Google Android applications. But Citrix isn’t the only company consolidating in the collaboration market – its Podio buy comes at a time of record interest in this sector.

While there are many collaboration vendors in the market, Podio has a different approach – it enables users to create their own applications to carry out specific tasks. This allows teams to tweak the platform to cater to their specific needs. Citrix will integrate Podio into its GoTo cloud services suite, making it easy for existing customers to adopt the platform. Podio already integrates with Dropbox, Google Docs and Box.

Citrix isn’t disclosing terms of the acquisition, but we suspect that the three-year-old firm probably generated less than $5m in revenue. Podio claims tens of thousands of customers in 170 different countries, but the majority of them are likely only using its free product. If our revenue assumption is correct, then this deal should be considered more of ‘tech and talent’ play than anything else. Citrix traditionally pays above-average valuations, but we doubt that it paid more for Podio than the $54.2m it forked over in its last collaboration acquisition – ShareFile. The 27-employee firm had raised a total of $4.6m from Sunstone Capital, CEO Tommy Ahlers and private investors Thomas Madsen-Mygdal and Ulrik Jensen.

Beyond Citrix’s recent consolidation, the collaboration market is seeing increasing interest overall. The 451 M&A KnowledgeBase shows 79 collaboration acquisitions in 2011 – nearly double the volume in 2010 and an all-time record. Throughout the collaboration sector, some of the most notable transactions since the beginning of 2011 include Yammer buying oneDrum (announced just today), salesforce.com reaching for Manymoon and Dimdim, Citrix competitor VMware acquiring Socialcast and SlideRocket, and Jive Software picking up OffiSync (click on the links for disclosed and estimated valuations). Jive itself made its own splash in social collaboration when it went public in December. The company hit the Nasdaq at $850m and has since seen its market cap balloon to nearly $1.6bn, or 14 times projected 2012 revenue.

Citrix’s collaboration acquisitions

Date announced Target Collaboration sector Deal value
April 11, 2012 Podio Team collaboration Not disclosed
October 13, 2011 Novel Labs (aka ShareFile) File sharing & team collaboration $54.2m
December 17, 2010 Netviewer AG Web conferencing $115m

Source: 451 Research M&A KnowledgeBase; Click on the links for disclosed and estimated valuations

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