Category: investment banking

‘Acquisition in Motion’?

Brenon Daly

Contact: Brenon Daly

Instead of Research In Motion, maybe we should start calling the company ‘Acquisition In Motion.’ With Monday’s announcement of its purchase of ubitexx, the BlackBerry maker has now rung up nine acquisitions in just the past 13 months. That’s as many as the company had done, collectively, in the previous seven years. As we think about RIM’s accelerated M&A pace, we can’t help but wonder how much of that activity is essentially papering over weaknesses that were exposed by its two big smartphone rivals.

For instance, RIM needed some help on its core OS, so it went out about a year ago and spent $200m on QNX Software Systems. Then it realized that office productivity apps could stand to be displayed a bit more clearly on BlackBerry devices, so it reached for DataViz. And then there was the somewhat clunky user interface, which RIM hoped to polish with its purchase of The Astonishing Tribe in December for an estimated $125m. Those deals – along with the other half-dozen recent acquisitions – were seen as signs that RIM was getting the message that its phones just weren’t as appealing as the Apple iPhone or Google Android-powered devices.

The pickup of tiny German startup ubitexx pretty much makes that sentiment official. (That’s particularly true when we consider that the transaction came just two days after RIM reported that it will sell fewer phones than it predicted this quarter, and that the phones that do sell will be going cheaper than the company originally planned. The warning knocked RIM into a tailspin, and the stock has now shed one-third of its value over the past year.) Ubitexx allows RIM to bring mobile device management for Android and iOS smartphones and tablets to its BlackBerry Enterprise Server – a somewhat belated recognition that it isn’t just BlackBerry devices that are coming to the office these days

M&A flowers in April

Brenon Daly

Contact: Brenon Daly

The strong M&A spending continued in April, pushing the value of tech deals announced so far in 2011 to the highest level in four years. Through the first four months of the year, dealmakers have announced transactions valued at $111bn – more than the total, collectively, for the same period in the previous two years.

April came in at $26bn, the second-highest month for spending since the Credit Crisis and roughly twice the average monthly spending over the past nine months or so. The high spending in just-completed April comes after March’s $63bn of deal value, a monthly total that harkened back to the go-go days of tech M&A.

The main reason that 2011 is on track for a post-recession record level of spending is the return of the big deal. Obviously, the year-to-date totals are inflated by AT&T’s $39bn proposed cash-and-stock purchase of T-Mobile USA in March. But in addition to that transaction, which is the largest telco acquisition is a half-decade, there have been 21 other deals valued at more than $1bn so far this year. That handily tops the 10 10-digit deals in 2010, four in 2009 and 12 in 2008.

Why the confidence among the significant shoppers? We suspect that it has something to do with the fact that the Nasdaq, which is up 8% so far this year, has reclaimed the level it held in late 2007 before the Credit Crisis lopped it in half.

SuccessFactors pays a peak price for Plateau

Brenon Daly

Contact: Brenon Daly

Plateau Systems certainly got a peak price from SuccessFactors. At $290m, the cash-and-stock acquisition is the largest purchase of a privately held human capital management (HCM) vendor. In fact, the pending purchase of Plateau is larger than a half-dozen acquisitions of public HCM companies we have recorded in recent years.

Similarly, the deal – which is roughly three times more than SuccessFactors had spent, collectively, on M&A – also stands out when compared to the two most-significant transactions in the learning management software (LMS) market where Plateau does its business.

Earlier this year, private equity-backed SumTotal Systems paid an estimated $150m for GeoLearning while a half-year ago, SuccessFactors’ direct rival Taleo handed over $125m for Learn.com. Just as those two deals have a lower aggregate price than Plateau’s price, publicly traded LMS vendor Saba Software actually garners a lower valuation on the market ($270m) than Plateau is set to receive in its sale.

Echoes of Oracle in Infor’s reach for Lawson

Brenon Daly

Contact: Brenon Daly

Now that Lawson Software has agreed to a sale to Infor Global Solutions, it’s perhaps worth speculating about just how much Charles Philips learned about the art of M&A during his previous job. Philips, of course, currently serves as CEO of Infor after seven years at Oracle, which has a reputation as a (how to say it?) ‘disciplined buyer.’ The connotations of that description probably depend on which side of the table you sit on. At Oracle, the term is a compliment meaning ‘fiscally responsible’ while the view from the buyside might hold that they are ‘cheap.’

In any case, Philips’ proposed ‘take-under’ of Lawson, which got formalized on Tuesday, carries many of the hallmarks that some folks associate with deals done by his former shop: quick process, relatively low valuation and a confident ‘one-and-done’ offer. Recall that it was just six weeks ago that Infor, which is backed by Golden Gate Capital, lobbed an unsolicited offer of $11.25 per share for Lawson. And even though shares of the old-line ERP vendor traded $1 above the bid in recent weeks, Infor stuck to its original offer.

Provided the deal gets done, the acquisition marks a new era at Infor, with a new chief executive setting its course. Before Philips joined Infor last October, the consolidator had dramatically slowed its dealmaking, announcing just three deals over the previous four years. (And the recent purchases were much smaller ones at that.) Lawson stands as Infor’s largest-ever acquisition, one that will boost the company’s revenue by roughly one-third to some $3bn. Just the sort of move Oracle might have made when Philips was there.

Another marketing maker heading to market?

Brenon Daly

Contact: Brenon Daly

Will Eloqua respond to Responsys? Does the rival on-demand marketing vendor perhaps have an IPO of its own planned? We couldn’t help but wonder that last Thursday as investors showed that they could hardly get enough of the Responsys offering, which priced above range and then tacked on another 28% in its first day of trading. The IPO created some $680m in market value for Responsys.

Responsys’ rather heady valuation (roughly 7x trailing sales and 5x projected sales) undoubtedly has to have generated more than a little interest from folks at Eloqua. And the company certainly has been taking steps in recent years that could indicate that it is eyeing the public market. For instance, three years ago it moved its headquarters from Canada to the Washington DC area while also hiring a raft of senior executives, most of whom have experience at public companies.

According to our understanding, Eloqua is a bit less than one-third the size of Responsys, which generated $94m in sales last year. Also, we gather that Eloqua lags a bit behind the 40% compound annual growth rate that Responsys has put up over the past half-decade. Still, the company offers a fairly compelling profile, with predictable subscription revenue flowing from its more than 800 customers. The strong debut from Responsys, plus the fact that shares of fellow on-demand marketer Constant Contact are trading around all-time highs, clearly suggest that Wall Street is in the market for marketing vendors.

A warm welcome on Wall Street

Brenon Daly

Contact: Brenon Daly

Against a backdrop that has the major stock market indexes at their highest level in about three years, investors have apparently signaled that they are ready to take a chance again on new issues. A pair of IPOs came to market Thursday at significantly higher-than-expected prices, and promptly surged in aftermarket trading. Collectively, the offerings for Responsys and 21Vianet raised a healthy $274m for the two companies.

In the hotter of the two IPOs, Chinese hosting company 21Vianet Group sold 13 million American Depository Shares at $15 each. (That raised $195m for the company, half again as much money as it originally planned to raise based on the midpoint of its initial range.) In the aftermarket, shares were changing hands at about $21 each. (We’ll have a full report on the company and its outlook in tonight’s Daily 451.)

Meanwhile, on-demand marketing software vendor Responsys also found a warm welcome on Wall Street. The offering, which we expected to be strong, raised $79m for Responsys. The company priced its 6.6-million-share offering at $12 each, roughly 30% above the midpoint of the initial range. Investors bid up the stock to about $15.50 in afternoon trading. With 44.1 million shares outstanding, Responsys garners a value of some $680m, slightly more than 7 times 2010 sales and almost 5x our projection for 2011 sales.

A responsible debut valuation for Responsys

Brenon Daly

Contact: Brenon Daly

Reversing a trend that has seen many of the major marketing software providers disappear inside larger players, Responsys is ready to step out onto the public market. The on-demand company, which filed its IPO paperwork just four months ago, plans to sell 6.6 million shares at $8.50-10 each. It is likely to begin trading Thursday. (See our full preview of the offering.)

At the high end of the range, Responsys would be valued at roughly $450m. That appears to be a fairly conservative valuation, at least when compared with recent acquisitions and even current trading multiples in the sector. We might suggest that Responsys – a company that’s solidly in the black and posting 40% growth – would garner a premium on its debut.

If it does indeed hit the market in the neighborhood of a half-billion dollars, Responsys will essentially match the exit prices over the past eight months of two of its main rivals. Last August, Unica got taken out by IBM for $523m (equity value), while Aprimo sold to Teradata for $525m in December. However, when we compare the three vendors, Responsys is growing at more than twice the rate of either of the two companies that went in a trade sale. (Aprimo had been on file to go public back in 2007, but the Credit Crisis scotched those plans.)

Despite the premium that we might expect for Responsys’ growth rate, the company is likely to start life on the Nasdaq at about 5.5 times trailing sales, roughly the midpoint of the valuations in the sales of Unica and Aprimo. Further, it would just match the current market valuation of Constant Contact, a low-end multichannel marketing firm that went public in October 2007.

Oracle: The giant moves quietly in M&A

Brenon Daly

Contact: Brenon Daly

For a giant of a company, Oracle certainly strikes quietly when it moves to pick up some companies. Consider its latest purchase, the as-yet-unannounced acquisition of data-quality vendor Datanomic. Although Oracle hasn’t formally announced the purchase, the company does have it listed on its Web page for acquisitions. (That listing followed speculation by several market sources last week that Oracle had indeed sealed the deal.)

Oracle has already shown that it is ready to spend to buy in the data-quality market. A little more than a year ago, Oracle reached for Silver Creek Systems, an OEM partner that provided product-oriented data quality. Shortly after that transaction was announced, my colleague Krishna Roy speculated that Datanomic might be the next data-quality-related vendor to get snapped up, highlighting both Oracle and IBM as possible buyers for the UK-based company. We believe that Big Blue did look at Datanomic, which it considered a nice complement to the business it got when it bought Initiate Systems in early 2010. (Initiate had an OEM arrangement with Datanomic.)

Fittingly for a deal that wasn’t really announced, financials also weren’t revealed. Our understanding is that Datanomic had been posting strong growth recently, increasing revenue some 60% last year to about $15m. That rate, combined with the fact that there were undoubtedly other large bidders for Datanomic, make us absolutely confident that this transaction is significantly larger than Oracle’s related purchase of Silver Creek, which we estimate went off at $40m or so. In fact, we wouldn’t be surprised to hear that it was in the neighborhood of twice that amount.

TI-NatSemi: Large and analog

Brenon Daly

Contact: Brenon Daly

The fragmented market for makers of analog integrated circuits looks a whole less scattered now that Texas Instruments has reached for National Semiconductor. Already the largest analog vendor, TI will have some 17% of the market provided its $6.5bn all-cash offer for NatSemi closes later this year. (If it can’t close the deal, for whatever reason, TI faces a $350m reverse breakup fee, while NatSemi would have to pay a $200m termination fee.)

As it stands, the pending purchase of NatSemi would be the third-largest semiconductor deal, but the single largest by a non-financial buyer. Recall that in the pre-Credit Crisis days of 2006, buyout consortiums took Freescale Semiconductor private in a $17.6bn buyout while another private equity (PE) club carved the semiconductor business out of Royal Philips Electronics. Given the travails that the Freescale LBO has faced over the past half-decade, we suspect that PE shops won’t be looking to do any buyouts that big anytime soon.

Epiq’s expensive e-discovery deal

Brenon Daly

Contact: Brenon Daly

Announcing the largest e-discovery deal in some three-and-a-half years, Epiq Systems said earlier this week that it will borrow $100m to acquire Encore Discovery Solutions, a service provider for law firms. (My colleague Nick Patience has the full details on the acquisition.) The rationale is fairly straightforward: Epiq wanted to shore up its presence in the western US, so it reached for Phoenix-based Encore. That sort of geographic consolidation happens all the time – but it rarely happens at the kind of valuation that Epiq is paying in its services play.

Encore had generated some $40m in revenue, according to Epiq, meaning it’s trading at 2.5 times sales. That’s a fairly high multiple for a services shop, which typically have lumpy – and concentrated – revenue. (That goes double for a market like e-discovery that is largely driven by unpredictable events like lawsuits.) Unlike Epiq, Encore didn’t have its own e-discovery software, instead licensing it from other vendors. Clearly, however, the lack of IP didn’t hurt Encore’s price.

More representative of the e-discovery market is probably Unify Corp’s purchase last summer of Daegis. Unify paid $37.5m, or 1.6x sales, for Daegis, which generates about half of its sales from tools and the other half from associated services. But from Epiq’s view, the purchase of Encore sets up a relatively low threshold for a return (it is borrowing at around 3.5%) and adds bulk to a business that has a fair amount of momentum. Epiq said recently that its e-discovery business has posted five straight quarters of growth, finishing 2010 with sales at the unit up 45% to a record $81m.