Category: investment banking

Same old, same old at Novell?

Brenon Daly

Contact: Brenon Daly

Ever since hedge fund Elliott Associates put Novell in play five months ago, we’ve said that the company was going to be a tough sell. It’s a mixed bag of businesses, both in terms of what those businesses sell and how they perform. (Or rather, how those businesses underperform, as we were reminded by Novell’s warning earlier this week about third-quarter results. If nothing else, that kept alive Novell’s streak – it also came up short in the two quarters leading up to Elliott’s run at the company.)

Undoubtedly, Novell – an underperforming company that nonetheless found its treasury stuffed with more than $1bn of cash – offered an easy target for the gadfly investor. But having that agitation turn into an acquisition is proving much more difficult. (We recently took an in-depth look at Novell, as well as the specific business lines and which suitors might be eyeing them, in a special report.)

While the process initially attracted a number of parties, we understand that there are only three left at the table: a private equity-backed company, a UK-based PE firm and a joint bid between a publicly traded tech company and a buyout shop. It’s not clear that any of the three will actually close a deal for Novell. (The process has already run past two deadlines, we gather.) Without a deal, shares of Novell would be left to trade on the company’s own merits, which probably wouldn’t do much for shareholder value.

Novell timeline

Date Event
March 2, 2010 Elliott Associates launches unsolicited bid of $5.75 per share, or $2bn equity value
March 20, 2010 Novell board rejects Elliott’s bid, retains JP Morgan Securities to explore alternatives

Source: The 451 M&A KnowledgeBase

Strategic ardor for Arbor

Brenon Daly

Contact: Brenon Daly

In yet another sign that private equity (PE) still hasn’t recovered to the level that the buyout barons enjoyed in the halcyon days before the Credit Crisis, consider the process around Arbor Networks. The network security and monitoring vendor had many of the characteristics that would typically appeal to a PE shop: a mature company that was running at about $100m, with EBITDA margins approaching the mid-teens, according to our understanding. Along with the decent cash generation, 10-year-old Arbor was also growing, targeting about 20% expansion for 2011.

Even though some half-dozen PE firms looked at Arbor, the company ended up going to a strategic acquirer, Tektronix. (See our full report on the deal, which wasn’t the most intuitive pairing we could have come up with for Arbor. That said, as my colleague Andrew Hay notes in the report, the acquisition of Arbor gives Tektronix a way to couple its network diagnostics and management of fixed, mobile, IP and converged multiservice networks with security and threat mitigation products.)

So while the portfolio expansion certainly makes sense for Tektronix, there’s also the interesting side note that, in this case, a strategic buyer is outbidding would-be financial acquirers. Further, that’s largely without relying on so-called ‘synergies,’ or cost savings from cutting duplicative operations at the acquired company to effectively lower the valuation for a corporation. (The reason: Tektronix is basically absorbing all of Arbor, running it as a stand-alone business.) That sort of corporate dealmaking is a far cry from three years ago, when the low cost of capital sometimes allowed PE firms to outbid companies, even when a not-insignificant amount of synergies figured into the deal.

Private equity activity

Period Deal volume Deal value
Jan. 1-Aug. 10, 2010 170 $18.4bn
Jan. 1-Aug. 10, 2009 170 $3.8bn
Jan. 1-Aug. 10, 2008 158 $18.3bn
Jan. 1-Aug. 10, 2007 209 $109.7bn
Jan. 1-Aug. 10, 2006 189 $53bn

Source: The 451 M&A KnowledgeBase

McAfee doubles down with tenCube

Contact: Jarrett Streebin

McAfee recently made its second purchase this year in the mobile security field, picking up tenCube. The Singapore-based startup’s applications provide backup and restore for select data, device tracking, as well as remote lock and wipe for Android, BlackBerry, Symbian and Windows Mobile smartphones. Combined with McAfee’s recent acquisition of Trust Digital, recently disclosed in an SEC filing as a $33m purchase, the two deals help provide the largest stand-alone security company with the ability to secure and manage both consumer and enterprise smartphones.

Although mobile hacking is increasing, the several levels of control present in the devices and networks have prevented a major outbreak of malware infections. But due to the rapid expansion of mobile traffic, as well as the amount of sensitive information stored on and sent by these devices, the likelihood of such attacks is increasing. McAfee is well aware of these threats and has been expanding its offerings since its purchase of SafeBoot in 2007. Then, in May it purchased Santa Clara-based startup Trust Digital, providing McAfee with a robust set of Enterprise Mobility Management tools to help manage smartphones on employer networks. Now with tenCube, McAfee adds WaveSecure, the leading device security application for Android phones. WaveSecure is also offered on most other mobile operating systems, providing McAfee with a complete suite to sell to carriers and OEMs.

To say that mobile security has been a hot space recently would be an understatement. TenCube was the most recent of seven acquisitions this year – up from zero in all of last year and only one the year before. Although McAfee gets one of the best device security application makers with tenCube, there are still others left on the market. It’s likely that we’ll see tenCube’s competitors SmrtGuard and Lookout Inc, as well as other mobile device management players like Conceivium, BoxTone, MobileIron and Zenprise, attract M&A attention in the future as more players look to enter the mobile market or strengthen current offerings. Look for our full report in tonight’s MIS sendout.

IntraLinks limps onto the market

Brenon Daly

Contact: Brenon Daly

It turns out that the third time is not the charm for IntraLinks, at least not in terms of its initial valuation as a public company. IntraLinks cut the price for the 11 million shares it is selling to $13 each, down from the $14-16 range it had set. That means the company is raising $143m, some $22m less than it would have if it priced at the midpoint of its initial range. That’s a key consideration because unprofitable IntraLinks was counting on the IPO proceeds to help it pay down debt.

But at least it did manage to get public, unlike the times it filed back in 2000 and 2005. We recently noted how much more grown up IntraLinks looks now compared to its earlier S-1s. One kicker: when it originally filed in 2000, the company ran at negative gross margins compared to the fairly respectable 65% it notched in 2009. Although IntraLinks still isn’t printing black numbers, it’s come a long way from 2000, when it lost five times more money than it even brought in as revenue.

The weaker-than-expected pricing continues a trend that we’ve seen in most tech offerings so far this year: Motricity, Broadsoft, TeleNav, Convio and others have all priced below their range – and all of them are trading lower in the aftermarket. (The one exception to this weakness is QlikTech. The offering, which we indicated would be a hot one, priced above its range at $10, and is now trading at $15.) For its part, IntraLinks first traded at $13 and basically stuck around that level in its debut.

Shopping hard in the City of Light

Brenon Daly

Contact:  Brenon Daly

On its visit to Paris, Francisco Partners brought home more than just a miniature souvenir Eiffel Tower. In the past week, the buyout shop has announced not one but two $100m deals struck in the French capital. Francisco’s unusual double dip comes at a time when the dollar, which had been at multiyear highs against the euro earlier in 2010, has slumped in recent weeks. (We recently looked at the trade winds blowing across the Atlantic.)

For Francisco, the transactions would help restock its European holdings. The buyout shop sold Swiss chip company Numonyx to Micron Technology for $1.3bn in May. In its first deal, Francisco put forward a $100m offer for the Grass Valley Broadcast business, which is being divested by Paris-based Technicolor. (The actual Grass Valley Broadcast business operates in central California, an ocean away from The City of Light.) In probably the more interesting move, Francisco picked up a majority stake in on-demand email marketing company Emailvision. The purchase gave Emailvision, which was advised by Pacific Crest Securities, a fully diluted equity value of about $109m.

Signal Hill draws a bead on Updata

Brenon Daly

Contact: Brenon Daly

The aftershocks just keep reverberating across the tech banking landscape. Three months after Stifel Financial acquired midmarket bank Thomas Weisel Partners, another non-tech bank has used M&A to build up its tech advisory practice. On Tuesday, Signal Hill announced that it has purchased Updata Advisors, with all six of Updata’s bankers joining the Baltimore-based firm that has its roots in Alex. Brown.

The deal marks the fourth acquisition of a bank with at least one tech advisory credit so far in 2010. That compares to just six acquisitions in all of 2009. However, this year’s activity trails the massive consolidation we saw during the Wall Street turmoil of 2008, when no less than 14 banks – ranging from boutiques to multibillion-dollar financial giants – got snapped up.

Financial terms weren’t disclosed. But we understand that Updata’s partners rolled over their equity into Signal Hill and now hold a minority stake in the bank. Talks between the two sides played out rather quickly, just over the past three months or so. The firms are neighbors, and are relatively well-known along the mid-Atlantic seaboard. (To be clear, Updata Advisors – the M&A wing of Updata – will be moving under the Signal Hill brand, while the investment arm, Updata Partners, will continue doing business on its own.)

For Updata, the deal comes at a time when it has rung up a fair number of recent advisory credits. The boutique has five prints so far this year, including advising ChosenSecurity on its sale to PGP and PurchasingNet’s sale to Versata. Last year, Updata had sole buyside credit for Compuware’s $295m purchase of Gomez. Overall on our league table, Updata ranked 16th in 2009 and 10th in 2008 in terms of number of advised transactions.

Buying and selling at Disney 2.0

Contact: Jarrett Streebin

If we look at the recent M&A moves by Disney, it’s clear what the media giant sees as its future. Just today, Disney divested its Miramax division, only days after its $563m purchase of social gaming startup Playdom. Taken together, these deals show that 86-year-old Disney is leaving the box office behind and betting big on social gaming.

Earlier this month, Disney bought its first social gaming company, Tapulous. The 30-person startup based in Palo Alto, California, specializes in mobile social games for Apple iPhone and Google Android devices. Playdom, which specializes in online social games, rounds out Disney’s offerings and provides it with roughly 38 million users, according to Playdom’s website. Combined, it’s likely that Disney will use Tapulous and Playdom to push its signature brands such as Marvel Comics, Pixar and ESPN to both mobile and online audiences.

It’s clear that Disney is recognizing what the rest of the industry has already seen: it has to buy its way into this market. Internet gaming acquisitions have gone through the roof this year. The 40 transactions year-to-date is more than twice the number (17) during the same period last year. Disney isn’t the only major buyer in the space, though. Playdom had inked a half-dozen deals of its own, and Electronic Arts dropped $300m on Playfish late last year, as well as reaching for IronMonkey Studios and J2Play within the last 12 months. The business of social games, although once stratified by a coterie of geeky developers, is quickly being consolidated by the major media and entertainment players.

SonicWALL’s big-ticket buyout

Brenon Daly

Contact: Brenon Daly

The recently closed leveraged buyout (LBO) of SonicWALL represents the largest straight take-private of a technology company so far this year. Thoma Bravo announced the deal, which has an equity value of $717m, back in early June and shareholders gave the LBO their blessing on Friday. The bid of $11.50 for each share stood as the highest price for SonicWALL shares since 2002. The close came only after an unidentified bidder – which some observers suspect may have been the ever-aggressive Barracuda Networks – stepped out of the process.

While other private equity (PE) shops have handed over bigger checks so far this year than the one Thoma Bravo is writing for SonicWALL, the buyout of the unified threat management vendor is the most money that a single firm has spent to take a public company off the market in 2010. Other large deals have involved either carve-outs (IDC, for instance, was majority owned by Pearson), secondary transactions (Hellman & Friedman’s flip of Vertafore to TPG Capital) or club deals (the consortium buyout of SkillSoft, as well as IDC).

The big-ticket buyouts of SonicWALL and other companies have helped push PE activity so far this year to essentially where it was in 2008. PE spending in the first two quarters of 2010 hit $14bn, just a shade under the $16bn we tallied in 2008 but a dramatic rebound over the paltry $2bn we saw in the first half of last year. The seven-fold increase in spending by buyout shops so far in 2010 has vastly outpaced the broad M&A market, which is basically running at twice the spending of the same time in recession-wracked 2009. See our full report on first-half tech M&A activity.

Tech M&A strikes back

Contact: Jarrett Streebin

As we pointed out in a recent webinar, 2010 is shaping up to be a great year for tech M&A. With year-to-date acquisition activity already surpassing last year’s total value and number of deals, it appears as though most companies were just sitting out the storm until it was time to start buying again.

The same trend in M&A can be seen in our annual AlwaysOn study. Each year before the AlwaysOn Summit at Stanford, we do a breakdown on companies that have been selected to the AO Global 250. This year’s uptick was even more pronounced for firms selected by AlwaysOn. The median revenue multiple for AO companies was 5.2, compared with only 1.5 for tech M&A as a whole. This was based on the incredibly high volume of AO companies bought. From August 2009 to early July, there were 37 exits by AO companies, more than in any other 12-month period before. There was also the second-most total spending, with more than $5.6bn spent.

Some of the more notable exits were AdMob by Google, Greenplum by EMC and Cast Iron Systems by IBM. Google, EMC and IBM were some of the most acquisitive players this year, with each buying three AO companies. They cast their votes in the most meaningful way – by reaching for their wallets.

Apple maps collision course with Google

Contact: Jarrett Streebin

Marking its second purchase of a mapping company in just nine months, Apple reportedly reached for startup Poly9 Group last week. Not much is known about Quebec City-based Poly9, which makes interactive 3-D software. (And not much can be gleaned from the company’s website, which no longer loads.)

Apple’s latest acquisition comes on the heels of its pickup of Placebase last October. The Los Angeles-based startup, which had been bootstrapped, specialized in maps similar to Google Maps but with more customization. With Poly9, Apple adds 3-D mapping capabilities that are comparable to Google Earth. Currently, Apple phones use Google Maps for mapping – but we can only assume that’s going to change once Apple rolls out these features.

Of course, this is just another area where the two once-friendly tech giants are finding themselves in competition with one another. And it’s not the first time that M&A has figured into the fight. Back in January, after losing the bidding war with Google for mobile advertising startup AdMob, Apple turned around and bought Quattro Wireless. Since then, Apple has rolled out its own mobile advertising platform, iAd. Apple’s expansion into mapping will definitely help its advertising efforts as mobile ads become increasingly targeted to a user’s exact location. With Apple and Google, which each hold some $30bn in cash, both targeting some of the same markets, we suspect they’ll be bumping into each other in future deals as well.