Category: investment banking

Rakuten buys beyond Asia

Contact: Jarrett Streebin

Japanese companies have never been known as serial acquirers, but Rakuten is certainly doing its best to stay busy. In each of the past two months, the Japanese conglomerate, which has a significant online retail operation, has spent a quarter-billion dollars in an effort to build up its Web retailing business. The deals represent significant bets by Rakuten to expand into new markets around the globe.

In its most recent acquisition, Rakuten said it will pay $245m for French e-tailerPriceMinister. According to one report, the purchase valued the 10-year-old target at 4 times trailing revenue and 24x trailing cash flow. The transaction comes one month after Rakuten said it will pay $250m in cash for Buy.com.

The deals make sense from a strategic view: Both Buy.com and PriceMinister are similar to Rakuten in that they act as aggregators for online shopping, connecting thousands of merchants to consumers. But these are Rakuten’s first significant steps toward expanding its online retail business outside of Asia. (It did make a sizable purchase of a New York City-based company, LinkShare, in September 2005, but that was primarily for sales and marketing analytics, rather than a consolidation move.) In the past, Rakuten has used joint ventures and acquisitions to expand its online retail capabilities in China, Indonesia, Taiwan and Thailand. And, we would add, the company still has the equivalent of hundreds of millions of dollars for shopping in other markets.

Cablevision breaks the mold with Bresnan acquisition

Ben Kolada

Contact: Ben Kolada

Marking a significant departure from its recent practice, Cablevision Systems said last week that it would hand over almost $1.4bn in cash and stock for Bresnan Communications. The deal by the Dolan gang is their first major telecom acquisition since they picked up a portion of Tele-Communications in 1998. And they certainly paid up for Bresnan.

Cablevision’s offer values Bresnan at about 3.4 times trailing revenue and just over 8x projected 2010 cash flow, according to our understanding. On a per-subscriber basis, the acquirer is paying $4,500 a head. Across the board, that’s a far richer valuation – in some cases, twice as rich – than fellow telco RCN got in its take-private in March. Buyout shop ABRY Partners paid $1.2bn for RCN, or roughly 1.6x trailing revenue (on an enterprise value basis) and $2,800 per subscriber.

Given the size of this deal, along with the fact that Cablevision used equity in the purchase, we don’t expect the Bresnan transaction to signal the beginning of a shopping spree. Indeed, Cablevision executives maintain that they are not looking for additional properties. After all, Cablevision doesn’t need to buy more systems – the Tele-Communications acquisition gave it sufficient economies of scale. The Bresnan buy is simply a rare opportunity to obtain upgraded systems with strong growth potential.

M&A: Cable comparison

Date announced
 Acquirer Target Deal value Price-to-sales multiple
March 5, 2010 ABRY Partners RCN $1.2bn 1.6
June 14, 2010 Cablevision Systems Bresnan Communications $1.4bn 3.4*

Source: The 451 M&A KnowledgeBase *451 Group Estimate

Twitter’s tiny transactions

1 Comment

Contact: Jarrett Streebin

Even though it’s one of the biggest properties on the Web, Twitter has only done small deals. Over the last two years, it has been steadily strengthening its platform with small acquisitions. The pace has picked up notably in the past half-year, with Twitter announcing four purchases in that time. Thanks to its shopping spree, the company has added search capabilities, location to tweets and mobile capabilities via an iPhone app and an SMS service.

Twitter’s latest move, the acquisition of Smallthought Systems earlier this month, continues the trend of tiny technology transactions. The target’s main offering is Dabble DB, which provides database software for managing large pools of data. At a rate of 65 million tweets per day, Twitter is overflowing with data. We see the Dabble DB buy as an effort to bolster the vendor’s still-nascent attempt to actually ring up some sales.

Twitter recently rolled out promoted tweets, through which advertisers will be able to place ads on the site. Along with its deal with Google, this is one of the firm’s first attempts at revenue. Smallthought’s Dabble DB should help Twitter to manage and interpret the massive amounts of user data, which should lead to better ad targeting. In that way, the deal flow at Twitter makes sense. The company’s first few buys were about building up its service and broadening its base of users. Now, it’s time to make money.

The Motricity monstrosity

Brenon Daly1 Comment

Contact: Brenon Daly

Pulled prospectuses, cut terms and broken issues – it’s a singularly poor time for any company to go public. We’ve already chronicled the dispiriting ‘new normal’ for IPOs, with smaller offerings and lower valuations. But just when it seemed that the IPO market couldn’t sink any further, along came Motricity’s offering.

The debut last Friday from the mobile data platform provider had to be trimmed, both in the number of shares and the price. Originally, Motricity planned to sell 6.75 million shares at $14-$16 each. At the midpoint of the range, that would have netted the unprofitable company, which has rung up a total deficit of some $313m, about $100m.

Instead, Motricity managed to raise just half that amount. It ended up selling just five million shares at $10 each, raising just $50m. Since then, the newly public shares been underwater, having only changed hands in the single digits. How bad is that? Consider this: Motricity’s valuation as a public company ($350m) is less than the amount of money that it raised as a private company.

Is SafeNet looking to secure an IPO?

Brenon Daly

Contact: Brenon Daly

A little more than three years after it went private, SafeNet is looking to return to the public market. Several sources have indicated that the encryption vendor has lined up its underwriters and plans to file an S-1 in about two weeks. If indeed the offering goes ahead, it will face a market that is proving rather hostile to IPOs right now. (We recently looked at the dreary state of the IPO market in a special report.)

Through both organic and inorganic growth, the SafeNet that returns to the market will be about half the size of the one that stepped off the market. We understand that the company is running at about $450m in revenue, compared to about $300m in revenue in the year leading up to its leveraged buyout. While private, SafeNet did a handful of small deals as well as the contentious $160m take-private of Aladdin Knowledge Systems.

An IPO would mark a second straight exit for SafeNet’s owner, Vector Capital. The buyout shop sold its Register.com portfolio company last week, realizing a return of two and a half times its investment. Vector took the Web registration and design firm private in 2005, pared down the business, made it dramatically more profitable and then sold it to Web.com.

Also noteworthy about the rumored IPO by SafeNet is that the offering is being handled entirely by bulge-bracket banks. The book-runners are said to be JP Morgan Securities, Morgan Stanley and Goldman Sachs, with the offering co-managed by Bank of America Merrill Lynch and Deutsche Bank. Off the top of our heads, that’s the first tech IPO that we can think of that doesn’t have a regional or boutique bank also helping to bring out a company.

LANDesk nearly done

Brenon Daly

Contact: Brenon Daly

After a nearly half-year process, Emerson Electric is close to having LANDesk off its books. Emerson, which picked up the systems management vendor when it acquired Avocent for $1.2bn last fall, classifies LANDesk as a ‘discontinued operation’ and hired Greenhill & Co to advise it on the divestiture. We understand that final bids are being submitted right now, and a deal announcement is expected in two weeks or so.

Although it’s unclear who will end up with LANDesk, several sources have indicated that the buyer is likely to be another company, rather than a buyout shop. (Corporate castoffs often land in the portfolios of PE firms for a period of ‘rehabilitation’ before being snapped up by another company. Indeed, that was the path for LANDesk, which was sold off by Intel in 2002 to a pair of PE buyers, Vector Capital and VSpring Capital, before being bought four years later by Avocent.) Of course, a PE buyer could pair the LANDesk property with an existing portfolio company to enjoy some of the cost savings that generally allow strategic buyers to outbid pure financial buyers.

In an earlier report, my colleague Dennis Callaghan highlighted a few potential buyers for LANDesk, including virtualization vendors, hardware companies and security firms. However, we understand that the obvious suitors in those sectors are no longer in the process: VMware and Lenovo, both of which have key partnerships with LANDesk, are said to have moved on.

Another corporate buyer that we can scratch off the list? Novell. Apparently, the company was aggressively courting LANDesk early in the process, including offering a rumored high price in exchange for exclusivity. Of course, Novell has other issues to contend with, and may well be a seller of the overall company rather than a buyer of other assets.

A potential quarter-billion dollar M&A hangover for JDA

Brenon Daly1 Comment

Contact: Brenon Daly

The cost of JDA Software’s purchase of i2 Technologies just got a lot steeper. A jury has found that i2 software failed to do what it was supposed to do for department store chain Dillard’s. The case goes back a decade, long before JDA picked up the supply chain vendor. (The $568m acquisition, which we called a buyout-style play, closed in December 2009 after a very rocky process that played out during the depth of the credit crisis.)

As part of its decision, the jury awarded Dillard’s a whopping $246m: $8m of that for direct damages and $238m in punitive damages. JDA says it will appeal the verdict. Regardless of outcome – and how much JDA has to pay – the company has already lost in the court of Wall Street. Investors sliced $215m, or 20%, off JDA’s valuation on June 16. (Shares of the supply chain management vendor are now changing hands at about 10% lower than they were when the deal closed, compared to a 5% gain in the Nasdaq over the same period.)

With JDA on the hook for a quarter-billion dollars (at least potentially) because of legal problems at an acquired company, it joins a dubious list of buyers that have gotten burned. Most notably, SAP picked up software maintenance provider TomorrowNow in early 2005 as a way to siphon off some of the rich maintenance stream that Oracle collects for supporting its application. Oracle sued SAP, alleging that TomorrowNow illegally downloaded information about Oracle’s support program ‘and then used that data to service its own customers.’ SAP has since shuttered the division. It looks likely that the Oracle-SAP case will go to trial later this year.

IBM analyses Coremetrics, makes a deal

Brenon Daly

Contact: Brenon Daly

We were close on our earlier rumor-mongering on Coremetrics, but tapped the wrong buyer. Four months ago, we heard that the Web analytics firms was in play and had retained Goldman Sachs to represent it. (And, indeed, Goldman did advise Coremetrics in the process.) On June 15, IBM said it was picking up Coremetrics for an undisclosed amount. Originally, we thought salesforce.com made the most sense as the buyer for Coremetrics.

It’s not hard to imagine that IBM’s desire for Coremetrics increased significantly after its two most-recent acquisitions, Sterling Commerce and Cast Iron Systems. For instance, Coremetrics would give much more insight into the activities on the business-to-business network that Big Blue picked up three weeks ago when it paid $1.4bn for Sterling Commerce. Coremetrics has some 2,100 customers.

Even with this deal done, we still think Coremetrics would have been a natural fit for salesforce.com, and would have given a significant boost to the company’s effort to diversify from its legacy sales force automation (SFA) business. Sales of that product still account for two-thirds of overall company revenue.

Salesforce.com recently indicated it was willing to go shopping to increase its non-SFA business, reaching for business directory provider Jigsaw Data. At $142m in cash, the price of Jigsaw was more than salesforce.com spent, collectively, on its previous seven acquisitions. Who knows, maybe salesforce.com will turn to fellow analytics firm Webtrends, which is owned by buyout shop Francisco Partners. Incidentally, one of Francisco’s founding partners, Sandy Robertson, serves on salesforce.com’s board of directors.

Securing a busy time for M&A

Brenon Daly

Contact: Brenon Daly

Overall M&A is nowhere near the level it was in the boom days of 2007, but there is one sector where deal makers are actually more active than ever: IT security. So far this year, we’ve tallied 45 security acquisitions with an aggregate deal value of some $5.4bn. That is substantially higher than the same period in the previous two years, when the recession knocked M&A into a tailspin.

This year’s level of security M&A is even higher than the $3.7bn spent on 44 deals that we recorded in the same period in 2007, which was a record year for tech acquisitions. The activity in the sector stands out even more when we consider that, overall, deal makers have spent a total of just $80bn on transactions across all sectors so far this year – just one-third the level of spending at this point in 2007.

Perhaps the single biggest reason for the jump in spending so far this year has been the return to the market of Symantec. On its own, Big Yellow accounts for about one-third of the total shopping bill in the sector, having announced four deals valued at nearly $1.7bn in 2010. Included in that quartet of purchases is the pick-up of the identity and authentication business from VeriSign, which was Symantec’s largest single transaction since its misguided purchase of storage company Veritas Software in December 2004. It also announced a pair of deals for encryption vendors in a single day in April.

The other security deal this year we’d highlight is the planned take-private of SonicWALL. With an equity value of $717m, that’s the largest security LBO we’ve seen in some time. (For comparison, a year ago, the same buyout shop, Thoma Bravo, took digital identity firm Entrust private in a deal valued at just $124m.) Add in other smaller deals by McAfee, EMC, Oracle and Check Point Software, and the security M&A market has been busy this year. Given the strength of the sector and the broad base of buyers, we expect activity to remain brisk for the rest of 2010.

Security M&A

Period Deal volume Deal value
Jan. 1 – June 14, 2010 45 $5.4bn
Jan. 1 – June 14, 2009 33 $381m
Jan. 1 – June 14, 2008 35 $648m
Jan. 1 – June 14, 2007 44 $3.7bn

Source: The 451 M&A KnowledgeBase

HTC bids on mobile ads

Contact: Jarrett Streebin

In the shadow cast by Apple’s iPhone 4 release, HTC’s purchase of Paris-based Abaxiaon Monday went largely unnoticed. Granted, it was a small deal, costing HTC just $13m. But it has the potential to be a big deal, since it bolsters HTC’s offering in the emerging mobile advertising market.

Abaxia, which has worked with HTC since 2001, offers a cross-platform UI for idle screens. HTC already has a UI called the HTC Sense that sits on top of Google’s Android OS. The Taiwanese device vendor has incorporated its own custom applications and some MDM capabilities into Sense. While similar, Abaxia offers a platform for pushing mobile advertising to idle screens. This acquisition provides HTC a modest entry into an area that Apple has already staked out with its iAd product.

Although HTC entered the North American and European markets as a white-label device for carriers, its advanced devices and early support for Android have boosted the value of its brand. Customers have been snapping up the phones, with both Verizon and Sprint reporting they have sold out of some HTC devices. The Droid Incredible and EVO 4G are the strongest competition to Apple’s iPhone 4, which means they are also comparable ad delivery platforms. Now that HTC has proved it can compete with Apple devices, it’s time to take on Apple’s iAd.