Category: investment banking

QlikTech looks likely to click on the market

Brenon Daly

Contact: Brenon Daly

Even though the public market has been fairly choppy lately, there seems to be no shortage of companies willing to step into the uncertain waters. We’ve seen a number of recent IPO filings, as companies get their final 2009 numbers in order and look ahead to a possible summer offering. The problem is that few of the would-be debutants actually look all that attractive. Included in the current lineup of IPO candidates are a deeply money-losing company that will stay in the red for at least the next two years (Tesla Motors) and a barely baked company that generated a grand total of $36,000 in revenue last year (Vringo).

Those IPO candidates, along with most of the rest of the recent vintage, hardly approach the caliber of offerings of SolarWinds and Fortinet, among other companies that made it public last year. But we understand that may be about to change as rumors indicate that one of the stronger private tech companies has set its underwriting lineup. QlikTech has picked bankers and will look to put in its IPO paperwork shortly, according to several sources. (Morgan Stanley, CitiGroup and JPMorgan will reportedly be running the books on the offering.)

We noted a possible future offering more than two years ago, coming off a year when the analytics provider increased revenue 80% to $80m. QlikTech followed that up with $120m in revenue for 2008, and we understand that the vendor actually boosted its top line again in 2009. If indeed QlikTech does file its S1 and eventually manages to go public, it will help to replenish a bit of the market that got picked over pretty thoroughly. Recall the shopping spree by tech giants back in 2007 that saw BI vendors Hyperion Solutions, Business Objects and Cognos all get erased from the public markets. The collective tab for that BI shopping spree: $15bn.

Will Google land On2?

Brenon Daly

Contact: Brenon Daly

At this rate, Google may never again go shopping on the public market. Its contentious reach for On2 Technologies, which has been bogged down for a half-year, will come to some kind of resolution after the close of the market today, with shareholders of the video compression software vendor set to vote on Google’s $136m offer. While Google has acquired nearly 50 companies in its history, the proposed purchase of Amex-listed On2 is the first time the search giant has bid for a public company.

When Google initially announced the planned purchase back in early August, it said it hoped to close the deal in the fourth quarter. (As an aside, we’d note that since the original announcement, Google has picked up six private companies, all of them without the drama that has surrounded the proposed On2 acquisition.) The target deadline came and went, and then in early January, Google said it was adding a cash kicker to its original all-equity bid for On2.

Google’s first offer of roughly $106m of its shares for On2 hadn’t drawn enough support from On2’s shareholders. So, the deep-pocketed buyer reached a bit deeper into its pockets to add a $26m all-cash sweetener. Google says the $136m bid is its ‘final’ offer. On2’s board of directors, as well as the three main proxy advisory firms, have all urged the vendor’s shareholders to vote for Google’s proposed purchase this afternoon.

Autonomy and Art Technology: Lower after raising

Brenon Daly

Contact: Brenon Daly

There’s money, and then there’s expensive money. To underscore the difference, consider a pair of recent money-raising offerings from notably acquisitive companies. First, the worst. Art Technology Group announced earlier this month that it intended to hold a 25-million-share secondary, with an undisclosed portion of it earmarked for possible acquisitions. The plan didn’t find many fans on Wall Street, who carped about a profitable company adding 25 million additional shares on top of a base of about 135 million.

Art Technology shares promptly went into a tailspin. By the time the e-commerce firm had priced them, investors had clipped 22% off the stock. So instead of raising about $113m, the vendor had to settle for $88m (excluding overallotments). Even though Art Technology had to take a haircut on the secondary, it did at least get it done. With it, the debt-free company more than doubled the amount of cash it has on hand and could be a serious consolidator in the market. Already this year, Art Technology made a rather smart purchase of InstantService, a startup providing customer service through online chat and email.

And, although the reaction wasn’t nearly as severe, Autonomy Corp also took a mild hit from its investors when it announced plans to raise some $785m in a convertible offering last week. Adding those proceeds into its already well-stocked treasury will give Autonomy more than $1bn to go shopping with, although some of that will have to go to pay for its earlier Interwoven acquisition. Over the past three years, Autonomy has picked up five companies for a total of $1.2bn, although Interwoven accounts for two-thirds of the aggregate spending. As to what Autonomy might be looking to buy with its newfound riches, my colleague Nick Patience says in a recent report that he could imagine Autonomy going into marketing automation and BI, and he even has a few names that could well be on Autonomy’s shopping list.

Consistency pays off for JP Morgan

Brenon Daly

Contact: Brenon Daly

Continuing its steady climb up the rankings, JP Morgan Securities emerged as the busiest adviser for US technology deals in 2009. The bank, which worked on three of the four largest transactions last year, moved up from third place on The 451 Group’s league table in 2008 after not even figuring into the top 10 in the previous year. Unlike many of its rivals that owe their standing to one or two key transactions in a specific sector, JP Morgan figured highly across a broad swath of the technology market.

It was that consistency – in a year plagued by inconsistency and uncertainty – that allowed the bank to slightly edge Goldman Sachs, which held onto second place for the second consecutive year. The aggregate value of the 11 deals that JP Morgan advised on last year totaled $23.9bn, just ahead of Goldman Sachs’ total of 15 transactions valued at $22.6bn. Rounding out the podium, Morgan Stanley stands as one of the only major banks that actually bumped up the number of deals and the total value of those transactions, year over year. Look for our full report, including leaders for a half-dozen specific sectors, in tonight’s MIS sendout.

451 Group League Table

Bank 2009 ranking 2008 ranking
JP Morgan 1 3
Goldman Sachs 2 2
Morgan Stanley 3 7
Bank of America Merrill Lynch 4 4
Citigroup 5 5

Source: The 451 M&A KnowledgeBase

Pouring cold water on the latest Sourcefire rumor

Brenon Daly

Contact: Brenon Daly

At the tail end of last week, the market was buzzing that Sourcefire may be back in play. Of course, that’s not all that unusual for the Snort shop, which has seen two publicly disclosed acquisition offers in the past four years come to nothing. (Recall that Check Point Software failed to land Sourcefire because of vague and off-target ‘national security concerns’ in early 2006. And then, in mid-2008, Barracuda lobbed an opportunistic low-ball bid for Sourcefire. Talks between the two sides never really got going, according to at least one source.)

So who’s the new bidder? Rumor has it that IBM may be looking at Sourcefire now. While the pairing has been making the rounds, we have our doubts about whether Big Blue would actually reach for the security company. Its $1.3bn acquisition of Internet Security Systems in mid-2006 has never generated the returns that IBM had hoped. (The ISS business, which was centered on the company’s Proventia boxes, never really fit well inside IBM Global Services.) Having little to show for that purchase of an intrusion-prevention system (IPS) vendor, we doubt that Big Blue would double down on another IPS vendor, Sourcefire.

And while IBM could certainly afford it, Sourcefire has gotten a little pricey. Over the past year, shares have more than tripled, giving the security vendor a market capitalization of about $600m. Backing out the $100m in cash and short-term investments gives Sourcefire an enterprise value (EV) of $500m. Without a takeout premium, Sourcefire commands a valuation (on an EV basis) of five times trailing sales and four times projected sales. Paying a premium on top of Sourcefire’s trailing P/E that’s in the triple digits might be tough for IBM, which trades at a trailing P/E of just 12.

Yahoo: glad for the greenbacks

Brenon Daly

Contact: Brenon Daly

Completing its second divestiture in less than a month, Yahoo said Wednesday that it was selling its online help-wanted site HotJobs to Monster Worldwide. Yahoo will get $225m in cash for HotJobs, roughly half the $436m the search engine paid for the job-listing site back in December 2001. The original acquisition called for Yahoo to cover the purchase with half cash and half stock. On the divestiture, we’re pretty sure Yahoo is glad terms called for straight cash.

We understand that at various points during the process, which played out over the past 15 months, Yahoo considered taking a mix of cash and Monster equity or even Monster shares outright for HotJobs. That would have been a kick in the gut to Yahoo, which has had enough problems with its own equity in recent times. The reason? Monster stock dropped 12% on Thursday after the company came up short of Wall Street earnings expectations for the fourth quarter amid a 27% decline in revenue. Had Yahoo taken Monster shares, the $225m deal would be worth just $198m at the end of its first day.

More than one way to market

Brenon Daly

by Brenon Daly

Apparently, UPEK really wants to be a public company. It put in its IPO paperwork back in mid-2007, only to pull it in March 2008. Unlike other former filers, however, the biometric security vendor hasn’t dusted off its S-1 in an attempt to hit the public markets. (In the past week, both Convio and GlassHouse Technologies have re-filed to go public.) Instead, UPEK wants to get on the Nasdaq by picking up a rival that already trades there.

UPEK lobbed an unsolicited offer at AuthenTec on Friday that basically envisioned consolidating the two companies, which make fingerprint sensors, into a single business. Equity ownership would be evenly divided between the two sides. For its part, AuthenTec has been a public company since mid-2007, although its shares have lost some three-quarters of their value in that time. On Monday, AuthenTec, advised by America’s Growth Capital, rejected UPEK’s ‘highly dilutive and speculative transaction.’

Cold settles in on January M&A

Brenon Daly

Contact: Brenon Daly

Much like the stock market, the M&A market opened solidly in January but petered out as the month went along. We previously noted that big-name buyers (including EMC, Oracle, Apple and Cisco Systems, among others) all kicked off 2010 with an acquisition in the first week folks were back at their desks. However, the pace of deals slowed noticeably after the initial flurry.

Overall for January, we tallied 281 transactions, totaling $4.4bn in spending. Some 62% of the deals (175 transactions) came in the first two weeks of the month, compared to just 38% (106 transactions) in the back half of the month. And although spending in the last two weeks of January outstripped the first half, the increase is entirely due to a single mammoth deal, Tyco’s $2bn purchase of Brink’s Home Security Holdings. If we subtract that consolidation play, we see that some 71% of spending took place in the first half of the month. The remaining 29% came in the last two weeks of January, when the Nasdaq recorded virtually all of its full-month decline of 4%.

Informatica: an MDM deal of its own?

Brenon Daly

Contact: Brenon Daly

With one rumored pairing in the master data management (MDM) market still buzzing, word of another deal is beginning to circulate as well. Several sources have indicated that Informatica may have picked up Siperian and could announce the transaction as soon as Thursday, when it reports fourth-quarter results. (On that note, Wall Street analysts project that Informatica will report earnings of roughly $0.28 per share on sales of $139m, which would represent growth of 12% over the previous fourth quarter.) We would note that Siperian has relatively close ties to Informatica, and continues its OEM relationships with two companies the data integration giant previously acquired (Identity Systems and AddressDoctor).

The Informatica-Siperian chatter comes as IBM is thought to be close to announcing the purchase of fellow MDM vendor Initiate Systems. (Once an IPO hopeful, Initiate instead is rumored to be heading to Big Blue, with a deal expected to be announced in the next week or so.) According to our knowledge, Siperian is slightly less than half the size of Initiate, which we estimate finished last year with around $90m in revenue. We understand that Siperian, which now counts more than 50 enterprise customers, recently crossed into profitability.

While we couldn’t learn the exact price Informatica is paying for Siperian, it is likely to be a significant transaction for a company that typically inks deals totaling around $50m. (In the previous seven buys Informatica made since 2002, it paid between $28-85m.) In fact, one source indicated that the purchase of Siperian could be in the neighborhood of twice the size of its previous largest acquisition, its April 2008 pickup of Identity Systems. Informatica closed three deals last year.

Is IBM about to ‘initiate’ a major MDM purchase?

Brenon Daly

Contact: Brenon Daly

Although we recently noted that SAP may be considering a major master data management (MDM) move, we understand that the next buyer in the market may actually be IBM. We’ve heard from several sources that Big Blue is close to announcing an acquisition of Initiate Systems. If the deal does indeed happen, Initiate would substantially boost IBM’s offering for the healthcare industry. Despite being competitors, Initiate and IBM Global Services have been longtime partners for healthcare projects. The transaction could happen as soon as this week, we’re told. And we gather that it’ll come at a rather rich valuation for Initiate.

One of the largest stand-alone MDM vendors, Initiate filed to go public back in November 2007, but withdrew its IPO paperwork the following summer. (Goldman Sachs was lead underwriter of the planned offering.) Shortly after it pulled its prospectus, it announced a $26m funding round that included strategic investments from both EMC and Informatica. However, we hear that the biggest competition for IBM’s rumored bid for Initiate may have come from the public market.

Given the very real prospect that Initiate could reheat its plans to go public, IBM would effectively have to top the valuation that Initiate could receive in an IPO and afterward. We understand that the company was running around breakeven and likely did just shy of $90m in 2009. (That would imply mid-teens growth from the $76m in revenue that Initiate recorded in 2008.) With that dynamic at play, Initiate may well garner 4.5-5x sales in the trade sale to IBM, according to sources.