Category: M&A

SAP’s platinum payouts

Brenon Daly

-Contact: Brenon Daly

Even though SAP has historically been a reluctant buyer, it hasn’t hesitated to throw around big numbers as it has picked up its M&A pace over the past half-decade. The German giant announced its latest top-dollar acquisition on Tuesday, paying roughly $4.5bn for Ariba (on an equity value basis). The supplier relationship management vendor hasn’t traded that high in more than a decade, as the first Internet bubble was deflating.

The purchase of Ariba continues SAP’s practice of paying high prices to clear deals. For instance, its offer for SuccessFactors last December matched the highest level that company’s shares had ever hit, and likewise, when it erased Sybase in 2010, it did so at a high-water mark for that stock. (Incidentally, the collective bill for those three transactions, which have been done in just two years, is more than $14bn.)

In terms of valuation, Ariba basically splits the difference between SAP’s two recent big software deals. Based on SAP’s valuation of Ariba at $4.3bn, the German giant is paying 8.6 times the roughly $500m that Ariba generated over the trailing 12 months (TTM). In comparison, it valued SuccessFactors at 11.3x TTM revenue and Sybase at 4.8x TTM revenue. (The relative valuation of each of those vendors primarily reflects their growth rates: Sybase was growing at a single-digit percentage, while Ariba is clipping along at nearly 40% and SuccessFactors was topping 50%.)

Select SAP transactions

Date announced Target Deal value Enterprise value/TTM sales multiple Bid
May 22, 2012 Ariba $4.5bn 8.6x $45 per share, highest price in 11 years
December 3, 2011 SuccessFactors $3.6bn 11.7x $40 per share, matching highest-ever price
May 12, 2010 Sybase $6.1bn 4.8x $65 per share, highest-ever price

Source: The 451 M&A KnowledgeBase

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EMC buys Syncplicity for mobile file sharing in the enterprise

Ben Kolada1 Comment

Contact: Ben Kolada, Simon Robinson

EMC on Tuesday announced that it is taking another swing at backup and file synchronization. However, this time the company is aiming primarily at mobile users in the enterprise. EMC is acquiring four-year-old startup Syncplicity, which provides file-sharing and storage software as a service that enables synchronization to and from computers, mobile devices and online services.

In announcing the acquisition, EMC noted that it chose Syncplicity over the competition because Syncplicity is focused on the enterprise segment, while most other competitors are still targeting consumers. (EMC had previously tried its hand at the consumer backup market. In 2007, it paid $76m for online storage startup Mozy, but has since handed over much of the responsibility for those assets to VMware.) Like so many of its rivals, Syncplicity started in the consumer space but turned its attention toward enterprises in the past year or so. The company now claims about 200,000 users, including roughly 50,000 businesses.

We’d also note that the deal was driven by EMC’s Information Intelligence Group (i.e., Documentum), which makes sense from a collaboration/workflow/app space, but it does have the potential to cause some internal conflicts. For example, the EMC Atmos team is working closely with Oxygen Cloud, and VMware has Horizon/Octopus.

EMC isn’t disclosing terms of the acquisition, but we were recently told that Syncplicity is still in its early days and is nowhere near the size of competitor ShareFile, which sold to Citrix last year. ShareFile had nearly double Syncplicity’s headcount, and generated an estimated $12m in revenue during the year leading up to its sale. Citrix paid $54m for ShareFile, and is now using the target’s technology in its recently updated CloudGateway 2 product for mobile app management and file sharing. We’ll have a longer report on EMC’s Syncplicity buy later this week.

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Google finally cleared on its ‘defensive’ deal

Brenon Daly

Contact: Brenon Daly

Like any weapon, intellectual property (IP) can be wielded both for offense and defense. That’s worth remembering now that Google has basically been cleared to (finally) close its $12.5bn acquisition of Motorola Mobility, which it announced last August. The purchase adds some 17,000 Motorola Mobility patents to an ever-growing portfolio at Google, which has been a busy buyer of IP from IBM over the past year, as well.

In order to win regulatory approval in various jurisdictions around the globe, the search giant went out of its way to assure government bodies – as well as mobile handset manufacturers located around the world – that its Android operating system would remain freely available to all. More than a few of the 50-odd vendors that put out Android-based mobile devices expressed fear that Motorola phones and tablets might get ‘favorite child’ status from Google as the OS provider got into the hardware business in a big way.

But Google has eased those concerns (for now, at least) and seems to be focusing on shoring up the defense of Android so that other OEMs can use it without worrying about legal fallout. There’s a fair bit of irony in that, as Google itself is currently a defendant in a patent-related lawsuit that came about because a tech giant announced a multibillion-dollar deal in part driven by IP. Oracle purchased Sun Microsystems in 2009 – at the time referring to Java as the ‘most important’ software Oracle had ever acquired – and then brought a case alleging that Google infringed on Java copyrights and patents in mid-2010.

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Equinix increasing inorganic growth, nabs ancotel

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

In its latest geographic consolidation move, colocation giant Equinix announced on Wednesday the acquisition of Frankfurt-based ancotel. Although previously an atypical acquirer, the ancotel buy is Equinix’s second purchase this month, following the pickup of certain assets from Hong Kong-based Asia Tone for $230m. Equinix recently said its dealmaking isn’t done yet. At the Deutsche Bank Securities Media & Telecommunications Conference in February, the company said it plans to place more emphasis on M&A.

Equinix didn’t disclose the price of the acquisition, but did say the valuation is in line with its projected 2012 adjusted EBITDA trading multiple. With a current enterprise value of $9.7bn, Equinix itself is valued at 11 times this year’s projected adjusted EBITDA. Assuming ancotel’s cost structure is similar to Equinix’s, we’d loosely estimate the deal value at $100-110m. Ancotel generated $21.4m in revenue in 2011, with a three-year CAGR north of 20%. The transaction adds a datacenter with 2,100 meters of capacity, 400 network customers, 200 new networks and 6,000 cross connects. Ancotel also has a presence in both London and Hong Kong.

In a departure from its usual practice of making just one acquisition per year, Equinix recently indicated that it intends to use more M&A to fuel growth. The company already dominates the American colocation market, so future M&A activity will likely continue to be overseas. Equinix has a lofty goal of being in 50 markets in the long term, with immediate priorities being India and China. The company has also expressed interest in growing its presence in South Korea and Australia.

Equinix’s international M&A, past five years

Date announced Target Deal value Target headquarters
May 16, 2012 ancotel Not disclosed Frankfurt
May 1, 2012 Asia Tone (certain assets) $230m Hong Kong
February 15, 2011 ALOG Data Centers* $127m Rio de Janeiro
February 6, 2008 Virtu Secure Webservices $22.9m Enschede, Netherlands
June 28, 2007 IXEurope $555m London
January 10, 2007 VSNL International (Tokyo datacenter) $7.5m Tokyo

Source: The 451 M&A KnowledgeBase *90% stake

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TriNet expands with ExpenseCloud

Brenon Daly

Contact: Brenon Daly

Throughout its history, TriNet Group has been a slow but steady consolidator. Perhaps the best-known play by the outsourced HR provider came three years ago, when it gobbled up publicly traded rival Gevity HR for $99m. In its most recent deal, however, the private equity-backed buyer has shifted gears a bit.

Rather than simply add more accounts through an acquisition, TriNet has added a nifty offering to its portfolio. The company recently picked up three-year-old startup ExpenseCloud, which helps automate the process around creating and reimbursing employee expenses. TriNet says the expense management offering will be available on its platform later this year.

Although, candidly, employee expense management sounds like a ho-hum market, the big player in this space – publicly traded Concur Technologies – has shown it can be a wildly valued one. The company’s shares currently change hands at their highest-ever level, putting its market valuation at a whopping $3.4bn. Concur recently projected that sales for its current fiscal year, which ends in September, would be in the neighborhood of $440m, meaning investors are valuing the company at 7.6 times this year’s projected sales.

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Some unlikely M&A agitation against BMC

Brenon Daly

Contact: Brenon Daly

Having already agitated for the sale of at least five tech businesses over the past few years, Elliott Associates has set its sights on a significantly bigger target: BMC. The hedge fund said on Monday that it has acquired 5% of the systems management giant and will push for a sale of the company.

For its part, BMC retained Morgan Stanley to advise it on its defense against the unwanted approach and, more importantly, adopted a poison pill that makes any unsolicited deal highly unlikely to succeed. Nonetheless, the idea that BMC could get sold goosed the company’s shares, which added 9% in mid-Monday trading.

From our view, however, it’s highly unlikely that 32-year-old BMC, which has been public since August 1988, will get snapped up. The first – and most obvious – hurdle is the poison pill, or ‘shareholder rights plan’ in the company’s description. But even beyond that, there aren’t very many companies or (probably more relevantly) buyout shops that could write the $10bn or so check that it would take to clear BMC.

For a strategic buyer, we’ve always thought Cisco Systems would be the logical home for BMC. The two companies have partnered around the datacenter, with Cisco providing the gear and BMC serving up the management layer. However, the returns on that partnership haven’t been overwhelming, and Cisco has taken to acquiring small management vendors on its own over the past year and a half. (To bolster its management portfolio, Cisco has reached for startups such as LineSider Technologies, Pari Networks and newScale.) But Cisco, which reported weak financial results last week while also forecasting a ‘cautious’ IT spending environment, is hardly in a place to do its largest-ever acquisition.

That would leave private equity firms as the most likely acquirer of BMC. Those shops have been the buyers of the other companies that Elliott has put in play, including Epicor Software, Blue Coat Systems, Novell and others. However, the collective value of all those Elliott-inspired deals would likely be only half the size of a BMC purchase, which would be a whopper for any single firm. (That goes double because of the reserved credit markets right now.)

The last point underscores one of the other large problems with a BMC takeout: even though its shares have lost nearly 20% of their value over the past year, the company isn’t particularly cheap. It garners a $7.2bn market capitalization, so throwing a 35% premium on that takes the (hypothetical) acquisition price to about $10bn. That works out to about 4.6 times 2011 revenue (10x maintenance revenue) and more than 12x the $800m in cash flow from operations that BMC generated last year. Even with the $1.4bn cash ‘rebate’ from BMC’s treasury, any potential buyer is still looking at paying a double-digit cash-flow multiple for a single-digit grower.

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Stick with what you know

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

Some moves just don’t pan out as planned, such as basketball legend Michael Jordan playing baseball or actor Joaquin Phoenix attempting to become a rapper. While those moves may have dented personal pride, when companies make failed moves, it hits their bottom line. Videoconferencing giant Polycom is experiencing that pain today. The company announced on Friday that it is divesting its enterprise wireless communications assets for just $110m to Sun Capital Partners, or about half the price that it paid for the business five years ago.

Polycom entered the wireless communications market in 2007 when it paid $220m for then publicly traded SpectraLink – it’s largest-ever acquisition (today’s divestiture also includes the assets of Kirk Telecom, which SpectraLink acquired for $61m in 2005). While we had doubts, Polycom argued that its rationale for the deal was sound. Polycom thought it would be able to boost revenue by leveraging the two companies’ complementary sales channels as well as by merging their server-side software products into a single platform.

Polycom, however, wasn’t able to generate the revenue that it expected from the acquired assets. The SpectraLink and Kirk Telecom assets dwindled within their newfound parent, falling from $144m in revenue in 2006 to about half that, $94m, in 2011.

Not to pick on Polycom, but its SpectraLink divestiture is just the most recent reminder of the risks involved in attempting game-changing acquisitions. Companies use M&A to enter new markets all the time, and often fail. HP shuttered its Palm Inc business just one year after paying $1.4bn for the company. And in 2010, Yahoo divested its Zimbra collaboration assets for $100m, or less than one-third of the $350m that it paid for the company in 2007. Cisco attempted to move into the consumer video segment when it paid $590m for Pure Digital Technologies, maker of the Flip video camera, but shut down that division two years later.

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So far, so good for Astaro inside Sophos

Brenon Daly

Contact: Brenon Daly

When Sophos reached for Astaro exactly a year ago, the two companies lined up very well on paper: Both Europe-based security vendors go to market entirely through the channel, selling primarily to SMBs. Yet they both addressed different aspects of security, with Sophos shoring up endpoints and Astaro focusing on the network.

While the two approaches appear complementary, the infosec landscape is fraught with endpoint/network pairings that haven’t gone to plan. (That goes for M&A both on a large scale, such as IBM-Internet Security Systems, and a small scale, such as Sourcefire-ClamAV.) So what’s the verdict on Sophos’ purchase of the German unified threat management (UTM) vendor? So far, so good.

As a company, Astaro has been fully integrated into Sophos over the past year while also maintaining its historic growth rate of about 30%. (We understand that the UTM business is currently running at about $70m.) Astaro’s growth would basically match the rate of UTM kingpin Fortinet, although that company will do more than a half-billion dollars of sales in 2012.

Sophos is currently in beta with a product that combines Astaro’s UTM technology and Sophos’ core endpoint security offering. The integrated product is due this summer. That offering will hit the market just as Dell works through the integration of its purchase of UTM provider SonicWALL. That deal, which represents Dell’s largest security acquisition, closed Wednesday.

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LinkedIn looks to keep users more linked with SlideShare acquisition

Brenon Daly

Contact: Brenon Daly

In its largest-ever acquisition, LinkedIn said Thursday afternoon that it will pay $119m for SlideShare in an effort to draw more people to the professional network and keep them there longer. SlideShare has some 29 million unique monthly visitors, and the combination should allow LinkedIn members to expand their professional development and identity. It also significantly increases the amount of content on LinkedIn’s network, which is crucial for the company to grow beyond a site that the 160 million registered users only access when they are looking for a job.

The purchase, which continues the company’s practice to cover its M&A bill with a mix of cash and stock, represents a significant inorganic move to bump up engagement on top of LinkedIn’s earlier in-house efforts such as forming professional groups and a dedicated news page. To date, LinkedIn has had success with its strategy.

As it announced the SlideShare acquisition, LinkedIn also reported financial results for its first quarter. Sales for the January-March period doubled to $189m, with the business running at a solid 20% ‘adjusted EBITDA’ margin. Perhaps more importantly, revenue from all three segments of its business (hiring, marketing, subscriptions) posted strong growth. It’s fairly rare that a fast-growth business (LinkedIn has at least doubled revenue for seven straight quarters now) can put up consistent results across completely different business units without a misstep.

Wall Street has certainly noticed that performance. Shares hit their highest level since last May’s IPO, changing hands at about $120 each in Friday afternoon trading. That values the company at $12.3bn, or more than 13 times the forecasted revenue of roughly $900m for 2012. In comparison, old-line job board Monster Worldwide is valued at only $950m, despite being on track to generate slightly higher revenue this year.

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Buying into the social side of HR

Brenon Daly

Contact: Brenon Daly

After three consolidation plays in the fragmented human capital management (HCM) market, private equity-backed rollup Peoplefluent has expanded into enterprise collaboration with the acquisition of Socialtext. Although 10-year-old Socialtext was one of the pioneers of collaboration software (or ‘wikis,’ as they were known in the early days) and did attract some 6,500 users, it struggled to actually put up revenue.

According to our understanding, Socialtext was only generating about $5m in revenue. Peoplefluent – backed by Bedford Funding, whose principals served as executives at ERP rollup Geac – isn’t renowned for paying high multiples. It paid less than 2 times sales for both of its main consolidation acquisitions, 2008’s platform purchase of Authoria and 2010’s reach for Peopleclick. (Earlier this year, it also added a learning management vendor, Strategia Communications.)

Peoplefluent’s move to add collaboration to its HR platform comes almost exactly two years after HCM giant SuccessFactors paid $50m for social enterprise software provider CubeTree. Additionally, we’ve seen salesforce.com combine elements of its acquisition of collaboration software startup Manymoon with its step into the HCM market through its high-multiple purchase of Rypple. And salesforce.com just added another small part to its collaboration offering, tucking in tiny startup Stypi