Category: M&A

Cadbury gets sweet deal; Yahoo sours

Brenon Daly

Contact: Brenon Daly

When Kraft Foods first launched its bid for Cadbury four months ago, we termed the offer ‘an Old Economy rendition’ of Microsoft’s reach for Yahoo in early 2008. And while it wasn’t a direct parallel, there were a number of similarities: A diversified, dividend-paying company makes an unsolicited play for a target that’s only just into a restructuring program, with a goal of bolstering a business where it’s currently an also-ran.

The parallels diverged even wider on Tuesday, as the British confectioner agreed to a raised bid from Kraft. Cadbury shareholders will pocket $19.5bn in cash and Kraft stock for their company, about 11% higher than Kraft initially offered. It represents the highest-ever price for Cadbury stock on the London Stock Exchange.

So that’s the reward to shareholders from a selling company. What about on the other side? What’s happened to the owners of Yahoo since the Internet giant spurned the advances of Microsoft (as Cadbury once dismissed the interest of Kraft)? Shares of Yahoo currently trade at just half the level that Microsoft bid for them. And it isn’t just the fact that shares got hit by the biggest economic upheaval since the Great Depression since Yahoo turned down Microsoft’s interest. In the nearly two years since that decision, the Nasdaq has basically flat-lined while Yahoo stock has dropped by one-third.

A short-lived bid for Chordiant

Brenon Daly

Contact: Brenon Daly

In many ways, CDC Software’s unsolicited bid for Chordiant Software was over before it even began. As it was, the end became official late Thursday, as CDC Software pulled its $105m cash-and-stock offer for the money-losing CRM vendor just a week after floating it. It was clear that the hastily assembled ‘proactive offer’ (as CDC Software referred to it) was never going to get very far with Chordiant. Shares of the company spent virtually all summer above CDC Software’s bid of $3.46, which reflected a scant 14% premium over the closing of Chordiant shares in the previous session.

Chordiant, advised by Morgan Stanley, brushed aside CDC Software’s proposal with the ever-popular dismissal that the bid ‘significantly undervalues’ the company. (CDC Software didn’t retain an adviser, we understand.) Chordiant’s rebuff, combined with the poison pill it has in place, effectively killed the deal. CDC Software pretty much acknowledged that earlier this week when it announced that it intended to unwind its tiny 1.3% stake in Chordiant, which totaled just less than 400,000 shares. Incidentally, speaking of shares, although Chordiant stock dipped a bit when CDC Software pulled its offer, it was still closed above the bid price on Friday.

salesforce.com goes for a GroupSwim

Brenon Daly

Contact: Brenon Daly, China Martens

Almost two months ago, we noted that several sources had indicated that salesforce.com may have reached outside its own walls for a little help in getting its Chatter product out the door. (Salesforce.com showed off Chatter, an enterprise collaboration product, at its Dreamforce conference in November, although it is not yet available.) The official company line at the time was that Chatter was developed in-house, which is consistent for acquisition-averse salesforce.com. The vendor has done just six deals – all of them tiny – in the decade that it has been in business.

In recent days, it has surfaced that salesforce.com did indeed acquire a startup. A visit to the homepage of GroupSwim indicates that the company ‘is now part of salesforce.com.’ We have followed GroupSwim since mid-2008, with my colleague Kathleen Reidy initially writing that the startup’s pairing of semantic analysis with content sharing/collaboration appeared to be a promising approach in a rather crowded market. When we last visited with GroupSwim a year ago, the 15-employee firm claimed 30 customers. It was still living off angel money.

In contrast to the rather meager financial situation at GroupSwim, salesforce.com is closing in on an all-time price for its shares. (Current market capitalization: $8.6bn, which works out to a triple-digit P/E ratio on a trailing basis.) And the on-demand giant just priced $500m in a convertible note offering that will bring its total holdings of cash and marketable securities to $1.5bn. With such a rich treasury, salesforce.com could likely buy hundreds more startups like GroupSwim. Or maybe it’s thinking of something bigger?

Plenty of capital for Human Capital Management buyers

Brenon Daly

Contact: Brenon Daly

For the fragmented market segment called human capital management (HCM), we’d put the emphasis on ‘capital.’ Both of the two largest public HCM vendors (Taleo and SuccessFactors) have done secondaries in recent months, despite already having pretty fat treasuries. Taleo, which held some $77m in cash at the end of the most recent quarter, sold more than $130m worth of stock in late November. That offering came a month after rival SuccessFactors, which held $122m in cash, raised some $215m in its secondary.

Despite all the cash, neither player has been particularly concerned with using it to go shopping. SuccessFactors has never bought a company while Taleo has inked just one deal in each of the past two years. In May 2008, Taleo consolidated rival Vurv Technology for $128.8m in cash and stock. Last September, it spent $16m in cash for startup Worldwide Compensation, an acquisition that followed an initial early investment in the compensation management vendor. We have noted for some time that both SuccessFactors and Taleo are likely to be busy, and in fact, we heard gossip that SuccessFactors came very close to closing a deal at the end of 2009, but it fell through.

We were thinking about all this potential M&A last week, when one of the HCM rollups got rolling. Authoria, which is owned by buyout firm Bedford Funding, announced its first deal since it got snapped up in September 2008. We estimate that the $100m purchase of Peopleclick will more than double Authoria’s revenue. Not that the deal tapped out Authoria’s bank account, either. It still has some $700m to spend. Adding up the money the would-be buyers (both financial and strategic) have to shop in this market, we expect HCM deals to follow in 2010.

Deals on the rebound

Brenon Daly

Contact: Brenon Daly

More than 100 people dialed into our webinar earlier today, joining us in a discussion of whether the tech M&A rebound is real. And while not everyone agreed that deals will flow smoothly – and voluminously – in 2010, there was a shared sense that the M&A recession of 2009 has mostly lifted. Still, a rebound is one thing, while recovery is something else entirely.

We have definitely seen the pace of dealmaking pick up so far in 2010. We noted earlier that we tallied 60% more deals in the first workweek of this year than during the same period last year, and both tech investment bankers and corporate development executives have forecast a busier year for M&A in 2010. If you’d like to get a copy of our slides from this morning’s webinar, send us an email.

Companies buying early and often in 2010

Brenon Daly

Contact: Brenon Daly

Maybe it was just working through the backlog of deals from the holiday break, but M&A has started strongly in 2010. We previously noted that a number of big tech buyers have already announced deals this year. (The list of acquirers in the first workweek of January includes EMC, Oracle, Cisco Systems and Apple, among others.) Overall, we tallied 85 transactions in the first week back at our desks, a stunning 60% increase over the first workweek of 2009.

Granted, making projections from a single week is a bit dubious because of the small sample size. Yet while it may not be unerringly precise, it will likely prove directionally accurate. Consider how M&A played out in 2009. In the first week of January, we counted just 53 transactions, giving a projected total for the year of 2,756 deals. That turned out not to be too far off the actual total for 2009 of 3,005 transactions.

If we make the same calculation based on the 85 deals that we counted in the first workweek of this year, we get a projected total of 4,420. That will likely prove too high for the year since it would substantially eclipse the record activity we saw in the boom year of 2006, when there were a lot more buyers at the table. Still, the busy start to 2010 does appear to indicate that this year will be more active than last year. If you are interested in our full outlook for M&A in 2010, join us on our webinar tomorrow at 10:00 a.m. PST/1:00 p.m. EST. To register, click here.

Chordiant: hunter turns hunted

Brenon Daly

Contact: Brenon Daly

Just a month ago, Chordiant Software was a hunter. Now it’s the hunted. The call-center software vendor attracted an unsolicited – and rather unsatisfying – offer from CDC Software earlier this week. The unusual twist is just the latest development in the already unusual process around the sale of fellow software company Kana Software. Recall that Chordiant, after failing to land Kana, took to sniping at the deal as an activist shareholder. None of that had any impact, as the sale of Kana to midmarket buyout firm Accel-KKR closed in late December.

Chordiant’s unsuccessful bid for Kana came up in CDC’s rationale for making what it terms a ‘proactive’ offer for Chordiant, with acquisitive CDC saying the bid was partly driven by Chordiant’s recognition that it was a ‘sub-scale’ software company. And recently, Chordiant has been falling even further away from being a software vendor of scale. In its most recent fiscal year, which ended September 30, overall revenue dropped by one-third. Granted, that fiscal year covered one of the most difficult economic periods since the Great Depression. But even in the current fiscal year, most Wall Street analysts don’t project that Chordiant will grow much, if at all.

So what does all that mean for Chordiant, which has remained silent to this point on CDC’s offer of $105m in cash and stock? We suspect it’ll probably play out similarly to CDC’s bid in 2006 for another CRM provider, Onyx Software. In that would-be acquisition, CDC was also an unwelcome bidder for Onyx, and the process unfolded fitfully. (Onyx ultimately sold to rollup Consona.) Not that we’re saying CDC will necessarily pull its bid for Chordiant, as it did for Onyx.

Instead, on the other side, we suspect Chordiant will try everything in its power not to end up inside CDC. One key defense: Chordiant has a poison pill in place that doesn’t expire until mid-2011. Also, Chordiant shares are currently changing hands above CDC’s offer of $3.46 for each of them. So if CDC, which is planning to hit the road next week to help sell Chordiant investors on the deal, really wants to add Chordiant’s front-office products to its existing back-office wares, we think it’ll have to present a topping bid. On a call discussing the proposed transaction Friday, CDC chief executive Peter Yip said he’s ‘open minded’ to raising the offer.

Survey says: Companies ready to deal again

Brenon Daly

Contact: Brenon Daly

This year’s fast start to M&A activity by several of the big-name tech buyers (EMC, Cisco Systems, Apple and Oracle, among others) shouldn’t surprise us at all. After all, when we surveyed corporate development executives last month, two-thirds of them said they expected their firms to pick up the pace of dealmaking in 2010. That’s a far more bullish outlook than their projections last year, when the entire financial services industry and much of the broader economy appeared to be collapsing. At that time, some 23% of respondents said they expected to actually slow their acquisition activity amid all the uncertainty that loomed in the coming year. In our most recent survey, just 5% said they see a slowdown in dealmaking.

We’ll have a full report on the results of our annual 451 Group Tech Corporate Development Outlook Survey in tonight’s Daily 451 and 451 TechDealmaker sendouts. But we would add that the bullishness for M&A in the coming year expressed by our respondents extends far beyond just their projected activity. In both the types of transactions and even the structure of them, companies indicate that they have thrown off much of the conservatism and caution that characterized their outlook in late 2008 and are once again open to risk. And finally, they plan to be busy even though they tell us they’re likely to pay more in the deals they ink in 2010. It’s a dramatic turnaround from the previous year, so look for the full report on the survey tonight.

Projected change in M&A activity in the coming year

Year Increase Stay the same Decrease
2009 68% 27% 5%
2008 44% 33% 23%

Source: The 451 Group Tech Corporate Development Outlook Survey

Silver Creek comes out golden in sale

Brenon Daly

Contact: Brenon Daly

Although terms weren’t disclosed in Oracle’s reach for Silver Creek Systems earlier this week, we suspect the startup can claim something that not one of the nine companies that Oracle gobbled up in 2009 can say: it garnered an above-market valuation in the deal. The trade sale also undoubtedly generated a decent return for Silver Creek’s backers, which hasn’t been the case in many recent sales of VC-backed companies.

A pretty lean operation, Silver Creek has raised some $14m since its restart as a data-quality vendor back in 2002 and hasn’t needed to raise money since 2005. We believe Oracle may have ended up paying twice the amount that Silver Creek raised, since we understand there was at least one other bidder. The acquisition essentially formalizes an OEM relationship that the two companies have had since April, as my colleague Krishna Roy noted in her report on the transaction.

Whatever price Silver Creek ended up getting, it’s a notable uptick from last summer, when we were writing about how a startup in a similar market had pulled off an improbable deal that – if everything falls into place and full earnouts are earned – might just make its backers whole again. (See our earlier item on Exeros’ gamble and ultimate sale to IBM.) Also keep in mind that Big Blue only picked up some of the assets of the data discovery startup, not the whole company and its employees, as is the case with Oracle’s reach for Silver Creek. All in all, Oracle’s purchase of Silver Creek is yet another sign that the tech M&A market continues to rebound, even if it hasn’t yet fully recovered.

Charting the market

Brenon Daly

Contact: Brenon Daly

To get a sense of the relative health of the overall M&A market, it’s often more revealing to look at a specific sector and chart the valuation fluctuations over time. Take the highly visible – and rapidly consolidating – market for governance, risk and compliance (GRC) software. (Or, as my colleague Paul Roberts would have it: GRC stands for governance, risk and consolidation.) Since GRC straddles a number of technology areas (security, BI, performance and policy management, and others), it’s natural that we’ve seen a steady flow of deals across this sector. (We highlighted that in a report last spring where we offered our own (admittedly weak) take on the GRC acronym: ‘Get Ready for Consolidation.’)

Conveniently enough, we’ve seen a number of GRC deals inked recently that encapsulate the state of the broader space. (This isn’t meant to be a comprehensive tally of deal flow in the sector, but rather a selection of illustrative transactions.) Back when the markets were soaring in 2006, SAP paid an estimated 10 times trailing sales for Virsa Systems. By late 2007, the multiple that Sun Microsystems paid for Vaau had come down to an estimated 7x trailing sales. (Incidentally, Sun announced that purchase right as the Nasdaq, which had been at its highest level since early 2001, began a protracted slide that ultimately cut the index by more than half. It still hasn’t recovered to the level of November 2007.)

A year later, the multiple had been cut in half, with Thomson Reuters paying an estimated 3x trailing sales for Paisley. The upheaval in the early part of last year put even more pressure on valuations, with McAfee paying just 2.5x trailing sales for Solidcore Systems. And then on Monday, EMC announced that it was making its own GRC play, reaching for industry veteran Archer Technologies. While terms weren’t disclosed, we’re pretty confident that Archer’s valuation rebounded from the level that Solidcore got just six months ago. We understand that Archer finished last year with about $32m in sales, and would guess that it sold at a price in the neighborhood of $200m, meaning they got twice the multiple Paisley got a year ago.