Category: M&A

Poor ExactTarget results may extend salesforce.com’s M&A holiday

Scott Denne

Contact: Scott Denne

Two quarters in, salesforce.com’s ExactTarget acquisition is already losing some steam. The email marketing company continues to grow, though far from the pace it had as an independent business. On salesforce.com’s earnings call Thursday night, the CRM vendor announced that ExactTarget contributed $96m in revenue, up roughly 14% from the last quarter of 2012 (‘roughly’ because salesforce.com and ExactTarget’s fiscal quarters are misaligned by a month).

In its last two independent quarters, ExactTarget averaged 40.5% year-over-year growth. In its first two quarters as a salesforce.com subsidiary, it averaged revenue growth of just 12.5%. Even salesforce.com itself, with $1.15bn in revenue last quarter, gained 25%, after backing out ExactTarget’s contribution, and 26% the previous quarter.

On a call last year announcing the acquisition, salesforce.com CEO Marc Benioff said the company would take a 12- to 18-month M&A vacation to focus on ExactTarget. For the most part, it’s lived up to that promise. It announced a $133.7m deal for EdgeSpring a few days after the ExactTarget announcement but has been mostly quiet since then – salesforce.com spent just $2.5m on acquisitions last quarter. Since integrating ExactTarget hasn’t been a day at the beach, salesforce.com’s M&A holiday may not end early.

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Identified’s team and tech clock in at Workday

Scott Denne

Contact: Scott Denne

In announcing its fiscal first-quarter earnings yesterday, Workday also announced the purchase of recruiting startup Identified Inc. The tech and talent acquisition is Workday’s first since 2008.

Terms of the deal weren’t disclosed, but an equity analyst on Workday’s earnings call called out the price at $15m, which company executives did not refute. Though we haven’t confirmed that number, a price tag in the $10-20m range is feasible. Identified raised $22.5m in venture funding from VantagePoint Capital Partners and others.

The target built a service that enables recruiters to find prospective job candidates through analysis of social media files. Workday will scrap that offering, opting instead to use Identified’s employees and technology to embed machine learning and predictive analytics across product lines. Workday’s only other deal was the acquisition in 2008 of Cape Clear Software, an Irish middleware company with less than $15m in revenue. Following a recent secondary offering, Workday has amassed $1.9bn in cash and sports an enterprise value that’s 41x trailing revenue.

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Itty-bitty Bitcoin M&A

Ben Kolada

Contact: Ben Kolada, Scott Denne

Although the values of cryptocurrencies have skyrocketed, at least in the eyes of the beholders, the values of vendors in this sector so far haven’t followed suit. To date, we’ve recorded just a few acquisitions of cryptocurrency companies and assets, with nearly all having been done by tiny acquirers. The dealmaking so far suggests that the new-world currency medium has an odyssey in front of it before it becomes an established, liquid currency, and before its exchanges become worthy of big-ticket acquisitions.

Ripple Labs, with backing from Andreessen Horowitz, Lightspeed Venture Partners and others, ‘acq-hired’ simplehoney as it builds out a payment protocol to transact in Bitcoin and other currencies. CoinMyne, a maker of Bitcoin-mining software, added to its software products by purchasing the CGWatcher and CGRemote products and hiring their creator, Justin Milone. And yesterday, EffTec International, a penny stock, grabbed BitBank. (We’ve also noticed that Bitcoin is finding its way into M&A in other ways – Lemon, a mobile wallet startup acquired by LifeLock for $43m, had $1.2m worth of Bitcoin on its balance sheet.)

Acquisitions are likely to remain small for quite some time, given recent events. The ongoing implosion of Bitcoin exchange MtGox means that the road to high-profile liquidity for cryptocurrency vendors is going to take longer than initial hype suggested, if it materializes at all. However, if banks and retailers become comfortable with Bitcoin as either a currency or a secure medium for transacting, deals could swing upward, as we’ve seen with the rising volume of mobile payment acquisitions.

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Citrix takes a breather from M&A

Ben Kolada

Contact: Ben Kolada

After setting an M&A spending record in 2012, Citrix has stayed on the sidelines. The company announced six acquisitions that year, including two of its three largest deals, and spent more than $750m, the most in its history. It has been pretty quiet since then, announcing only two acquisitions in 2013 for a combined total of just $11m.

The cooldown contrasts the trend we’re seeing among the other large tech vendors, most of which have moved toward fewer and larger acquisitions. (Our recent Tech M&A Outlook webinar talks more about this trend.) Citrix participated in this activity in 2012, when it announced its all-cash acquisitions of Bytemobile for $435m and Zenprise for $327m. What’s especially noteworthy is that those two deals combined were worth more than the free cash flow Citrix generated in all of 2012 (though we note that the Zenprise buy closed in January 2013).

However, poor financial results have derailed Citrix’s dealmaking machine since then. In the 15 months since announcing the Zenprise purchase, Citrix’s quarterly results have been rocky – it has lowered guidance or posted results below analysts’ expectations a half-dozen times.

Its recently released 10-K shows that Citrix paid $5.3m for Byte Squared in September and $5.5m for Skytide in December, its only two deals of 2013. At $28.2m, the lone purchase Citrix has announced so far this year, Framehawk, already surpasses its 2013 total M&A spending, but still falls below its three-year median acquisition size of $45m, according to The 451 M&A KnowledgeBase.

Citrix’s recent acquisitions

Year announced* Target Target abstract Deal value
2014 Framehawk Application mobilization software provider $28.2m
2013 Skytide CDN and streaming video analytics $5.5m
2013 Byte Squared Mobile file-editing software $5.3m
2012 Zenprise Mobile device management software $327m
2012 Beetil Service Management Helpdesk management SaaS Not disclosed
2012 Bytemobile Mobile traffic management software $435m
2012 Virtual Computer Desktop virtualization software provider Not disclosed
2012 Apere Single-sign-on security vendor $25.2m
2012 Podio Team collaboration SaaS provider $45.3m

Source: The 451 M&A KnowledgeBase *In 2012, Citrix also acquired two unnamed companies

 

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Oracle’s new deal looks the same, but feels different

Scott Denne

Contact: Scott Denne

Oracle’s reach for BlueKai looks the same as some of its recent marketing software deals, in some ways. The transaction brings Oracle a cloud-based software service that companies use to manage data for Web and mobile marketing, an offering that complements the company’s other marketing products. But BlueKai’s advertising data marketplace service also moves Oracle into the world of ad tech, a very different sector with a set of customers and a sales model the company isn’t accustomed to.

Adding BlueKai’s data management and third-party data sources to its existing offerings enables Oracle to create a rich set of customer profiles and help it sell its earlier acquisitions, such as Eloqua and Responsys, into the CMO’s office. This type of vendor and feature is familiar to Oracle as the company got its start in managing and integrating data.

What’s new to Oracle is running a data marketplace, especially one like BlueKai’s that is sold to ad tech providers and ad agencies, rather than businesses. While Oracle has made multiple marketing deals, those offerings were aimed squarely at CMOs and other marketing professionals, not paid advertising executives. Though BlueKai sells its data management platform based on a recurring license fee, much of its data exchange business is based on how many people click on ads served using its data.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

No jumping for joy following Millennial’s Jumptap acquisition

Scott Denne

Contact: Scott Denne

Millennial Media promised benefits of scale and new technology last year when it bought fellow mobile ad network Jumptap in a $221m deal that cost the company about one-third of its stock. It’s a bit early to say whether that will play out or not, but on its earnings call this week, Millennial’s management gave a bleak forecast.

Its new CEO, Michael Barrett, who replaced Paul Palmieri last month, vaguely indicated that Millennial would grow about 20% annually, though he didn’t offer any official guidance for this year. That’s especially alarming since the larger audience that the combined company can now reach should attract higher ad prices and bigger advertising budgets.

Millennial is still growing, but at a slower rate than the broader mobile ad market. Revenue for the combined companies was up 42% in 2013 to $342m and up 44% year over year for the last quarter. That’s well below the numbers put up by other mobile ad vendors. Though not direct comparables, Pandora and Twitter show the rising revenue of in-app advertising. Pandora’s mobile ad revenue grew 73% year over year to $116m in its most recent quarter, and Twitter’s rose 55% to $165m.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

In seeking new channels, Facebook mobilizes the masses

Scott Denne

Contact: Scott Denne

Facebook has a challenge in mobile that it didn’t face with PCs: niche competition. When the company grew up in the PC era, it could fend off rivals through product design and virality. Its $19bn purchase of messaging app WhatsApp shows that mobile is a different game. It’s not the first time Facebook has paid an obscene amount – at least by traditional M&A measures like revenue or EBITDA multiples – and it won’t be the last time.

Think of Facebook as a network (in the television sense). In the days of broadcast (PC), it was OK for networks to have a single channel, but the emergence of cable TV (mobile) brought a slew of niche players that eroded broadcasters’ audiences. So networks added – and bought – other channels. The game was straightforward with the PC: whoever builds the most viral product wins. Mobile is more competitive, in part because of the low cost of launching an app, and because there’s a smaller screen, there’s more desire for straightforward, single-function apps.

Scale is everything in advertising, and Facebook will pay what it needs to pay to own anything that threatens its audience in mobile, especially as mobile now makes up more than half of its ad revenue. Even though it won’t be plastering ads on WhatsApp anytime soon, it keeps a massive audience intact. It’s the same logic that led to its $1bn purchase of Instagram when the photo-sharing app threatened one of Facebook’s core functions, and that same strategy is likely to lead to another eye-popping deal when a new category of mobile networking apps emerges.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Paint it (Carbon) Black

Scott Denne

Contact: Scott Denne Adrian Sanabria

With the acquisition of Carbon Black, Bit9 continues to reinvent itself, moving beyond its roots in whitelisting and toward a holistic threat detection and prevention vendor. Founded in 2002 and venture-funded since 2004, Bit9 gained traction in financial sectors and niche products such as point-of-sale terminals and grew its revenue to about $45m last year, with the lion’s share of its growth coming in the past three or four years.

We understand the deal values Carbon Black at more than $40m – a nice number for a company with an impressive list of early customers and little revenue (it began selling products in earnest in May 2013). Carbon Black brings Bit9 endpoint sensors that go beyond detecting file events to monitor registry changes, network connections and binary executions, enabling Bit9 to move beyond prevention and into threat response.

In addition to shedding its whitelisting label, the acquisition will better position Bit9 to fend off an eventual FireEye endpoint offering that will likely result from its acquisition of Mandiant (Bit9 and FireEye are currently partners). It also improves its edge on endpoint competitors such as Invincea and Bromium that protect and remediate, but are limited in scope to the Web browser and some office applications.

Look for a more detailed report on this deal in tomorrow’s 451 Market Insight.

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j2 returns to roots for recent deals

Scott Denne

Contact: Scott Denne

In its latest acquisitions, j2 Global is buying companies that support its original line of business: online fax services. Three out of the four deals it has announced this month, including FaxMate and Ozefax today, add product depth and geographic distribution to its fax business.

While this shows j2 hasn’t forgotten its roots (fax and related voice services account for roughly two-thirds of its $482m in trailing revenue), its latest streak has us wondering when it’s going to do more media deals. The company has been in the media business for about a year after acquiring Ziff Davis in late 2012 and it has seen it grow (organically and inorganically) to $32m in its most recent quarter. For comparison, Ziff Davis had only $44m in revenue the entire year before being acquired.

Despite that growth, j2 has only inked three media transactions out of a total of 10 since acquiring Ziff Davis. During its latest earnings call, the company said two of its most recent media purchases – IGN Entertainment and NetShelter Technology Media – are fully integrated and it now has available resources to add other media businesses that fit into its focus on tech, gaming and men’s media.

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Microchip’s super multiple for Supertex

Scott Denne

Contact: Scott Denne

Microchip Technology continues its acquisitive streak, reaching for Supertex in a $394m all-cash deal and paying an enterprise value-to-revenue multiple of 3.7x, placing it among the most expensive semiconductor transactions in recent memory. The deal puts a 35% premium on Friday’s Supertex share price and brings the stock to a level it hasn’t hit since late 2007.

As margins and growth around its core microcontroller business compress, Microchip has looked to M&A to bolster its growth, inking roughly two acquisitions per year since 2009, compared with four transactions altogether between 2002 and 2008. With the exception of its $939m reach for Standard Microsystems last year, Supertex is its largest purchase and comes at a relatively rich price. Semiconductor multiples have been depressed for years as more transactions are done with the aim of consolidation and cost-cutting. Over the past 24 months, only two comparable deals in this space have had higher multiples.

Supertex’s $65.9m in trailing revenue will do little for Microchip’s top line – it posts $1.87bn in trailing revenue. This deal gets Microchip exposure to several new markets, notably LED lighting. LEDs accounted for an expanding share of Supertex’s growing revenue, generating 18% of sales in the most recent quarter, up from 14% in 2013 and 10% in 2012.

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