Category: M&A

A late April Fool’s

Ben Kolada

Contact: Ben Kolada, Tim Miller

Contrary to a published press release (and several media outlets that took the bait), Google is not acquiring Wi-Fi provider ICOA. A poorly written press release published Monday morning led many to initially believe the deal was being done for $400m. However, a cursory look at the announcement’s grammatical errors, as well as the 3,700x price-to-trailing sales multiple, gave clue that something was amiss.

The oddball pairing had the flavor of one of Google’s notorious April Fool’s pranks, but neither Google nor ICOA was laughing. Representatives from both companies told us the announcement was false and both denied publishing it. ICOA even went so far as to say they are not having this kind of conversation with anyone at the moment.

That’s not to say the prank didn’t have a purpose. One explanation the release was published is rooted in the volatility of penny stocks, and the relative ease of inflating a penny stock’s value. Following the announcement, shares of ICOA, which trade at less than a penny on the OTC Pink Sheets, shot up nearly five-fold on heavy trading volume. Throughout the swing, more than 300 million shares traded hands, compared with the stock’s three-month average daily trading volume of less than three million shares.

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Imagination faces challenge over MIPS bid from CEVA

Contact: John Abbott

It may not be all done and dusted for the proposed acquisition of semiconductor IP company MIPS Technologies by Imagination Technologies, as MIPS has received an unsolicited better offer. CEVA, one of the oldest developers of licensable IP cores for communications, mobile handsets and multimedia, is offering $75m, compared with the $60m Imagination put on the table.

This shouldn’t affect the separate deal MIPS put in place to sell its patents for $350m to Bridge Crossing, an acquisition vehicle formed by patent consortium Allied Security Trust. What CEVA is bidding for is the operating MIPS business (with $83m in revenue and 160 employees), plus full licensing rights to the MIPS architecture, including just those patents directly related to MIPS products.

From a product portfolio perspective, CEVA is a very good fit for MIPS. Formed in November 2002 by the merger of two veteran chipmakers, DSP Group and Parthius Technologies, CEVA has focused steadily on developing and licensing digital signal-processing (DSP) cores for mobile, consumer and networking devices. Having shipped one billion CEVA-powered devices in 2011, it is one of the major suppliers of DSPs alongside much larger rivals such as Texas Instruments and Freescale. Its 200 licensees include Broadcom, Intel, Samsung, Sony, ST-Ericsson and Toshiba.

Given all that, it’s something of a shock to see that CEVA’s recently announced revenue for Q3 2012 was just $12m, down 19% compared with the same quarter last year. CEVA says the economic climate impacted licensing revenue but claims robust demand for DSPs to be used in next-generation products. It also claims to be making significant inroads into the lucrative 3-D smartphone space, with design wins from Huawei, Lenovo, Samsung and ZTE. And while CEVA may be smaller than MIPS in terms of revenue, it does have $156m of cash in the bank and no debt.

There’s little growth nowadays in sales of single-function DSP devices, although demand for DSP capabilities isn’t going away – it’s just becoming embedded in broader devices, such as system-on-chip (SoC) products. Hence the motivation behind CEVA’s bid for MIPS, which, despite a fairly late start in the SoC device sector compared with its primary rival ARM Holdings, has at least been pushing in that direction since 2006. Combining with MIPS would give CEVA a boost in its existing markets and a chance to broaden out from simple DSPs. Imagination, whose shares fell 3% on the news, may well come back with a revised offer of its own.

Dell’s down, but still dealing

Brenon Daly

Contact: Brenon Daly

Undeterred by a sharp slump in business, Dell continues to shop. Just a day after reporting an 11% decline in fiscal Q3 revenue, the tech giant on Friday reached for infrastructure automation startup Gale Technologies. Gale should help bolster Dell’s recently launched Active System Manager (ASM) by adding an automation layer above the hypervisor, extending ASM beyond on-premises enterprise systems to support hybrid clouds.

The addition of Gale makes sense for Dell both operationally and competitively. The acquisition furthers Dell’s push toward ‘convergence,’ pretty much the only area of the company’s business that is expanding. (Through the first three quarters of this fiscal year, the servers and networking business unit has increased revenue 9%, compared with a 9% decline in total revenue at Dell.) The transaction also matches a similar purchase by Cisco of Cloupia just one day earlier.

However, beyond the Gale acquisition, there are growing questions about the broader M&A program at Dell. Although the company has been spending steadily to buy into markets beyond its historic PC business, the results have yet to show up in its top line.

Granted, the purchases are part of a multiyear transition and it may be too soon to expect full returns on them. But, with Dell shares bumping along at their lowest level since the end of the recession, Wall Street is getting impatient with the company’s turnaround. The stock has dropped 40% over the past year.

Over the past two years, Dell has spent more than $7bn on M&A, expanding into areas such as storage, security, services and software. And yet, despite that not-insignificant financial outlay, Dell is shrinking. The company is likely to put up about $57bn in sales in this fiscal year, which wraps at the end of January. That would be roughly $5bn, or 8%, less than it generated in the previous fiscal year.

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NetApp drops a bit of cash on CacheIQ

Brenon Daly

Contact: Brenon Daly, Simon Robinson

Tucked into NetApp’s fiscal second-quarter release Wednesday afternoon was the company’s first acquisition in about a year and a half. The storage giant reached for NAS acceleration startup CacheIQ, bringing more technology for its flash fight with rival EMC. The deal is being positioned as an IP play, and although NetApp doesn’t plan on developing CacheIQ’s existing product line, the technology looks set to add crucial performance capabilities to its emerging scale-out clustered storage strategy.

The fact that CacheIQ’s technology is key to NetApp is reflected in the price that we understand the company paid for the Austin, Texas-based startup. The valuation didn’t quite make it to the gravity-defying level that EMC paid for pre-revenue, all-flash array startup XtremIO back in May, but CacheIQ did more than OK on its exit. (Subscribers to The 451 M&A KnowledgeBase can click here to see our official estimate on terms of the transaction.)

A restart that emerged from stealth only about a year ago, CacheIQ had drawn in just $10m in funding from angels. The company actually traces its roots back to another startup, StorSpeed, which first emerged in 2009 with a very similar value proposition around NAS acceleration, but then buckled as investors lost interest. CacheIQ acquired StorSpeed’s IP and a small number of its developers in July 2010. According to our understanding, Cache IQ had just started selling its products, with revenue still at only about $1m. We’ll have a full report on the deal in our next Daily 451.

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AOL’s MapQuest ‘Discovers’ Everlater

Ben Kolada

Contact: Ben Kolada

In a fairly rare M&A move, AOL has acquired online travel journal startup Everlater to expand its MapQuest offering into the travel industry. The announcement coincides with the launch of MapQuest Discover, an interactive travel planning and discovery tool. Although this appears to be AOL’s first acquisition specifically for MapQuest, it may not be the last.

Founded in 2008 and based in Boulder, Colorado, Everlater provides a free online travel journal for consumers, as well as a paid customer engagement and travel planning product called Concourse for companies in the tourism industry. The startup lists six employees on its site and had secured about $750,000 from incubator TechStars and venture firm Highway 12 Ventures. Terms of its sale were not disclosed.

The move by AOL is an attempt to reinvigorate its staid MapQuest mapping assets, with an apparent focus on consumers (MapQuest’s B2B licensing services revenue has been declining). The acquisition of Everlater also appears to be the first inorganic move AOL has made specifically to expand MapQuest beyond navigation to providing original travel content and planning features. (We’d note, though, that AOL has bought other local content companies, including Patch Media and Going Inc in 2009.)

To expedite the growth of MapQuest’s travel content and interactive features, AOL could do additional small acquisitions in the travel and tourism sector, similar to what TripAdvisor has done over the past half-decade. In the past five years, TripAdvisor has announced nearly a dozen travel-related acquisitions, including the recent pickups of Wanderfly, Where Ive Been and EveryTrail.

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

j2 Global anxious for growth

Ben Kolada

Contact: Ben Kolada

Cloud communications vendor j2 Global has acquired 85-year-old media firm Ziff Davis Media for $167m, undoubtedly the biggest strategic stretch of the 40 acquisitions it has done. The announcement comes just two months after j2 was rejected in its attempt to buy online backup firm Carbonite. The rapid-fire M&A attempts, and the oddball pairing with Ziff Davis, give the impression that j2 will eagerly spend its cash to buy top-line growth.

Founded in 1927, Ziff Davis is a technology media firm, operating the websites PCMag.com, Geek.com, ExtremeTech.com, ComputerShopper.com and Toolbox.com (the latter two sites were acquired this year). It has been sliced and diced throughout its lifetime. According to The 451 M&A KnowledgeBase, in just the past three years Ziff Davis has done five divestitures.

Although j2 didn’t provide a clear rationale for the deal, it notes that the company has years of experience in digital media and online marketing and that this acquisition would expand that experience. It claims that its experience in this market comes from its own spending on advertising, as well as from its email marketing product, Campaigner, which j2 obtained only in December 2010 as part of its Protus IP Solutions purchase.

Reading deeper into the announcement, however, the primary rationale for this transaction seems simply to add to j2’s top line. With this acquisition, j2 expects its total revenue this year to exceed the top of its previously guided $345-365m range. Ziff Davis is expected to contribute $60m in revenue next year.

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

Priceline gets KAYAK for a good price

Ben Kolada

Contact: Ben Kolada, Brenon Daly

For a price comparison website, KAYAK.com appears to be settling for a relatively low price in its purchase by online travel giant Priceline.com. At first glance, Priceline’s offer for KAYAK appears respectable. The $40-per-share bid is the highest KAYAK’s shares have seen in its short life on the Nasdaq. Using an enterprise value of $1.65bn, KAYAK is being valued at 5.8 times trailing revenue and about 5.6x full-year 2012 revenue.

But as we look closer, we see that KAYAK is being valued only slightly higher than Priceline’s current trading valuation, and that’s excluding any takeout premium for the acquirer. With an enterprise value of roughly $28bn, Priceline trades at about 5.5x trailing revenue and 5.3x 2012 revenue. (Priceline shares, which have tacked on roughly 15% so far this year, were unchanged on the news of its largest-ever acquisition.)

Valuation – especially for the acquirer – is a key concern in this transaction because unlike most tech deals, Priceline is covering almost three-quarters of the cost of its purchase with equity. Under terms, Priceline will hand over $1.3bn in stock and $500m in cash for KAYAK. As mentioned, paying with paper is relatively rare these days, because cash is king when it comes to M&A. In fact, according to The 451 M&A KnowledgeBase, Priceline’s acquisition of KAYAK is one of only 12 deals done by US public acquirers so far this year where stock has accounted for more than half the total consideration.

Despite faster growth, KAYAK’s valuation is only slightly above Priceline’s

Company EV EV/2012 projected revenue 2012/2011 revenue growth
Priceline $28.03bn* 5.3 21%
KAYAK $1.65bn 5.6 31%

Source: The 451 M&A KnowledgeBase, 451 Research estimates. *Calculated as of 11/8/12.

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The campaigning continues, at least on Wall Street

Brenon Daly

Contact: Brenon Daly

The election may be over, but some campaigns are continuing. At least that’s what’s happening on Wall Street, where two would-be buyers are trying to sway the electorate (directors and shareholders) in order to close acquisitions of two Nasdaq-listed tech companies. Whether or not either of these unsolicited efforts actually comes to a vote, well, that remains to be seen.

In the newest case, j2 Global earlier this week put a bear hug on Carbonite, pitching a (nonbinding, preliminary) offer of $10.50 for each share of the consumer-focused backup vendor. (J2 already owns almost 10% of Carbonite, having picked up the stake for about $20m in the open market in recent weeks.) Carbonite, which has traded mostly lower since its August 2011 IPO, rejected j2’s bid.

Meanwhile, Actian is not giving up on its two-month-old effort to land Pervasive Software. Earlier this week, it added 50 cents per share, or about $10m, to its original bid for the data-integration vendor. The $9-per-share offer from the buyout-backed company that used to be known as Ingres values Pervasive at its highest level in more than a decade.

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Talking M&A, once again

Brenon Daly

Contact: Brenon Daly

It’s hard to get a read on the M&A market right now. For instance, many companies are struggling to put up any growth – and yet are still getting rewarded with above-market valuations. Meanwhile, overall M&A spending is currently running about one-quarter below last year, but we just recorded the single largest tech deal in a half-decade.

To get a view on the M&A market – from the actual participants in it – please join us Thursday, November 8 at 1:00pm EST for our semiannual webinar on the M&A Leaders’ Survey, a joint survey from 451 Research and law firm Morrison & Forrester. (451 Research subscribers can also see our full report on the recent survey.) To register for this free webinar, click here.

In the webinar, we’ll cover what’s happening in the market right now as well as the outlook for the next half-year, both in terms of M&A activity and valuations. We’ll also have specifics on where deals are getting hung up. In addition to the broad market overview from 451 Research, Morrison & Foerster will offer insight on key findings about term sheets, escrow and other fundamental parts of M&A agreements. Please join us for the webinar on Thursday at 1:00pm EST by registering here.

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

Brocade adds virtual routing capabilities with Vyatta buy

Ben Kolada

Contact: Ben Kolada

To add virtual networking to its storage portfolio, Brocade announced on Monday the all-cash acquisition of software-based virtual routing vendor Vyatta. The deal announcement reads as a tech and talent tuck-in, though it does also provide access to several Vyatta customers that are already implementing virtual networking.

Vyatta provides network routing, load balancing, address management, quality assurance, monitoring, administration and debugging software and hardware for businesses globally. Its software is used to manage both physical and virtual networks. The company started out with a virtual networking product with not only open APIs, but also open source software (Vyatta means ‘open’ in Sanskrit).

Brocade explained that the rationale for the deal was to complement its R&D investments in Ethernet fabrics and software-defined networking. But the enterprise networking and storage provider could also use Vyatta’s foothold in the virtual world to anchor its next steps. With the Vyatta buy, Brocade gains access to a set of customers that are already well along in their virtual networking implementations.

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