Category: M&A

ASML acquires Cymer to accelerate next-gen manufacturing technology

Contact: Thejeswi Venkatesh

Dutch company ASML Holding, which supplies lithography systems to chip manufacturers like Intel and Texas Instruments, has announced the acquisition of its own supplier Cymer for $2.5bn. ASML integrates Cymer’s light sources into its lithography tools, which it then sells to chipmakers.

ASML says the acquisition accelerates the development of next-generation manufacturing technology, which is needed to create energy-efficient microchips with more functions at a lower cost. The deal comes just three months after Intel invested $4.1bn in ASML to speed the development of advanced manufacturing tools.

Cymer shareholders will receive $20 in cash and 1.1502 ASML shares, valuing each Cymer share at $81.60, which is their highest-ever price. It’s also an eye-popping 70% premium over the company’s Tuesday close, and values it at 4.3 times trailing sales. On the announcement and a relatively weak financial outlook, ASML stock dipped 8% on heavy trading.

The deal is only ASML’s second and largest ever, according to The 451 M&A KnowledgeBase. In December 2006, ASML bought EDA tools vendor Brion Technologies for $270m.

Is Wall Street readying to play Violin?

Brenon Daly

Contact: Brenon Daly

Even as enterprise-focused IPOs have come back into fashion, one key sector of the IT stack has missed out on the recent parade of multibillion-dollar offerings: storage. Indeed, Wall Street has only really seen one new arrival from the enterprise storage market since a flurry of IPOs a half-decade ago that included Data Domain, Isilon, 3PAR and others. Of course, investors can’t buy shares in hardly any of the storage vendors that went public in 2007-2008 because they’ve pretty much all been snapped up by larger companies.

But there very well may be a new storage company coming to market shortly in what should be a hot offering. Violin Memory is rumored to have filed its IPO paperwork in a confidential filing with the SEC and plans to debut in early 2013. We understand that J.P. Morgan Securities, Deutsche Bank Securities, Bank of America Merrill Lynch and Barclays Capital will lead the planned $300m offering.

Market sources have indicated that the fast-growing flash array provider is targeting an initial valuation of more than $1.5bn, which would be twice the price of its latest funding round. It raised $50m in March. We understand that Violin will record about $125m in sales in the current year, which wraps at the end of January. That would be more than twice the revenue it recorded last year.

Assuming Violin does make it public in January, it would be the first significant enterprise storage offering since fellow solid-state storage startup Fusion-io hit the market in mid-2011. That company debuted at a $1.8bn valuation and has added another $1bn to its market capitalization since then.

The relative drought in storage IPOs stands out even more when we consider the fact that we’ve seen high-flying IPOs from nearly all the other sectors supplying the technology that keeps businesses running. In terms of application software, Workday debuted on Friday at a staggering $7.8bn, while the standout infrastructure software offering, Splunk, has created $3bn in market value since its April debut. Palo Alto Networks, an IT security vendor that went public three months ago, is currently valued at $4.2bn. Even the networking sector has a pair of players ready to hit the market shortly, with both Gigamon and Ruckus Wireless on file now.

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

Will SoftBank-backed Sprint look to M&A?

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

After churning through the rumor mill for the past half-week, official word came Monday that Japanese telco SoftBank is making a significant investment in Sprint, the third-largest mobile carrier in the US. SoftBank is acquiring 70% of Sprint in exchange for approximately $20bn, of which $12bn will be distributed to shareholders in exchange for 55% of the existing company. The remaining $8bn will be used for network expansion, primarily related to deploying 4G LTE. Beyond those efforts, the new Sprint could look to use some of its newfound cash to expand via M&A.

In announcing the deal, Sprint noted that this investment comes at a prime time. The company is continuing to execute on a multiyear turnaround. After Dan Hesse took the helm in December 2007, he spent the next three years focused on reversing Sprint’s customer attrition and improving its beleaguered brand. (Of course, some of those difficulties stemmed from its acquisition of Nextel in 2004. However, regarding customer service, those issues have largely been resolved, as the table below shows.) SoftBank’s move comes during Sprint’s investment phase, where it is now focused on building out its network and improving operational efficiency.

Now, with a stronger balance sheet, we wonder if SoftBank-backed Sprint will look to M&A for accelerated expansion. SoftBank has already shown a willingness to consolidate telecom assets in its home Japanese market. Earlier this month, it announced that it would buy Japanese wholesale broadband provider eAccess for $1.84bn. And in 2006, it picked up Vodafone K.K., the Japanese mobile unit of Vodafone Group, for about $16bn.

Although Sprint has struggled with M&A in the past, it could be spurred to move once more, as there are only a finite amount of targets left in the US and one was recently removed from reach. Earlier this month, T-Mobile announced that it was acquiring MetroPCS, which had long been rumored as a Sprint acquisition target. After MetroPCS, the next most likely candidate for Sprint to buy is Leap Wireless, which, including its cash and debt, is valued at about $3.2bn.

Wireless service provider satisfaction rating by company – ranking of customers who say they are very satisfied with their current wireless provider

Rank October 2006 September 2012
1 Verizon – 45% Verizon – 48%
2 T-Mobile – 33% Sprint – 32%
3 Cingular (now known as AT&T) – 30% T-Mobile – 28%
4 Sprint – 25% AT&T – 21%

Source: ChangeWave Research

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

Survey: What’s ahead in the M&A market?

Brenon Daly

Contact: Brenon Daly

To get a read on the increasingly difficult-to-read M&A market, 451 Research and Morrison & Foerster are once again teaming up to survey senior members of the dealmaking community. Our quick survey touches on overall M&A activity and valuations (both current and forecast levels), as well as a handful of specific questions on deal structure and process.

The survey is similar to the one we ran last spring, with a few changes to bring in more timely questions concerning the current economic and political climate. (Click here to see our late-April report on the previous M&A Leaders’ Survey from 451 Research / Morrison & Foerster.) If you are a senior member of the M&A community and would like to be part of the wisdom of the crowd, please take a moment to fill in the survey before we close it at the end of the day tomorrow. The survey can be found here.

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

Lithium buys partner Social Dynamx for social support

Ben Kolada

Contact: Martin Schneider, Ben Kolada

Social marketing and customer support vendor Lithium Technologies announced on Tuesday the acquisition of its young partner, Social Dynamx. In January, Lithium secured a $53m series D funding round (bringing total funding to $101m) and said it planned to use the funds for product development and hiring. Apparently, this acquisition serves a bit of both of those goals.

Terms of the deal weren’t disclosed, though we suspect the consideration was a small amount of cash and stock. Austin, Texas-based Social Dynamx employs about 25 people, and all regular employees are expected to join Lithium. The companies had been tightlipped about their partnership, though we did uncover the relationship and provide more detail in a report we published in May.

Lithium is doing a couple of things here with its pickup of Social Dynamx. First, the company has been looking to move from internal, community-based support models for some time. While Lithium did partner with Social Dynamx, and the Social Dynamx offering powers the Lithium Response social support tool, owning the product outright can lead to deeper, more process-driven integrations around externally sourced support requests. For example, a deeper integration can allow the tool to identify ‘calls for help’ in social channels outside of Lithium’s communities, such as Twitter, and pull that individual (and his question or issue) into either a structured agent-assisted channel or a community-based support network. The notion is to deeply embed the ability to identify and scale cross-platform support requests into the Lithium platform.

Secondly, the move to acquire seems somewhat defensive. As competitors like Jive Software look to move from internal social collaboration into other areas like marketing and support (like Lithium has been doing over the past several quarters), this acquisition knocks out a potential agnostic partner for other social players. Lithium not only adds features, but also takes an easier route to wresting them away from other enterprise social vendors.

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

Box goes for integrations, not acquisitions

Brenon Daly

Contact: Brenon Daly

Box hasn’t been a buyer. The enterprise file-sharing and collaboration startup has only inked one acquisition in its history, and that deal was done exactly three years ago. Meanwhile, the market is rapidly consolidating around it, with both big and small buyers rounding out their technology portfolios. Just this year alone, Box’s consumer market rival, Dropbox, has inked three purchases.

It’s not like Box can’t afford to go shopping. Earlier this summer, the startup pulled in $125m in fresh funding, bringing its total amount raised to $287m. But so far, it hasn’t put that toward M&A, preferring instead to partner with a wide swath of companies. Indeed, partnerships are a major theme at BoxWorks 2012, its ongoing annual customer conference. At the two-day event, Box announced partnerships with Proofpoint for data loss prevention and GoodData for analytic dashboards, along with other initiatives.

Part of what has kept Box out of the market is that it has sought to establish itself as an open, inclusive platform vendor. As part of that strategy, companies tend to favor integration ahead of acquisition.

But there comes a point for many companies when they need to own the technology outright. For cloud stalwart salesforce.com, that point came when the company hit its seventh year in business, which is where Box finds itself now. In the half-decade since then, salesforce.com has reeled off 26 deals that have taken it far beyond its core sales force automation product and helped create some $21bn of the company’s market value.

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

Is Sucuri for sale?

Ben Kolada

Contact: Ben Kolada

Just a month after its newfound partner VirusTotal was scooped up by Google, antimalware detection and remediation startup Sucuri may be next on the auction block. Word has it that the two-year-old company is attracting takeover attention. That shouldn’t come as too much of a surprise, given the growth potential of the website antimalware monitoring market and the strategic importance companies are placing these days on their online presences.

Sucuri provides a website malware detection product and associated remediation service meant to prevent customers’ websites from being blacklisted by search engines, namely Google. The company’s software scans websites for malware infection and alerts the customer. Sucuri then provides a cleanup service to remove the malware. As businesses continue to transition from brick-and-mortar to e-commerce models, such services will become increasingly important to growing sales, especially during the upcoming holiday season. Given its short lifespan, we suspect that the company is currently generating less than $10m in revenue.

No word yet on which companies may be looking to acquire Sucuri, but the list likely includes mass-market hosting vendors and large security firms. Like its competitors, Sucuri’s go-to-market strategy so far has been partnering with hosting companies, though it also sells directly to customers. The company lists Web host ClickHOST as a partner, as well as a half-dozen WordPress hosting and site design vendors. As for possible security suitors, the most likely acquirers that immediately come to mind are Proofpoint, Kaspersky Lab, Websense, Symantec, AVG Technologies or AVAST Software.

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

After failed sale, T-Mobile returns as buyer

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

After failing to sell its T-Mobile USA subsidiary last year to AT&T for $39bn, Deutsche Telekom has pivoted from trying to exit the T-Mobile business to pushing it even deeper into the US market. The company announced on Wednesday that T-Mobile USA has reached a merger agreement with low-cost competitor MetroPCS in an intricately structured deal.

MetroPCS’s shareholders will receive $1.5bn in cash and 26% of the combined company. While that looks straightforward at first glance, the deal is structured as a reverse acquisition.

MetroPCS will pay its shareholders $1.5bn in cash (it ended the second quarter with $2.3bn in its treasury) and halve the number of shares outstanding by performing a 1-2 reverse stock split. MetroPCS will then acquire all of T-Mobile’s stock in exchange for a 74% stake in the combined company, leaving MetroPCS’s shareholders with a 26% holding. Though MetroPCS is technically the surviving entity, it will assume the T-Mobile name and will continue to trade publicly in the US.

The combined company is projecting 2012 pro forma combined revenue of just shy of $25bn. For comparison, the US’s third-largest cellular provider, Sprint, is expected to put up about $35bn in sales this year.

A bit of irony here is that analysts expected that the previously planned AT&T-T-Mobile merger would reduce competition and increase prices. However, in announcing their merger, T-Mobile and MetroPCS repeatedly claimed that the combined company would be a ‘value-focused’ provider – a pretty way of saying that it would be a low-cost carrier.

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

A double-dip for tech M&A

Brenon Daly

Contact: Brenon Daly

Three-quarters of the way through 2012, tech M&A activity is looking a lot like recession-plagued 2009. Spending on deals around the globe so far this year has slid to just $115bn, a decline of more than one-third compared with the same period last year and 20% lower than Q1-Q3 2010. The dealmaking slump comes amid a solid bull market for equities, with the Nasdaq up some 20% so far this year.

Looking ahead, the rate for the first three quarters puts the full-year 2012 on track for about $150bn in total M&A spending. Assuming that pace holds, that would roughly match the level of 2009 and would represent less than half the amount spent on tech acquisitions in each year from 2005-08. (We’ll have a full report on Q3 M&A activity in tomorrow’s Daily 451.)

The disconnect between the M&A and stock markets, which historically have been tightly correlated, suggests that activity in one of the markets doesn’t necessarily reflect fundamentals. If we had to guess which one is less rooted in reality, we would probably start with the Nasdaq, which has been trading above 3,000 since early August. The tech-heavy index hasn’t been at that rarified level in 12 years.

And yet, the run has come even as corporate earnings rates have slowed, the European debt picture remains unresolved and the US economy faces huge uncertainty around both elections and the potential expiration of measures that have stimulated the economy in recent years (the so-called ‘fiscal cliff’).

Of all the concerns that are keeping corporate buyers out of the market right now, we suspect that the lackluster earnings outlook is the main reason. We expect to hear more about that in two weeks or so, when the third-quarter earnings season kicks off in earnest.

But as one indication of how the reports might go, consider that a recent survey by ChangeWave Research, a service of 451 Research, of more than 2,600 corporate employees indicated that one of every three (33%) predicted that Q3 sales at their company would come in below plan, compared with just one in five (19%) who projected that their company would top expectations. The percentage seeing sales at their companies falling short has risen steadily throughout 2012. On the other side, the percentage seeing stronger-than-expected sales in Q3 is at its lowest level since the summer of 2009.

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

A September slump for tech M&A

Brenon Daly

Contact: Brenon Daly

Summer is always a seasonally slow time for M&A. But this year, it’s like no one was even at their desks to do deals at all. With September wrapping up, spending on tech transactions around the globe is coming in at its second-lowest monthly total of 2012. Even compared with September 2011, it was quiet this month: Deal value dropped almost 40%, year-on-year, to just $5.8bn.

To put that paltry deal total into perspective, consider that earlier this year, Cisco dropped almost that much on a single transaction, handing over $5bn for British set-top box software provider NDS. Indeed, we tallied only one acquisition valued at more than $1bn in September, down from an average of about three 10-digit deals in each month so far in 2012. Altogether, the slump in September activity means that M&A spending has now dropped in seven of the nine months this year.

2012 monthly activity

Month Deal volume Deal value % change in spending vs. same month, 2011
January 340 $4.1bn Down 65%
February 266 $10.4bn Up 16%
March 292 $16.8bn Down 30%
April 277 $14.1bn Down 47%
May 310 $15.6bn Down 47%
June 291 $13.3bn Down 20%
July 336 $21.1bn Up 52%
August 277 $10.3bn Down 74%
September 266 $5.8bn Down 38%

Source: The 451 M&A KnowledgeBase