Category: M&A

Oracle adds network virtualization with Xsigo

Brenon Daly

Contact: Brenon Daly, John Abbott

A week after VMware made its network virtualization play with the blockbuster purchase of Nicira Networks, Oracle has expanded its own virtualization portfolio by reaching for I/O virtualization startup Xsigo Systems. Although both startups loosely fall into the category of ‘software defined networks’ (SDNs), Xsigo itself used that description only sparingly to talk about its business. And if we look deeper at the two deals by the serial acquirers, we see they’re actually quite different.

For starters, the targets were at very different stages of commercial deployment. Nicira only had a handful of customers, and we understand that it still measured its revenue in the single digits of millions of dollars. In contrast, Xsigo indicated that it had tallied roughly 550 deployments since it began shipping its product some five years ago. It was generating revenue in the tens of millions of dollars, according to our understanding.

Further, the strategic drivers for each of the networking acquisitions are quite different. For VMware, the purchase of Nicira represents its grand plan to do to switches through virtualization what it has already done to servers through virtualization. For Oracle, there’s arguably a more focused goal for Xsigo, at least in the near term. My colleague John Abbott speculates that Xsigo’s technology is likely to be deployed as a means of providing a broader virtualized network fabric to surround Oracle’s Exa family of systems, boosting the number of available network and storage connections and making them more suitable for hosting cloud services. Look for our full report on Oracle’s acquisition of Xsigo in tonight’s Daily 451.

Facebook saves faces with Instagram, at least for now

Brenon Daly

Contact: Brenon Daly

There wasn’t much to be wildly bullish about in Facebook’s initial financial report as a public company on July 26. At least that was the view on Wall Street, as shares of the social networking giant slumped around 10% to their lowest level since the mid-May IPO. The one bright spot, however, is the continued stunning growth of Instagram.

Just ahead of the financial release, Instagram indicated 80 million people are now using the photo-sharing application. That’s more than twice the number of users that Instagram had when Facebook announced the acquisition in April. Additionally, some four billion photos have been shared over Instagram.

Of course, it’s important to note that Facebook hasn’t actually closed the acquisition. Moreover, even when it does close, there won’t be much – if any – direct impact on Facebook’s financial statements from Instagram, which is free to use. (The payoff from mobile advertising, which was the primary driver for the acquisition, is some time off for Facebook.)

Not to be cynical, but we couldn’t help but think that there might be (just maybe) something going on behind the scenes around the timing of Instagram’s boastful release. Investors have a much more jaundiced view of CEO Mark Zuckerberg’s impetuous decisions – including his hasty agreement to drop $1bn on Instagram – now that they are losing money on him.

So perhaps it was important for Facebook to show that it is getting an early return on its largest-ever acquisition. That might have been even more important because social gaming company Zynga – whose fortunes are tied to Facebook in many ways – got pummeled on Wall Street after indicating people just aren’t into its games as much as they once were. One specific area of weakness that Zynga indicated: Draw Something, which Zynga picked up as part of its largest-ever acquisition.

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

VMware’s new era with Nicira

Brenon Daly

Contact: Brenon Daly

Having built a business valued in the tens of billions of dollars by virtualizing computing, VMware is now using its largest-ever acquisition in an effort to bring virtualization to networking. VMware will hand over a total of $1.26bn for startup Nicira. It’s a significant gamble for VMware, both strategically and financially.

The purchase is more than three times the size of VMware’s next-largest acquisition, and is roughly equal to the amount the virtualization kingpin has spent on its entire M&A program since parent company EMC spun off a small stake in VMware a half-decade ago. (VMware will cover the cost of the purchase from its treasury. As of the end of June, it held $5.3bn in cash and short-term investments, and it has generated $2bn in free cash flow over the past year.)

VMware has positioned Nicira, a company that only recently emerged from stealth, as a key component of its effort to put software at the core of datacenters. VMware has done that with servers – and to some degree, storage as well – by using software to essentially commodify hardware. It’s an approach that appears to undermine a once-cozy relationship with networking partner Cisco Systems. Incidentally, shares of the switch and router giant are currently at their lowest level in about a year, and it announced another round of layoffs at almost exactly the same time that VMware announced its big networking acquisition.

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

RealPage getting social, acquiring RentMineOnline

Ben Kolada

Contact: Ben Kolada

With seemingly all consumer-facing tech now trending toward social, why shouldn’t property management software vendor RealPage get in on the game as well?

The company took a step in that direction on Monday, when it announced the $6m acquisition of SaaS startup RentMineOnline, a rental-marketing startup that enables property managers to set up campaigns that residents use to recommend their rental property to friends through email and social networks.

RealPage is handing over $6m, with an earnout of up to $3.5m based on an unspecified revenue milestones. Excluding the earnout, the deal values RentMineOnline at 4x trailing sales (it generated approximately $1.5m in revenue for the 12 months ended June 30). The San Francisco-based company was founded in 2007 and had taken funding from fbFund, Partners in Equity, Seed Camp, and Alex Hoye, the former CEO of GoIndustry, which closed its $31m sale to Liquidity Services earlier this month.

The deal is a complementary addition to RealPage’s LeaseStar service. In announcing the acquisition, RealPage stated the intent was to build up its LeaseStar multichannel managed marketing service, which enables property owners and managers to market and secure rental leads more effectively.

And for a bit of irony, although RentMineOnline was headquartered in San Francisco, we expect its platform will have a greater effect in almost any market but the City by the Bay. Rental costs in San Francisco have skyrocketed recently, leading to a ‘beggars can’t be choosers’ environment where apartment seekers are likely to take whatever option is available, whether the apartment was recommended or rejected.

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

Dell’s hard drive into software

Brenon Daly

by Brenon Daly

Dell plans to more than triple the size of its software business in the coming years, underscoring the tech giant’s transition away from its origins as a box maker. The software division is currently running at around $1.5bn, and John Swainson, the recently appointed president of Dell Software, laid out a target of $5bn in sales for the unit. M&A will continue to help move the company toward that target, he added.

In many ways, the transition that Dell is going through is one that IBM has already been through. Indeed, Swainson and a number of other executives (Tom Kendra and Dave Johnson, among others) that are charged with building out Dell’s software portfolio helped do the same thing at Big Blue. Each of the three executives spent a quarter-century at IBM.

Dell has been a steady buyer of software, with all six of its acquisitions so far this year adding to the company’s software portfolio. The largest, of course, is the recently announced $2.5bn purchase of Quest Software, expected to close later this quarter. While that acquisition brought some much-needed heft to Dell’s software portfolio, Quest was viewed by many as a mixed bag of businesses, including some (such as data protection) that directly overlapped with existing Dell products.

For the software business, Swainson also set out the rather ambitious goal of growing it in the ‘mid-teen’ percentage range. Clearly, that was a long-range goal, one that implies a significant acceleration of existing business as well as a regular contribution from acquisitions. Still, the projection seems like a bit of a stretch. Consider that IBM – a model for Dell – has increased revenue in its software business just 2.5% so far this year.

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

NetScout pleases investors, telco customers

Ben Kolada

Contact: Ben Kolada

NetScout Systems on Thursday found itself in the fortunate position of pleasing both investors and customers. The company reassured its investors by announcing better-than-expected revenue in its FY 2013 first quarter, and in a separate announcement, also reassured its telco customers with the tuck-in acquisition of certain of Accanto Systems’ service assurance assets.

On the financial front, NetScout reported that revenue came in at the high end of its previously reported guidance. The company generated $76.4m in its FY 2013 first quarter, a 21% increase over the year-ago period and above the $74.7m that analysts had been expecting on average. Net income for the quarter grew 109%, to $5m. Shares of NetScout were up 12% in midday trading.

Somewhat overshadowed by NetScout’s earnings call was the small tuck-in acquisition of certain of Accanto’s service assurance assets. Accanto provides service assurance products that enable telcos to monitor and manage the delivery of voice services over converged telecom networks. NetScout is purchasing Helsinki-headquartered Accanto’s Pantera hardware probes and middleware and session analysis applications assets, which are based in Modena, Italy.

Although the acquisition announcement was secondary to the earnings release, the deal is still welcome news to NetScout’s telco customers. NetScout claims that the intent of the deal is to extend its own nGenius Service Assurance product’s control plane and data plane monitoring capabilities. NetScout said in the press release announcing the transaction that Accanto’s assets will bolster nGenius Service Assurance’s support for NGN voice services, including IP multimedia subsystems, and add incremental support for legacy circuit-switched voice, including SIGTRAN and SS7.

The acquisition, which includes the assumption of approximately 35 Accanto employees, is expected to be EPS-neutral. Mooreland Partners advised Accanto on the sale, which is expected to close this month.

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

VHS-era Autodesk stretches in acquisition of mobile video startup Socialcam

Brenon Daly

Contact: Brenon Daly

Autodesk is no Facebook, but the latest deal by the 30-year-old, battle-worn enterprise software vendor looked like it came from the M&A playbook of one of the new generation of tech buyers. In one of the oddest pairings of new and old, Autodesk, which belongs squarely in the VHS era, said it would hand over $60m for one-year-old Socialcam, a mobile video-sharing service that’s sort of an Instagram for videos. Even though the financial impact is muted (Autodesk has $1.5bn – enough to cover an Instagram and a half – in its treasury), the purchase of Socialcam is a huge stretch for the company.

For starters, there’s no clear way for Autodesk, which sells products primarily to engineers, to make money from consumer-focused Socialcam. While Autodesk touts the fact that Socialcam has been downloaded 16 million times, that doesn’t get Autodesk any closer to the $600m in revenue it has to put up every quarter. (Meanwhile, the deal will lower Autodesk’s earnings for the rest of the year, at least on a GAAP basis.) It’s EPS – rather than eyeballs – that’s the relevant financial metric for Autodesk.

Of course, it’s understandable that the explosive growth of Socialcam and other consumer-oriented companies looks tantalizing to Autodesk and other tech giants posting single-digit-percentage revenue increases. However, that M&A enthusiasm needs to be tempered by the fact that getting a return on an acquisition that doesn’t really fit into the existing business model can prove challenging. That’s particularly true with a company like Autodesk that can’t monetize the acquisition by just throwing a bunch of advertisements against the audience that an app like Socialcam has collected. Like we said, Autodesk is no Facebook.

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

Mayer leaves M&A-happy Google for M&A-shy Yahoo

Brenon Daly

Contact: Brenon Daly

Well, we have to assume that Marissa Mayer knew what she was doing Monday when she abruptly jumped from Google to take the top job at Yahoo. But one thing we figure she won’t be doing at her new job (at least not right away) is deals. Beyond simply the typical ‘M&A freeze’ that comes with a new boss setting new strategies and processes, Google and Yahoo represent polar opposites when it comes to acquisitions.

Yahoo, which is struggling to find its direction, has been out of the M&A market since last November, when it dropped $270m in cash on interclick. That’s eight months without an acquisition at the onetime Internet search kingpin. When it was healthier, Yahoo would typically do a half-dozen deals or so each year.

During that same eight-month span, Mayer’s now-former employer, Google, announced 11 transactions. And it isn’t just the rapid-fire pace of a deal every three weeks that’s remarkable. It’s also the far-flung variety of the transactions. Since last November, Google has done acquisitions around mobile technology, social networking, online advertising, Web application development and other areas.

And if Mayer needed any more reason to be cautious with M&A when she steps into the corner office at Yahoo, we might recall what happened the last time a high-profile CEO who was brought in to rescue a tech stalwart did a make-or-break acquisition. In many ways, Hewlett-Packard still hasn’t recovered since Leo Apotheker’s $11bn gamble on Autonomy Corp a little more than a year ago. All the more reason we don’t expect Yahoo to be doing big deals anytime soon.

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

Gigamon eyes IPO even as a market stalls

Brenon Daly

Contact: Brenon Daly

Despite the crosscurrents in the IPO market, Gigamon has put in its paperwork for a planned $100m offering. The network traffic management vendor runs solidly in the black and has been increasing revenue at about a 50% clip in recent years. It finished 2011 with revenue of $68m and, assuming its growth rate continues, will wrap this year at roughly $100m. (Most of the revenue – between two-thirds and three-quarters of overall sales – comes from products, with associated services generating the remainder.)

Eight-year-old Gigamon competes with network heavyweights such as Cisco Systems and Juniper Networks, while a number of other companies have acquired technology that makes them rivals as well. Just in the past two months, Ixia paid $145m for Anue Systems while Danaher added VSS Monitoring. (Subscribers to 451 Research can see our full report on the transaction, including our estimate of the undisclosed terms.)

The proposed offering from Gigamon comes at a time when the IPO market is still struggling to find its footing: On the same day Gigamon put in its S-1, MobiTV withdrew its. And while the market should get a bit hotter this week with the expected debut of Palo Alto Networks, many investors are still underwater on their Facebook shares. The IPO of the fast-growing social networking firm was supposed to serve as a catalyst for the market, but instead deteriorated into a mishandled offering that has sparked lawsuits and losses.

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To remain relevant, Neopost acquires GMC Software

Contact: Thejeswi Venkatesh, Ben Kolada

In an attempt to remain relevant in the 21st century and beyond, French mailing and shipping systems provider Neopost announced on Thursday that it is acquiring its Swiss partner, GMC Software Technology. GMC provides customer communications management software that enables businesses to design and publish print and online marketing content as well as create and manage customer surveys.

By now, everyone knows that physical mail is a thing of the past. Consumers across the globe have turned to email and other digital communication methods. Unless Neopost modernizes its product line, it risks becoming obsolete. The GMC pickup is an attempt to remain relevant in a digital world. Right now, four of the five products Neopost lists on its website are postage meters, folder inserters, addressing systems and letter-opening systems. Not exactly futuristic products.

GMC’s software helps combine data from different databases to create customized communications for each customer in a dynamic manner. The software also helps measure and track customer responses to improve future communications. The Swiss company, which has had particular success in the banking and insurance verticals, generated revenue of about $45m last year (based on year-end exchange rates). The headcount-heavy firm employed 300, including 130 engineers.

Neopost hasn’t yet disclosed the price it is paying for GMC, but in the conference call discussing the transaction the company said it paid about 2 times revenue, and noted that the deal also includes a significant earnout based on aggressive revenue goals.