Category: M&A

Healthy M&A activity in medical speech recognition and transcription

Ben Kolada

Contact: Ben Kolada

There’s seemingly been a burst in deal volume in the niche medical-focused speech recognition and transcription market lately. On Thursday, iMedX announced the acquisition of Electronic Medical Transcription Services (eMTS), capping off a growing line of acquisitions in this sector. Driving deal flow, among other things, is healthcare professionals’ increasing use of transcription and voice recognition systems and various legislation being passed that provides incentives for digital clinical documentation.

One such bill is the Health Information Technology for Economic and Clinical Health Act, also known as the HITECH Act, which became law in 2009. HITECH provides incentives for healthcare providers to use electronic health records, which store clinical data in a digital format.

Although the eMTS buy is likely quite small in the grand scheme of things, there is big M&A money being poured into medical speech recognition and transcription deals.

Earlier this month, One Equity Partners bet its money on this market when it announced that it was taking M*Modal private for $840m, or $1.1bn when including $260m of net debt. That transaction was announced almost exactly a year after M*Modal was acquired by rival MedQuist, which assumed the target’s name.

We’ve previously written that Nuance Communications, with its Nuance Healthcare unit, has been a major consolidator in this sector. In March, Nuance announced that it was paying $313m for medical-focused rival Transcend Services – its largest purchase since its last significant medical acquisition in April 2008, when it paid $363m for eScription. Nuance’s Healthcare division generated $583m in trailing sales as of March 31.

Recent select M&A in medical transcription and speech recognition

Date announced Acquirer Target Deal value
July 2, 2012 One Equity Partners M*Modal $840m
March 7, 2012 Nuance Communications Transcend Services $313.5m
August 15, 2011 Nuance Communications Loquendo $75m
July 14, 2011 Nuance Communications Webmedx Not disclosed
July 11, 2011 MedQuist M*Modal $130m

Source: The 451 M&A KnowledgeBase

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Avnet adds to Q3 M&A jump with three acquisitions

Contact: Brian Satterfield

Technology M&A deal volume in the beginning of the third quarter is far outpacing the year-ago period, with particular help coming from IT distribution giant Avnet Technology Solutions. The Phoenix-based firm has already announced three acquisitions this quarter. (Overall, Q3 volume through July 10 hit 119 deals worth $9.8bn, versus just 71 deals worth $6.7bn in the year-ago period.)

Continuing with an M&A strategy that it has employed frequently in the past, Avnet further extended its global IT distribution footprint last week by purchasing three foreign competitors.

The first couple of acquisitions Avnet announced – German IT distributors Magirus and Altron – bolstered the company’s European presence. Magirus and Altron give Avnet access to more than 6,500 customers in the region and mark the company’s third and fourth buys in Germany. After taking a brief break for the US’s Independence Day, Avnet returned to its international dealings last Thursday, reaching into Japan for 40-year-old semiconductor distributor Internix. Internix generated $260m in trailing revenue, making it one of the largest targets Avnet has ever acquired.

Inorganic international expansion is fairly typical among large IT distributors. Nearly all (80%) of the 26 IT distribution firms Avnet has acquired over the past decade have been headquartered overseas. Competitor Ingram Micro has also employed this approach in 11 of its 13 distribution acquisitions. However, we’d note that international expansion isn’t the only game being played. Ingram Micro’s biggest deal, which also came last week, wasn’t made in the interest of moving into new geographies. Ingram Micro announced on July 2 the priciest acquisition in the distribution sector in nearly four years when it paid $650m for Indianapolis-based BrightPoint in order to strengthen its mobile device offerings.

KANA Software sharpening M&A blade, acquires Ciboodle

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Contact: Thejeswi Venkatesh, Ben Kolada

Since being taken private by Accel-KKR in early 2010, KANA Software has revved its M&A engine. On Tuesday, KANA announced its fourth acquisition since its take-private, picking up call-center software veteran Ciboodle from Sword Group to bolster its agent desktop, business process management and social CRM capabilities. The Ciboodle buy is KANA’s latest deal as it inorganically moves to become a more robust platform for customer-centric support processes across channels and devices.

KANA’s acquisitions have focused on adding social capabilities to its platform and better serving the SMB market. In April 2011, the company bought social media monitoring company Overtone. KANA then integrated the target’s social analytics and infused key areas of its core platform with its own social CRM capabilities, resulting in a simple-to-use tool for support agents to identify issues or receive service requests via popular social networks. Last April, in an attempt to better serve the midmarket, KANA added more cloud clout by reaching for Trinicom. Arma Partners, which advised KANA on its acquisition of Lagan Technologies in October 2010, advised the company again on the Ciboodle purchase. We’ll have a longer report on KANA’s Ciboodle buy in tonight’s Daily 451.

KANA M&A since its take-private by Accel-KKR

Date announced Target Target abstract
July 10, 2012 Ciboodle Call-center software provider
April 24, 2012 Trinicom Customer service automation SaaS
April 5, 2011 Overtone Social media monitoring SaaS
October 6, 2010 Lagan Technologies Call-center software provider

Source: The 451 M&A KnowledgeBase

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Cypress squeezes a bit hard in its bear hug

Contact:  Thejeswi Venkatesh, Ben Kolada

Having increased its offer to buy rival Ramtron International once already, Cypress Semiconductor may have to get ready to do so again. Ramtron’s board unanimously rejected Cypress’s latest bid of $2.68 per share, claiming the deal undervalued the company. Investors continue to agree with Ramtron. Shares of the Colorado Springs, Colorado-based company have consistently traded above Cypress’s unsolicited offer, closing at $3.08 Thursday. That’s about 15% higher than the raised bid.

Cypress’s new offer values Ramtron at 1.4 times trailing sales, only a smidgen above the 1.3 times valuation Ramtron received in Cypress’ initial bid. In comparison, Cypress’s revised offer is also far below its own valuation of about 2.2x trailing revenue.

If Cypress doesn’t come up with a topping bid, it risks losing Ramtron to a competitor. There are already other obvious suitors – most notably STMicroelectronics and Atmel – that have shown both the ability and willingness to make sizable acquisitions. STM ended the March quarter with $1.9bn in cash on its balance sheet while Atmel ended it with $299m. In February 2008, Atmel bought microcontroller designer Quantum Research Group for $88m while STM’s biggest deal to date was its purchase in April 2008 of NXP Semiconductors’ wireless semiconductor business for $1.5bn.

M&A fireworks to start July

Brenon Daly

-Contact: Brenon Daly

Although total tech M&A spending in the first half of 2012 is down one-third from the previous year, the third quarter has started with a bang. Even with the midweek holiday, the opening week of the new quarter has seen unusually strong deal flow, with several big-name buyers sealing gigantic deals. For instance, Dell’s (apparent) winning bid for Quest Software would be the company’s largest transaction in almost three years while Micron Technology’s move to consolidate bankrupt DRAM provider Elpida Memory is twice as big as any deal the chip vendor has done in the past.

Boosted by this pair of multibillion-dollar transactions, the aggregate value of acquisitions announced so far in July has topped $8.7bn. To put that into perspective, that compares to just $13.8bn for the entire month of July in 2011. So although it is early, spending this month is well on its way to exceeding the level from last July. Provided M&A activity continues tracking that way for the month, July would mark only the second time in 2012 that individual monthly totals have topped the level from the same month of 2011. (See our full Q2 report for more on the state of the M&A market.)

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%

Source: The 451 M&A KnowledgeBase

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Micron acquires bankrupt Elpida to consolidate DRAM market

Contact: Thejeswi Venkatesh, John Abbott

Micron Technology on Monday announced its largest acquisition – the $2.5bn purchase of Japanese rival Elpida Memory. The announcement comes five months after Elpida filed for bankruptcy, with a whopping $5.6bn of debt on its balance sheet. Under terms of the agreement, Micron will pay $750m for all of Elpida’s equity and $1.75bn over seven years in interest-free installments to the firm’s creditors.

Micron hopes that its consolidation move will help stabilize DRAM supply, while also strengthening its product reach into new areas. In particular, it will be targeting mobile DRAM for smartphones and tablets, which command higher market prices. Elpida has a strong product portfolio in this area and is a key supplier for Apple.

The industry-wide decline in prices due to oversupply has troubled all DRAM players, including Elpida. But Micron’s DRAM unit has fared better than most. While Elpida suffered a $1.2bn loss on $4bn in sales in 2011, Micron’s DRAM unit generated a profit of $290m on $3.2bn in sales.

The combined company will create the second-largest DRAM player, behind only Samsung, but ahead of number three player SK Hynix. By Micron’s calculations, these three vendors will control up to 90% of the $30bn memory chip market. Most of the remaining 10% is held by three smaller Taiwanese players: Nanya Technology (owned by Formosa Plastics), ProMOS Technology and Winbond Electronics. All of these smaller companies are currently losing money. Micron already holds a 40% stake in another struggling player, Inotera Memories, in which Nanya also holds a 26% stake.

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Tech M&A stuck in low gear

Brenon Daly

Contact: Brenon Daly

Tech dealmakers continued to stay on the sidelines in the just-completed Q2 as worries about the slowing US economy and a financial collapse in parts of Europe had them rethinking their acquisitions. Spending on deals across the globe in the April-June period plummeted to $43bn, a 40% slide from the same quarter in 2011. Further, the number of transactions slid 9% year-over-year to 878 – the lowest quarterly total in a year and a half.

On a year-over-year basis, tech M&A spending declined in every month of Q2. Viewed more broadly, that means that buyers have spent less money on deals in five of the six months so far in 2012 compared with 2011. The waning activity has left the total value of acquisitions announced in the first half of 2012 at its lowest level in three years. Somewhat ominously, the spending rate so far in 2012 puts the full-year level at almost exactly the same level as the recession-wracked year of 2009.

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 282 $16.8bn Down 30%
April 277 $14.1bn Down 47%
May 310 $15.6bn Down 47%
June 291 $13.3bn Down 20%

Source: The 451 M&A KnowledgeBase

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

Shallow pool in mobile optimization becoming shallower

Ben Kolada

Contact: Ben Kolada

After Allot Communications dipped its toes into the pool of mobile optimization targets by acquiring small Ortiva Wireless, Citrix cannonballed with the acquisition of Bytemobile. These two deals significantly drained the already shallow pool of acquisition targets in this market. Interested buyers should dismiss the ‘don’t run when wet’ precaution, and jump in before there’s no water left.

Consumers are buying data-intensive devices in droves, and data consumption is exploding as a result. Because seamless data use is considered a right rather than a privilege these days, cell carriers unable to provide flawless transmission risk customer desertion. Tackling this concern, mobile operators are employing every option available to relieve their bandwidth bottlenecks, including relying on a new breed of mobile traffic optimization firms.

As these upstarts emerge as viable solutions, they’re becoming increasingly attractive acquisition targets both for the vendors that traditionally have served telcos, and for non-traditional vendors hoping to pull in cash-rich telco customers.

However, interested acquirers need to move fast. In a recent report, we identified 11 remaining vendors, ranging from pre-revenue firms to established midmarket players. But less than half of those vendors target mobile optimization as their core business. Click here to see who we think may be next in the buyout line.

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

U-Blox acquires Cognovo in LTE chip push

Contact: Thejeswi Venkatesh

U-Blox has announced the acquisition of UK-based software-defined-modem designer Cognovo for $16.5m in cash. Switzerland-based U-Blox, best known for designing GPS receiver modules, will combine baseband chip technology from Cognovo with the 4G stack from 4M Wireless, a company it bought in April for $9m. The combined technology will further its push toward gaining market share in LTE chips. Growthpoint Technology Partners advised Cognovo.

Cognovo was founded in early 2009 and is based in Cambridge. Shortly after its founding, chip giant ARM Holdings handed over its Vector Signal Processor (VSP) technology to Cognovo in exchange for a 15% equity stake in the company. ARM also provided convertible debt financing to Cognovo and held a seat on the target’s board.

In recent months, the explosion in smartphones has set off a race for spectrum that has resulted in the fragmentation of frequency bands and wireless technologies. Each band requires specific chip and antenna support, making it difficult for phone manufacturers like Apple and Samsung to support all bands without compromising on cost and performance.

Cognovo helps overcome this problem by defining wireless modem functionality in the form of a software program that is independent of hardware design. To help meet mobile phone power-consumption requirements, Cognovo uses VSP, which provides an architecture and instruction set that is optimized for wireless algorithms.

Independent now, but will independenceIT someday be acquired?

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

Application hoster and desktops-as-a-service provider independenceIT (iIT) announced on Wednesday the tech-and-talent acquisition of cloud management platform Veddio Cloud Solutions. The cloud aggregator’s dashboard platform will be used to control iIT’s cloud workspace products. According to The 451 M&A KnowledgeBase, this is iIT’s first acquisition on record, but it won’t be its last. As it continues to fill out its product platform, will the company someday turn from acquirer to acquired?

Veddio offers a dashboard application that integrates services from a variety of Internet infrastructure providers, such as telco competitive carriers and MSPs. Through its dashboard, Veddio offers white-label application and cloud hosting, hosted PBX, email hosting, managed firewall, domain name registration, software virtualization and data backup and recovery services. As of the acquisition announcement, the five-employee firm had approximately 150 channel partners.

Though this is iIT’s first acquisition, according to our records, the company is planning additional inorganic moves both in the short and long term. We’re told it is eyeing another tech-and-talent acquisition. Specific details weren’t provided, but the next play will likely focus on the delivery of cloud services.

We’d also note that, although currently becoming more of an acquirer, independenceIT could someday become acquired. The small firm (it has 31 employees) could already be considered a prized target. The pickup of Veddio should provide for triple-digit-percent growth and when we last covered iIT, in 2010, we noted that it had already been profitable for two years.

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