Category: M&A

salesforce.com ‘acq-hires’ Microsoft talent by acquiring Thinkfuse

Ben Kolada

Contact: Ben Kolada

Taking a page from the playbooks of Google and Facebook, salesforce.com is ‘acq-hiring’ Microsoft-nurtured talent. The CRM giant announced on Tuesday the tiny acquisition of team collaboration SaaS startup Thinkfuse. The target immediately ceased operations and terminated its service, suggesting this was more of an acq-hire than anything else. Through the deal, salesforce.com gets its hands on about five employees, three of whom have had software engineering experience at Microsoft, according to their LinkedIn profiles.

Although three of the four acquisitions salesforce.com has announced this year (including Thinkfuse) have been tiny transactions, this small trend likely doesn’t represent a shift in M&A strategy. The company has a history of buying young firms, primarily for technology tuck-ins. According to The 451 M&A KnowledgeBase, the average time from when a company was founded to when it sold to salesforce.com is just under four years. What’s also notable, though, is that salesforce.com’s last team collaboration acquisition – Stypi, announced in May – was also a small acq-hire. However, the Stypi service is being maintained, at least for now.

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The (bargain) quest for Quest

Brenon Daly

Contact: Brenon Daly

Nobody wants you, then everyone wants you. In the year leading up to the proposed management buyout of Quest Software in early March, shares of the management software vendor had shed one-quarter of their value. (At one point in its slide last August, the stock dipped to $15 – its lowest point in two years.)

The ongoing bidding war, of course, has changed all that. Since sinking to its low-water mark last summer, Quest’s valuation has risen a cool $1bn, with an unidentified suitor (widely assumed to be Dell) bidding about $2.4bn for the old-line software company on Monday. The latest offer is $27.50 per share, some 20% higher than the $23 per share offered by Insight Venture Partners back in early March. Just to put some context around the price, Quest stock hasn’t changed hands above $30 in 11 years.

And yet, even with the four rounds of bumped bids, Quest is still trading slightly below the median valuation of significant acquisitions so far this year. According to The 451 M&A KnowledgeBase, the 50 largest transactions in 2012 have gone off at 3 times trailing sales. The latest bid for Quest values the company at 2.7 time trailing sales.

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LANDesk lands the largest MDM deal so far

Brenon Daly

Contact: Brenon Daly, Chris Hazelton

Two months ago, LANDesk Software switched from being a company that got bought to a company that does some buying of its own with the pickup of Managed Planet. (The old-line systems management vendor has had five owners in recent years.) LANDesk followed up that acquisition with another one earlier this week, reaching for mobile device management (MDM) vendor Wavelink. What’s more, the transaction is likely the largest one in the MDM sector so far.

Although terms weren’t disclosed, the deal triggered a Hart-Scott-Rodino (HSR) review, which would indicate that it is valued at more than the threshold level of $68m. (A source confirmed the HSR review of the transaction.) We understand that the price was actually closer to $90m, or about 4.5 times our estimated revenue for Wavelink of $20m. That would move LANDesk’s acquisition of Wavelink ahead of the sector’s previous big print, Symantec’s purchase of Odyssey Software. (Terms weren’t disclosed, but we estimate that Big Yellow paid $60m for its MDM partner Odyssey.)

As its own market segment, MDM emerged three years ago as iPhone and Android devices started popping up in offices and IT needed management tools since Research In Motion’s highly popular BlackBerry Enterprise Server did not support these devices at the time. Over the past 18 months, more than 80 vendors of varying sizes and sustainability have appeared to offer software and services to manage the ever-increasing number of smartphones and tablets.

That has tipped MDM toward commoditization, which is reflected in recent deal flow in the sector. For instance, big-name buyers such as Motorola Mobility, RIM and Numara have all done MDM deals valued at less than $10m, according to our estimates. However, there are a couple of medium-sized private MDM providers that are nearing breakeven and driving the evolution of this market to include application and data management.

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What’s a Smarsh to do?

Ben Kolada

Contact: Ben Kolada

Depending on which way the bidding goes for systems management vendor Quest Software, Smarsh’s future could change considerably. The compliance-focused archiving startup announced in February that it sold a majority of its equity to Quest, just three weeks before its newfound parent became the center of an ongoing bidding war. But one side’s plans for Quest post-close may not include Smarsh.

After the closing bell Tuesday, Vector Capital joined Insight Venture Partners and Quest’s management in announcing that they had increased their offer for Quest to $25.75 per share, for a total deal value of about $2.24bn by our calculations. The revised bid tops a competing offer from an unidentified suitor – widely believed to be Dell – that was announced last week.

While all eyes are on Quest at the moment, the continued bidding casts a shadow over who will ultimately own Smarsh. Right now, the company is seen as more of a Quest investment rather than an operating business unit.

If Insight and the rest ultimately win Quest, Smarsh could be considered just another portfolio company for the private equity firms. However, if that unidentified bidder is Dell, and Dell ultimately wins, Smarsh could soon be cast off, since Dell already offers archiving products competitive to Smarsh. In 2008, Dell acquired MessageOne – a direct rival to Smarsh – for a whopping $155m. Dell also has its own archive storage system, the DX platform, based on software OEMed from Caringo. (However, we’d note that neither of these initiatives seems to have gone too far yet.)

Rather than worry about would could happen in the future, Smarsh is keeping itself busy in the present. The company has announced two acquisitions in the past month. In May, Smarsh bought Web content-archiving vendor Perpetually.com and on Tuesday it announced the purchase of compliance-focused website hoster AdvisorSquare, which targets the finance vertical. The deals should ramp up the company’s growth rate for 2012 and 2013. We estimate that Smarsh generated $20m in revenue last year, or about 30% year-over-year top-line growth.

Timeline

Date Event
February 14, 2012 Quest Software acquires 60% stake in Smarsh.
March 9 Insight Venture Partners and Quest management offer to buy Quest for $2bn.
May 16 Smarsh picks up Perpetually.com.
June 14 Unidentified bidder offers approximately $2.22bn for Quest.
June 18 Smarsh acquires AdvisorSquare from Symantec.
June 19 Vector Capital joins Insight and Quest management to buy Quest for approximately $2.24bn.

Source: The 451 M&A KnowledgeBase

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Box eyes a new round at $1bn valuation

Brenon Daly1 Comment

Contact: Brenon Daly

Box is back in the market. Several sources have indicated that the enterprise content management and collaboration startup is currently looking to raise $100m in new funding, on top of the roughly $160m it has already pulled in. Box’s valuation is said to be north of $1bn.

That’s a heady valuation for a company that’s likely to finish this year at about $60m, according to sources. The round (assuming it does get raised) comes at a time when competition is heating up for Box. For instance, Citrix has made a series of acquisitions to piece together an enterprise collaboration and file-sharing platform. (Those small deals came after Citrix was rumored to have missed out on acquiring Box at a price thought to be roughly $600m.)

Likewise, VMware has used small purchases to bolster its Project Octopus while its parent, EMC, recently reached for synchronization startup Syncplicity to expand its collaboration offering. Other tech giants have rolled out their own collaboration platforms through organic development, such as Google’s Drive, Microsoft’s SkyDrive and even Apple’s iCloud. (Additionally, Microsoft is adding much more cloud functionality to its SharePoint product in its next release, due out late this year or early next year.)

Box – along with dozens of other cloud- and drive-themed rival offerings – effectively provides centralized storage as well as a shared file system for all of the documents at an enterprise. As we see it, the seven-year-old company is currently facing two main challenges, and is likely to put at least some of its new funding toward these.

First, since Box is competing as an enterprise software vendor, it needs to hire more sales agents to land enterprise accounts. We understand that the company has added dozens of experienced enterprise sales agents and is looking to bring on dozens more. Second, Box needs to establish itself as a platform on which other software shops can develop additional applications and enhancements. Earlier this year, the company introduced a new API – its first in four years – to draw in more developers.

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Qualcomm scales power management with Summit Micro buy

Contact: Ben Kolada, Thejeswi Venkatesh

Adding to its power management product portfolio, semiconductor giant Qualcomm announced on Monday the acquisition of Summit Microelectronics, a designer of programmable power management and battery-charging semiconductors. The deal is meant to help Qualcomm further target increasing demand for battery management on smart devices.

Neither Qualcomm nor Summit disclosed terms of the transaction, but in March Summit issued a press release claiming that it hit record revenue and profits in 2011, and that fourth-quarter 2011 revenue doubled from the prior-year period. However, that alone shouldn’t impress too much. The company had to raise several rounds of funding throughout its 15-year lifetime to bring its products to market. While most venture-backed companies typically continue to fundraise only through to maybe a fourth, or D, round, Summit’s messy fundraising history continued at least through to an H round.

The acquisition is yet another step in feeding the demand for managing power on an ever-evolving group of power-intensive devices. As consumer electronics continue to advance, particularly in regard to HPC capabilities and high-resolution screens, battery management is becoming increasingly critical. In announcing the deal, Qualcomm points directly at this demand, noting that Summit’s chips are found in a variety of mobile phones, tablets and e-readers.

Traditional advertising firms busy buyers of online agencies

Contact: Brian Satterfield

In order to spread their clients’ messages to as many people as possible in every corner of the globe, old-line advertising firms are increasingly bolstering their online presence by acquiring purely digital agencies.

In the past three years, traditional companies have been the buyers in 86, or almost 20%, of the nearly 450 transactions we’ve recorded in the Web marketing and design sectors. As one might expect, several of the world’s largest publicly listed mega-agencies have been especially busy with buying their online counterparts.

In mid-May, Paris-based Publicis Groupe inked its fourth deal of the year when it reached into China for Longtuo, a Web marketing and design services provider with 200 employees. Publicis Groupe is certainly a steady user of M&A to build its international client base, having purchased 23 Web agencies in almost a dozen different countries since its first buy in 2006. In fact, Publicis Groupe had its busiest M&A year on record in 2011, with seven announced acquisitions, all of them in the Web marketing industry.

Nasdaq-listed WPP Group and its wholly owned subsidiaries have taken a similar approach to Web marketing and design deals, but on a slightly larger scale. Yesterday, WPP subsidiary JWT picked up India-based Hungama Digital Services, a Web marketing and design firm with a headcount of 110. Since 2005, the entities have combined to buy a total of 40 companies in nearly 20 countries. Up until 2008, WPP was almost exclusively focused on strengthening its Web design skills, but has since devoted most of its M&A firepower to acquiring companies primarily devoted to online marketing. Like Publicis Groupe, WPP is off to a busy buying start in 2012, having already made eight different purchases in the sectors via its primary business and six distinct subsidiaries.

One key way in which the two competitors have diverged is how often they are willing to spend big bucks. Publicis Groupe has made three $500m-plus plays, its largest coming in 2006, when it dropped $1.3bn on then-Nasdaq-listed Web design agency Digitas. Meanwhile, WPP has only publicly disclosed one deal value, its $649m purchase of Web developer 24/7 Real Media in 2007.

Cypress Semiconductor returns to M&A

Contact: Thejeswi Venkatesh

After staying out of the M&A market for four years, Cypress Semiconductor stepped back in earlier this week with an $87.6m unsolicited cash bid for ferroelectric RAM designer Ramtron International. However, this isn’t the first time that Cypress has tried to acquire its smaller rival. Cypress revealed that it tried to buy Ramtron’s equity last year for approximately the same amount, an offer the company flatly declined.

Cypress’ bear hug comes at a time when Ramtron has struggled to increase its business under existing management. Last year, the company generated sales of $66m, virtually unchanged from 2008. For its part, Cypress has seen its revenue increase at a healthy rate, going from $765m in 2008 to $995m in 2011. Cypress, which has asked Ramtron to respond to its offer by next week, has engaged Greenhill & Co as financial adviser while Needham & Co will advise Ramtron.

On its return to M&A, Cypress is focusing on a business it knows well: memory chips. The company has a blemished history in trying to expand its product offering through inorganic means. For instance, Cypress divested SMal Camera Technologies in 2007 for $11.4m, approximately one-quarter the $42.5m it paid for the company just two years earlier. Similarly, Cypress acquired FillFactory for $100m in the summer of 2004 but sold the division to ON Semiconductor in early 2011 for a mere $31.4m.

Select Cypress M&A

Date announced Target Deal value Focus
August 1, 2008 Simtek $46m High-speed memory chips
February 14, 2005 SMaL Camera Technologies $42.5m CMOS image sensor ICs
June 22, 2004 FillFactory $100m CMOS image sensors
October 20, 2003 Cascade Semiconductor $9.4m Memory semiconductor design
April 10, 2003 Micron (SRAM unit) Not disclosed Synchronous SRAM
January 08, 2002 Silicon Packets $24.5m 10Gbps framers

Source: The 451 M&A KnowledgeBase

Qualys eyes an IPO

Brenon Daly1 Comment

Contact: Brenon Daly

Late last year and even into this year, there were rumblings that Qualys may get taken out before it could get out. Rumors were flying that the vulnerability management vendor had attracted M&A interest from two well-heeled shoppers that have both done large information security acquisitions: Check Point Software and Dell.

A pairing with either of the rumored suitors would have made a great deal of sense, adding threat scanning and analysis capabilities to the would-be buyer’s existing portfolio. Check Point needs vulnerability management capabilities as a way to add more information about what happens inside the firewall. Meanwhile, Dell, through its SecureWorks acquisition, not only integrates Qualys’ reports, but also offers Qualys as a managed service.

According to our understanding, interest from both would-be suitors diminished as Qualys held out for a price approaching $1bn. (That would represent a valuation of about 10 times this year’s bookings for Qualys.) So Qualys is now tracking to an IPO, where it is probably likely to debut at a $600-700m valuation but could well grow into a billion-dollar valuation on its own. (See our full report on the Qualys IPO.)

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Will hosting bankers follow the deal flow?

Ben Kolada

Contact: Ben Kolada

Acquisitions in the hosting and colocation sector, which dominated headlines in the first half of last year, have flatlined. Gone are the days of multiple nine- and 10-figure deals being done by telcos and buyout shops. PEER 1 Hosting’s NetBenefit acquisition, announced Wednesday, was welcome news for M&A advisers serving the hosting industry (particularly for Oakley Capital Corporate Finance, which banked NetBenefit), but as deal volume in the industry slows, some bankers are making the move to the SaaS sector.

Although valuations remain strong (PEER 1’s NetBenefit buy was done for 10 times EBITDA), deal sizes have shrunk. The median deal size so far this year is $34m, compared with about $50m in the year-ago period. Further, deal volume has flatlined. Annualizing year-to-date deal flow would mean that annual volume has plateaued from its peak in 2010. Volume may ultimately rise as private equity firms that announced hosting plays in the past few years look to exit those investments, and as US firms look overseas for deals. But investment bankers serving this industry aren’t content to wait.

While hosting bankers aren’t yet giving up on their core industry, some are already transitioning to targeting the SaaS sector. For example, one of the hosting industry’s front-running investment banks, DH Capital, recently partnered with SaaS Capital, a specialized commercial lender serving the SaaS sector. They recently worked together with existing investors to secure $12m in subordinated debt financing for SaaS security firm Alert Logic.

More hosting-focused investment banks may look to make this move as well, since the leap from hosting to SaaS banking is shorter than many would think. Hosting and SaaS businesses have similar operating models, such as recurring revenue and server-centric, hosted products. One more reason for the transition: the number of SaaS transactions is twice that of hosting acquisitions.

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