Category: Private Equity

A return to the ‘new normal’ for tech M&A in Q2

Brenon Daly

Contact: Brenon Daly

After two straight quarters that each featured a single blockbuster transaction, tech M&A spending in the just-completed Q2 settled back into a more representative level for the post-recession era. Spending on acquisitions of tech, telecom and Internet companies around the globe from April to June totaled $46bn – essentially matching the value of deals in Q2 of last year as well as the quarterly average from 2010-2012. (Look for our full report on the Q2 M&A totals and trends later today on our website and in our next Daily 451.)

However, Q2 spending comes in about one-third lower than both the first quarter of this year and the final quarter of last year. The decline from mid-$60bn in both of those quarters to mid-$40bn in the just-completed quarter stems primarily from the fact that Q2 didn’t see a mega-transaction like the one that boosted totals in the other two quarters.

Both Q4 2012 and Q1 2013 featured single deals valued at more than $20bn, roughly the equivalent to the aggregate total of the four largest deals announced in Q2 2013. The $24bn proposed Dell buyout, announced in February, and Softbank’s $20bn reach for Sprint Nextel last October are the two largest transactions of the past half-decade.

Turning to deal volume, we would note that even as tech M&A spending returned to more representative post-recession levels in Q2, the number of transactions didn’t keep pace. In fact, overall quarterly deal flow plunged to its lowest level since the recession. From April to June, dealmakers announced just 751 transactions, a sharp 18% year-over-year decline. (Again, we’ll have a full report on Q2 M&A activity available later today on our website and in our next Daily 451.)

Recent quarterly deal flow

Period Deal volume Deal value
Q2 2013 751 $46bn
Q1 2013 785 $64bn
Q4 2012 851 $64bn
Q3 2012 912 $39bn
Q2 2012 916 $44bn
Q1 2012 918 $34bn
Q4 2011 904 $44bn
Q3 2011 969 $64bn
Q2 2011 980 $76bn
Q1 2011 919 $45bn

Source: The 451 M&A KnowledgeBase

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For Keynote’s new owners, it’s been buy-and-build buyouts

Brenon Daly

Contact: Brenon Daly, Dennis Callaghan

Sometimes it’s just easier to go shopping behind closed doors. We were reminded of that as Keynote Systems indicated that it plans to go private in a $395m sale to private equity (PE) firm Thoma Bravo. As we look at the PE shop’s portfolio companies, it’s striking how quickly the M&A pace has picked up once the companies can reach into the deep pockets of their new owner, and do so out of the glare of Wall Street.

Consider the M&A activity of Blue Coat Systems. The security company averaged about one acquisition every other year in the decade leading up to its December 2011 take-private by Thoma Bravo. So far in 2013, Blue Coat has already done two outright acquisitions, including paying what we hear is a double-digit multiple for Solera Networks. (451 M&A KnowledgeBase subscribers can see our estimates for terms of the Blue Coat-Solera pairing by clicking here.) Thoma Bravo also rolled Crossbeam Systems, which it already owned, into Blue Coat last December.

Similarly, Tripwire had done only one deal in the nearly decade and a half before it sold to Thoma Bravo in mid-2011. (And the security firm’s sole foray into M&A was a tiny asset purchase that only set it back $3m.) Earlier this year, it made a significant bet of more than $100m on nCircle, which bumped up total revenue by about one-quarter. And based on the early progress on that transaction, we understand that Tripwire may be looking to make another similarly sized acquisition in the coming quarters.

The Keynote leveraged buyout (LBO) isn’t expected to close until fall, and even after that the company’s new owners will probably want some time to more deeply understand and take some preliminary steps to get the test and measurement vendor growing again. Revenue has been flat so far this fiscal year as some customers have recently narrowed Keynote projects or put them off.

But once business is shored up, we could imagine Keynote returning to the M&A market, from which it has been absent since October 2011. My colleague Dennis Callaghan speculated in a report on the LBO that Keynote may also look to expand its capabilities in pre-deployment testing or even add content delivery network technology through acquisition.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Thoma Bravo hopes to unlock value from Keynote in LBO

Brenon Daly

Contact: Brenon Daly

After focusing its recent M&A activity on rounding out existing portfolio companies, buyout shop Thoma Bravo made another ‘platform play’ on Monday, offering $395m for Keynote Systems. Under terms, the private equity firm will pay $20 per share, or a total of $395m, for the 18-year-old testing and measurement vendor.

The deal, which is expected to close by September, comes at a time when Keynote is struggling to put up growth. Business across its two operating units – the core Internet measurement products as well as the newer mobile testing offerings – have both been flat so far this fiscal year. Further, the company has seen its operating and net income drop this year as some customers have recently narrowed Keynote projects or put them off.

The price Thoma Bravo is paying reflects the operating challenges at Keynote, which traded above the $20 bid for much of 2011. The dividend-paying company holds nearly $60m in cash and short-term investments. Backing out that amount from the $395m equity value for Keynote gives an enterprise value of $335m, or about 2.7 times the $125m in trailing sales the company has put up.

Keynote’s valuation of 2.7x sales is almost exactly the midpoint of Thoma Bravo’s two previous take-privates, the $195m buyout of Mediware Information Systems last September and the $1bn acquisition of Deltek in August. Since those LBOs, the buyout shop has been busy doing deals to bulk up its portfolio companies, including two follow-on acquisitions for Mediware as well as recent bolt-on deals for Blue Coat Systems, LANDesk Software and Tripwire.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Making money with coupons

Ben Kolada

Contact: Ben Kolada

Online coupon directory vendor RetailMeNot, formerly known as WhaleShark Media, filed its IPO paperwork on Monday. A total of seven investment banks crowded onto the offering, which could initially value the company in the ballpark of $800m. Meanwhile, a recent high-priced buyout and a couple of more coupon deals that we hear are in the pipeline could make 2013 a breakout year for the online couponing industry.

RetailMeNot has grown dramatically since its incorporation as smallponds in 2007. Through organic and inorganic growth, RetailMeNot increased total revenue 80% to $145m last year. The company primarily did business as WhaleShark Media throughout its lifetime, but rebranded as RetailMeNot this year, taking the name of a startup it acquired in 2010 and whose websites now account for the majority of its traffic.

No fewer than seven investment banks have piled onto the offering, with Morgan Stanley taking the lead left spot. RetailMeNot plans to trade on the Nasdaq under the symbol SALE.

The midpoint valuation of recent comparable transactions suggests that the company could debut at about $800m, or roughly 5x its trailing sales ($155m as of March 31). RetailMeNot was valued at 5.6x trailing sales in its $159m sale to WhaleShark Media in 2010. More recently, we estimate that Slickdeals was valued at 4.6x sales in its quiet sale to Warburg Pincus at the turn of this year.

At least two other coupon companies will be closely watching RetailMeNot’s debut. We’ve heard that CouponMom and dealnews have also been in the market recently.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

The coupon company behind the buyout curtain

Ben Kolada

Contact: Ben Kolada

While coupons can save shoppers some money, Web-based coupon companies can sometimes cost private equity (PE) firms a lot of money. According to our sources, a large PE shop picked up an online coupon company around the beginning of this year in a deal that valued the low-profile company at more than $100m.

No announcement was made and certainly no terms were disclosed. However, we’ve uncovered all of that information.

To our subscribers, which company do you think this was? We’ll give you a few more hints: the company hadn’t taken any funding and the deal record includes some estimated information. We also have an estimate for the price paid, though we’re holding that for now.

Bragging rights go to the user who names the company and unofficial ‘industry insider’ status goes to the user who both names the company and the price. Tweet your guesses to us  @451TechMnA. 

For US tech IPOs, precious little new blood amid the larger bleed-out

Brenon Daly

Contact: Brenon Daly

Over the past month it’s been ‘one on/one off’ for publicly traded marketing automation vendors. In mid-May, we saw Marketo debut on the Nasdaq. (If rumors are to be believed, incidentally, Marketo only made it to market after stiffarming some would-be buyers.) On the other side, earlier this week we saw ExactTarget announce plans to depart the NYSE, selling for an industry-record $2.5bn a little more than a year after its own IPO.

Leaving aside the vast gap in value left by the two events – Marketo currently trades at less than one-third of ExactTarget’s terminal value – at least there’s some replacement in this sector. That isn’t true for most of the tech industry. In terms of the overall number of tech companies on US exchanges, there’s been precious little fresh blood to offset a continual bleed-out.

Looking broadly at the enterprise tech market so far this year, we’ve tallied a half-dozen IPOs, with half of those coming in the past month alone. In addition to Marketo, May also saw the listings of ChannelAdvisor and Tableau Software. That trio joined Marin Software, Model N and Rally Software Development as the Class of 2013 so far.

So that’s six new entrants to the ranks of US publicly traded tech companies, an average of about one IPO each month this year. (And keep in mind, this rate is post-JOBS Act, which supposedly made it easier for companies to come public.) Against those new arrivals, we have seen some 20 US public companies acquired so far this year, according to The 451 M&A KnowledgeBase.

That rate equals three tech companies erased from US exchanges for every one that joins. Many of these deals are taking major companies – which, in some cases, have traded for a decade or even longer – off Wall Street: Dell, BMC, Acme Packet, Websense and others. The debutantes just can’t keep pace with the departures.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

A mixed May for M&A

Brenon Daly

Contact: Brenon Daly

Continuing the M&A trend we’ve seen so far this year, tech buyers in May either bought big or bought nothing. Spending on tech transactions across the globe this month ticked about 16% higher than the same month last year, although it was lower than both May 2011 and May 2010.

This month’s spending totals were boosted by three deals valued at more than $1bn, headlined by the planned $6.9bn take-private of BMC Software. (The buyout, which was spurred by an activist hedge fund, is the largest infrastructure software transaction in a half-decade.) With the BMC deal and the second-largest transaction of the month (Fidelity National Financial’s $2.9bn reach for mortgage software vendor Lender Processing Services), May accounted for two of the five largest tech deals announced so far in 2013.

However, overall M&A activity remained muted, with the number of transactions announced in May dropping about 15% compared with the same month of the two previous years. Once again in May, monthly deal volume failed to crack 300 transactions, the rough monthly average for tech deals in 2010 and 2011. That has left year-to-date deal volume levels down a significant 14% compared with the start of each of the two previous years.

2013 activity, month by month

Period Deal volume Deal value % change in spending vs. same month, 2012
May 2013 275 $18.4bn Up 16%
April 2013 251 $32.8 Up 129%
March 2013 219 $4.4bn Down 76%
February 2013 246 $47.6bn Up 296%
January 2013 303 $10.7bn Up 155%

Source: The 451 M&A KnowledgeBase

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Same price but very different deals for Tumblr and Websense

Brenon Daly

Contact: Brenon Daly

It’s often said that tech M&A valuations are more art than science, a perspective that stood in stark relief thanks to a pair of transactions announced Monday morning. The deals, which have wildly different strategic underpinnings, involve companies at opposite ends of their corporate lifecycle but came in at the same price: $1bn.

On the one hand, we have a fairly staid take-private of a 20-year-old information security vendor with flatlining sales of slightly more than one-third of a billion dollars. On the other, we have a wildly popular blogging site that gets a multiple of nearly 100x its nascent sales as a faded Internet kingpin makes a highly speculative acquisition.

In the more conventional transaction, buyout shop Vista Equity Partners said it will hand over about $1bn for Websense. The offer values the Web content filtering vendor at loosely 3x sales. (That’s just slightly higher than the multiple that fellow private equity firm Thoma Bravo paid a year and a half ago for Blue Coat Systems, a ‘vintage’ technology company that also offered Web content filtering as part of its broader portfolio.) According to a recent survey of IT buyers by TheInfoPro, a service of 451 Research, Blue Coat was the top-ranked Web content filtering vendor, cited by 27% of respondents, followed by Websense at 22%.

And then, there’s Yahoo’s reach for Tumblr. The $1.1bn all-cash acquisition is Yahoo’s largest in about a decade. And while Tumblr has a heavy user base (about 300 million unique monthly visitors), it had only really begun generating revenue. The company has only about one-tenth the number of employees at Websense.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

After 25 years as a public company, BMC gets so-so exit in take-private

Brenon Daly3 Comments

Contact: Brenon Daly

After almost a year of agitation by an activist hedge fund, BMC Software has agreed to sell itself to a group of private equity (PE) buyers for $6.9bn. The take-private of the IT systems management giant, which is the second-largest tech PE deal since the end of the recent recession, will end a quarter-century of public trading for BMC. The offer values the company at a fairly conventional, ho-hum multiple, reflecting the struggles BMC has had in finding any growth.

At $6.9bn, the bid from the consortium – made up of Bain Capital, Golden Gate Capital, GIC Special Investments and Insight Venture Partners – values BMC at 3.2x trailing sales and just 10x trailing EBITDA. As a mature company, BMC throws off a lot of cash, generating some $700m in EBITDA on $2.2bn in sales annually. The relatively rich margin prompts the question of how the company’s new PE owners will be able to boost BMC’s already high cash flow.

The consortium has offered $46.25 per share for BMC. That is only slightly above the level where BMC was trading on its own before hedge fund Elliott Management started its campaign to ‘unlock shareholder value’ at the company. (Further, the price is less than where BMC shares changed hands on their own from late-2010 to mid-2011.) Elliott ended up with a nearly 10% stake in the company as part of its campaign.

Coming just three months after the proposed PE-led management buyout of Dell, the take-private of BMC has a decidedly different structure than most recent PE deals. For starters, it is large – nearly twice the size of other recent tech LBOs and, in fact, it trails only Dell’s $24bn buyout on the list of largest post-recession PE deals.

Additionally, it marks the return of the so-called ‘club deal’ where PE firms team up to take on bigger game. Those deals were relatively frequent before the 2008-09 recession tightened the availability and rates for debt, but fell out of favor recently. Of the five take-privates of US publicly traded tech companies announced in the past two years valued at more than $1bn, four of those have been done by single PE shops, with only one club deal, according to The 451 M&A KnowledgeBase.

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An ‘affinity acquisition,’ as LANDesk picks up divested Shavlik division

Brenon Daly

Contact: Brenon Daly

As a company that has been cast off twice from its larger corporate owners, LANDesk Software might have a special affinity for its latest transaction: the acquisition of Shavlik Technologies, which is being cast off by VMware. The deal adds Shavlik’s technology for managing and securing physical and virtual environments to the systems management vendor’s portfolio. Inside VMware, Shavlik was known as VMware Protect; under LANDesk, the business is called Shavlik Protect.

LANDesk’s purchase effectively unwinds VMware’s acquisition of the security company in mid-2011. At the time, we estimated that the virtualization giant paid about 3x sales for Shavlik. We understand that today’s deal went off at a more representative multiple for divestitures. That said, Shavlik, which never took any outside funding, is known to generate healthy cash flow. (Subscribers to The 451 M&A KnowledgeBase can click on the following links to see our estimated revenue and price for both the original VMware-Shavlik transaction as well as today’s LANDesk-Shavlik pairing.)

The purchase of the carved-out business represents the third deal LANDesk has done since private equity (PE) firm Thoma Bravo carved the company itself out of Emerson Electric in August 2010. (That transaction came almost exactly eight years after another PE shop, Vector Capital, carved LANDesk out of Intel.) On the other side, VMware’s sale of Shavlik is its second divestiture announced in 2013, as the virtualization giant works through a previously announced restructuring.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.