Category: Private Equity

IntraLinks limps onto the market

Brenon Daly

Contact: Brenon Daly

It turns out that the third time is not the charm for IntraLinks, at least not in terms of its initial valuation as a public company. IntraLinks cut the price for the 11 million shares it is selling to $13 each, down from the $14-16 range it had set. That means the company is raising $143m, some $22m less than it would have if it priced at the midpoint of its initial range. That’s a key consideration because unprofitable IntraLinks was counting on the IPO proceeds to help it pay down debt.

But at least it did manage to get public, unlike the times it filed back in 2000 and 2005. We recently noted how much more grown up IntraLinks looks now compared to its earlier S-1s. One kicker: when it originally filed in 2000, the company ran at negative gross margins compared to the fairly respectable 65% it notched in 2009. Although IntraLinks still isn’t printing black numbers, it’s come a long way from 2000, when it lost five times more money than it even brought in as revenue.

The weaker-than-expected pricing continues a trend that we’ve seen in most tech offerings so far this year: Motricity, Broadsoft, TeleNav, Convio and others have all priced below their range – and all of them are trading lower in the aftermarket. (The one exception to this weakness is QlikTech. The offering, which we indicated would be a hot one, priced above its range at $10, and is now trading at $15.) For its part, IntraLinks first traded at $13 and basically stuck around that level in its debut.

Shopping hard in the City of Light

Brenon Daly

Contact:  Brenon Daly

On its visit to Paris, Francisco Partners brought home more than just a miniature souvenir Eiffel Tower. In the past week, the buyout shop has announced not one but two $100m deals struck in the French capital. Francisco’s unusual double dip comes at a time when the dollar, which had been at multiyear highs against the euro earlier in 2010, has slumped in recent weeks. (We recently looked at the trade winds blowing across the Atlantic.)

For Francisco, the transactions would help restock its European holdings. The buyout shop sold Swiss chip company Numonyx to Micron Technology for $1.3bn in May. In its first deal, Francisco put forward a $100m offer for the Grass Valley Broadcast business, which is being divested by Paris-based Technicolor. (The actual Grass Valley Broadcast business operates in central California, an ocean away from The City of Light.) In probably the more interesting move, Francisco picked up a majority stake in on-demand email marketing company Emailvision. The purchase gave Emailvision, which was advised by Pacific Crest Securities, a fully diluted equity value of about $109m.

Early-mover (dis)advantage at Daptiv

Brenon Daly

Contact: Brenon Daly

So much for early-mover advantage. Daptiv – a pioneering Web-hosted project and portfolio management (PPM) startup founded in 1997 that was originally known as eProject – got sold for scraps late last week. The sale to a buyout shop stands as particularly disadvantaged when compared to earlier deals in the market, a number of which saw giant software companies writing checks in the hundreds of millions of dollars to snap up other PPM vendors. (See our full report on the deal.)

While its rivals were selling out (at rather nice multiples, thank you very much), Daptiv was focusing on selling its product. And it was doing a fair job at that, running at around $20m in revenue. (Incidentally, that’s true revenue, not bookings at the subscription-based company.) Along the way, Daptiv managed to raise about $30m from backers, following a recapitalization in the mid-2000s. So far, so good.

Problems began surfacing at Daptiv earlier this year, however. The company went through a restructuring, trimming about 15% of its employees and swapping out its CEO. It had been trying to raise another round of funding, but we suspect that it found its existing investment syndicate rather frayed. (Daptiv includes Vault Capital as well as Pinpoint Ventures among its investors. Neither firm is particularly active – or even lively – these days.)

While Daptiv had been out looking to drum up dollars from venture capitalists, the company had also been in talks with a firm on the other end of the entrepreneurial spectrum: buyout shop Parallax Capital Partners. Parallax Capital has acquired a number of other tech businesses that have gotten a bit long in the tooth, and, like other additions to its portfolio, it reportedly got a bargain in its acquisition of Daptiv. One report, which included photocopies of the purchase agreement, indicated that Parallax Capital is paying just $12.7m for Daptiv, with only $5.3m of that flowing to shareholders.

Select PPM transactions

Date announced Acquirer Target Deal value
July 27, 2010 Parallax Capital Partners Daptiv (fka eProject) Reported $12.7m
October 8, 2008 Oracle Primavera Software $350m*
June 9, 2005 CA Technologies Niku $350m
June 10, 2003 Mercury Interactive (now HP) Kintana $225m

Source: The 451 M&A KnowledgeBase *451 Group estimate

SonicWALL’s big-ticket buyout

Brenon Daly

Contact: Brenon Daly

The recently closed leveraged buyout (LBO) of SonicWALL represents the largest straight take-private of a technology company so far this year. Thoma Bravo announced the deal, which has an equity value of $717m, back in early June and shareholders gave the LBO their blessing on Friday. The bid of $11.50 for each share stood as the highest price for SonicWALL shares since 2002. The close came only after an unidentified bidder – which some observers suspect may have been the ever-aggressive Barracuda Networks – stepped out of the process.

While other private equity (PE) shops have handed over bigger checks so far this year than the one Thoma Bravo is writing for SonicWALL, the buyout of the unified threat management vendor is the most money that a single firm has spent to take a public company off the market in 2010. Other large deals have involved either carve-outs (IDC, for instance, was majority owned by Pearson), secondary transactions (Hellman & Friedman’s flip of Vertafore to TPG Capital) or club deals (the consortium buyout of SkillSoft, as well as IDC).

The big-ticket buyouts of SonicWALL and other companies have helped push PE activity so far this year to essentially where it was in 2008. PE spending in the first two quarters of 2010 hit $14bn, just a shade under the $16bn we tallied in 2008 but a dramatic rebound over the paltry $2bn we saw in the first half of last year. The seven-fold increase in spending by buyout shops so far in 2010 has vastly outpaced the broad M&A market, which is basically running at twice the spending of the same time in recession-wracked 2009. See our full report on first-half tech M&A activity.

Hardly a firecracker start to July M&A

Brenon Daly

Contact:  Brenon Daly

Just looking at the high-profile names that have been buyers so far this month, an observer could be forgiven for just assuming that we’re automatically going to top the record level of spending that we tallied for the second quarter. ADP, Facebook, EMC, IBM and Dell (among others) have all announced acquisitions in July, the first month of the third quarter. So M&A is back, right?

Maybe not. Although it’s still early (very early) in the third quarter, we don’t necessarily expect spending in the current quarter to eclipse the second-quarter level. In the April-June period, the value of transactions hit $62bn, more than 10% higher than any quarterly total we’ve seen since the Credit Crisis erupted two years ago. For the third quarter, we wouldn’t at all be surprised to see M&A spending slip back somewhere in the band of $30-50bn in quarterly deal flow that we’ve seen over the past two years.

Nearly halfway through July, we’re tracking to the lowest spending level in the past four months. In fact, July is shaping up to be 30-40% lower than the monthly totals from March to June. Granted, the start to July – with the long Independence Day weekend, not to mention the distraction of the World Cup – may not be representative for the full month. But it’s certainly an early indicator worth following. We’ll be looking at the current M&A market and what the rest of 2010 might hold for dealmakers in a special midyear webinar. Click here to register.

2010 activity, monthly

Month Deal volume Deal value
January 296 $5bn
February 278 $8.3bn
March 273 $17bn
April 252 $21.1bn
May 271 $20.3bn
June 260 $22.5bn

Big is back in Q2 M&A

Brenon Daly

Contact: Brenon Daly

Spending on tech M&A in the second quarter surged to the highest quarterly rate since the Credit Crisis erupted, driven by a return of some of the largest technology buyers. Overall, deal makers announced 773 transactions, with a total value of $62bn. The Q2 total, which represented a doubling of spending from the first three months of the year, topped the previous record in the ‘new normal’ environment by slightly more than 10%.

Fittingly for a new record, big tech names have figured prominently in M&A since April. For instance, SAP announced the largest transaction in the software industry in more than two years when it reached for Sybase in May, spending $6.1bn. Also in May, IBM put together its largest deal in two and a half years, paying $1.4bn for Sterling Commerce. Even telcos got into the act, with a pair of transactions valued at more than $10bn each in the second quarter.

Overall, four of the five largest acquisitions of the year were announced in the second quarter. That helped push the number of deals valued at $1bn or more announced in the second quarter to twice as many as the first quarter (14 transactions vs. 7). It’s also worth noting that with 21 10-digit transactions already announced in 2010, the full-year number of big-ticket purchases is almost certain to exceed the 33 deals valued at $1bn or more in both 2008 and 2009.

Recent quarterly deal flow

Period Deal volume Deal value
Q2 2010 773 $62bn
Q1 2010 847 $30bn
Q4 2009 818 $55bn
Q3 2009 758 $38bn
Q2 2009 777 $49bn
Q1 2009 622 $10bn
Q4 2008 724 $38bn
Q3 2008 733 $32bn

Source: The 451 M&A KnowledgeBase

The Motricity monstrosity

Brenon Daly1 Comment

Contact: Brenon Daly

Pulled prospectuses, cut terms and broken issues – it’s a singularly poor time for any company to go public. We’ve already chronicled the dispiriting ‘new normal’ for IPOs, with smaller offerings and lower valuations. But just when it seemed that the IPO market couldn’t sink any further, along came Motricity’s offering.

The debut last Friday from the mobile data platform provider had to be trimmed, both in the number of shares and the price. Originally, Motricity planned to sell 6.75 million shares at $14-$16 each. At the midpoint of the range, that would have netted the unprofitable company, which has rung up a total deficit of some $313m, about $100m.

Instead, Motricity managed to raise just half that amount. It ended up selling just five million shares at $10 each, raising just $50m. Since then, the newly public shares been underwater, having only changed hands in the single digits. How bad is that? Consider this: Motricity’s valuation as a public company ($350m) is less than the amount of money that it raised as a private company.

Is SafeNet looking to secure an IPO?

Brenon Daly

Contact: Brenon Daly

A little more than three years after it went private, SafeNet is looking to return to the public market. Several sources have indicated that the encryption vendor has lined up its underwriters and plans to file an S-1 in about two weeks. If indeed the offering goes ahead, it will face a market that is proving rather hostile to IPOs right now. (We recently looked at the dreary state of the IPO market in a special report.)

Through both organic and inorganic growth, the SafeNet that returns to the market will be about half the size of the one that stepped off the market. We understand that the company is running at about $450m in revenue, compared to about $300m in revenue in the year leading up to its leveraged buyout. While private, SafeNet did a handful of small deals as well as the contentious $160m take-private of Aladdin Knowledge Systems.

An IPO would mark a second straight exit for SafeNet’s owner, Vector Capital. The buyout shop sold its Register.com portfolio company last week, realizing a return of two and a half times its investment. Vector took the Web registration and design firm private in 2005, pared down the business, made it dramatically more profitable and then sold it to Web.com.

Also noteworthy about the rumored IPO by SafeNet is that the offering is being handled entirely by bulge-bracket banks. The book-runners are said to be JP Morgan Securities, Morgan Stanley and Goldman Sachs, with the offering co-managed by Bank of America Merrill Lynch and Deutsche Bank. Off the top of our heads, that’s the first tech IPO that we can think of that doesn’t have a regional or boutique bank also helping to bring out a company.

LANDesk nearly done

Brenon Daly

Contact: Brenon Daly

After a nearly half-year process, Emerson Electric is close to having LANDesk off its books. Emerson, which picked up the systems management vendor when it acquired Avocent for $1.2bn last fall, classifies LANDesk as a ‘discontinued operation’ and hired Greenhill & Co to advise it on the divestiture. We understand that final bids are being submitted right now, and a deal announcement is expected in two weeks or so.

Although it’s unclear who will end up with LANDesk, several sources have indicated that the buyer is likely to be another company, rather than a buyout shop. (Corporate castoffs often land in the portfolios of PE firms for a period of ‘rehabilitation’ before being snapped up by another company. Indeed, that was the path for LANDesk, which was sold off by Intel in 2002 to a pair of PE buyers, Vector Capital and VSpring Capital, before being bought four years later by Avocent.) Of course, a PE buyer could pair the LANDesk property with an existing portfolio company to enjoy some of the cost savings that generally allow strategic buyers to outbid pure financial buyers.

In an earlier report, my colleague Dennis Callaghan highlighted a few potential buyers for LANDesk, including virtualization vendors, hardware companies and security firms. However, we understand that the obvious suitors in those sectors are no longer in the process: VMware and Lenovo, both of which have key partnerships with LANDesk, are said to have moved on.

Another corporate buyer that we can scratch off the list? Novell. Apparently, the company was aggressively courting LANDesk early in the process, including offering a rumored high price in exchange for exclusivity. Of course, Novell has other issues to contend with, and may well be a seller of the overall company rather than a buyer of other assets.

Vector ‘registers’ a solid exit

Brenon Daly

Contact: Brenon Daly

A half-decade after taking Register.com private, Vector Capital announced the sale of the website registration and design provider to Web.com Group for $135m. That’s a fair bit lower than the $200m the buyout shop paid for the equity of Register.com in the LBO, but a fair bit above the company’s net cost of about $90m. (Profitable and debt-free Register.com held about $55m in cash and another $55m in short-term investments when it was taken private.)

As for the return, we understand that between two dividends, a divestiture and now the sale of the business, Vector realized about 2.5 times its original $60m equity investment on Register.com. What’s interesting about the return is that Vector is making money on its holding even though Register.com actually shrank in the time it was owned by the buyout shop. Consider it a case of quality over quantity.

When it went private, Register.com was clipping along at a rate of about $25m per quarter. According to Web.com, that level has now dipped to $20m per quarter. (That may or may not be a sandbagged projection from the acquirer.) Part of the revenue decrease can be attributed to the fact that Register.com shed the corporate domain management business, which was doing just shy of $8m each quarter in business. So, on an absolute basis, the property is smaller, but on a comparable basis, the Register.com business grew on the top line.

Far more important than revenue growth is the fact that Register.com became far more profitable as a private company. (Some cuts appear pretty obvious to us: In the period before it went private, Register.com was spending about one-third of its revenue on sales and marketing.) On the conference call discussing the deal, Web.com indicated Register.com was running at a mid-to-high 20% ‘adjusted EBITDA’ margin. That’s a pretty rich level. In fact, it’s about 10 percentage points higher than Web.com’s own ‘adjusted EBITDA ‘ margins.