Category: technology stocks

A Coremetrics sale to salesforce.com?

Brenon Daly

Contact: Brenon Daly

Could this be a case of history repeating itself? A Web analytics vendor pulls out at the last minute of a technology conference at a boutique bank, and then announces that it has agreed to a richly priced sale of the company. That’s the way it played out last fall with Omniture at ThinkEquity’s conference. And at least part of that has happened with Coremetrics this week at Pacific Crest Securities’ Emerging Technology Summit. (Coremetrics was slated to present at the event Thursday morning, but canceled its appearance, officially because the presenter was ill.)

Of course, there’s been a lot of M&A buzz around Coremetrics in recent weeks, with at least two sources indicating that the company had retained Goldman Sachs to represent it. As to who might be a buyer for the Web analytics shop, we come back to one name: salesforce.com. We understand that the CRM giant was acutely interested in Omniture and, according to some sources, was the cover bidder in that process. (Omniture, of course, ultimately sold to Adobe in a somewhat puzzling pairing.)

Coremetrics’ analytics would fit neatly with salesforce.com’s sales and marketing offering. Both are also SaaS companies. And, as we noted last month, the profitable company, which has about $1bn in cash available, has announced plans to raise another $500m in a convertible offering. Altogether, that’s plenty of cash to cover a potential purchase of Coremetrics, which would probably go for several hundred million dollars. And if the Coremetrics sale parallels the Omniture sale in that the analytics company goes to a somewhat unexpected buyer, we might put forward Autonomy Corp as a possibility, as my colleague Nick Patience did in a recent report. The acquisitive British vendor also recently announced plans to raise a slug of money.

Blue-light special on Brocade

Brenon Daly

by Brenon Daly

For all of the would-be suitors of Brocade Communications, now is seemingly the time to move on the enterprise networking vendor. The value of the company has been trimmed by about one-quarter this week, meaning that a buyer paying a typical premium would be getting Brocade for the price that it fetched on its own last week. (We understand that valuations aren’t quite that simple – and it probably shortchanges Brocade – but it’s directionally accurate.) The recent problems at Brocade stem largely from the Foundry Networks business that it acquired a little more than a year ago.

With investors lopping off the gains that Brocade had run up over the past 10 months, the company has clearly been marked down. Yet, on the other side of any theoretical deal for Brocade, the demand has probably dipped since M&A speculation was swirling around Brocade last October. The reason? One company that had been mentioned as a possible buyer for Brocade is probably now out of the market.

Hewlett-Packard made a major networking move of its own shortly after most people put it at the top of the list of potential suitors for Brocade. Last November, HP handed over some $3.1bn for 3Com, which means that it doesn’t need Brocade (or more specifically, Foundry) quite as much. Of course, IBM is still a big OEM partner for Brocade, as is Dell. Both of those vendors could still be interested in a major networking acquisition, particularly at a discounted price. Brocade currently sports an enterprise value of $3.1bn.

No-go IPO for RedPrairie

Brenon Daly

Contact: Brenon Daly

Scratch another name off the list of IPO candidates. RedPrairie, which had filed to go public in late November, instead sold on Tuesday to buyout shop New Mountain Capital. The sale moves the supply chain management software vendor from one private equity portfolio to another. (We understand that the two book runners on the proposed offering – Bank of America Merrill Lynch and Credit Suisse Securities – both advised RedPrairie on the deal.) In mid-2005, Francisco Partners acquired the company for $237m and subsequently rolled up another half-dozen smaller shops. Ahead of the proposed offering, Francisco owned 90% of RedPrairie.

The trade sale of RedPrairie isn’t all that surprising. (Nor, for that matter, was the fact that it put in its prospectus. We noted a month before the company officially filed to go public that it was getting close to an offering.) Looking at the financial profile of RedPrairie, it was hard to see Wall Street getting too excited about the vendor. Undoubtedly, it is profitable and hums along at a decent 20% EBITDA margin. But the top line leaves a lot to be desired.

Revenue at RedPrairie dropped 12% in the first three quarters of 2009, with license sales declining twice that level. In the first three quarters of last year – which was, admittedly, an extremely tough time to sell enterprise software – RedPrairie sold just $27m of software licenses. Meanwhile, rival JDA Software was able to generate twice as much license revenue ($60m) during the same time frame. JDA even managed a slight increase in sales of its software, compared to a double-digit percentage decline at RedPrairie.

QlikTech looks likely to click on the market

Brenon Daly

Contact: Brenon Daly

Even though the public market has been fairly choppy lately, there seems to be no shortage of companies willing to step into the uncertain waters. We’ve seen a number of recent IPO filings, as companies get their final 2009 numbers in order and look ahead to a possible summer offering. The problem is that few of the would-be debutants actually look all that attractive. Included in the current lineup of IPO candidates are a deeply money-losing company that will stay in the red for at least the next two years (Tesla Motors) and a barely baked company that generated a grand total of $36,000 in revenue last year (Vringo).

Those IPO candidates, along with most of the rest of the recent vintage, hardly approach the caliber of offerings of SolarWinds and Fortinet, among other companies that made it public last year. But we understand that may be about to change as rumors indicate that one of the stronger private tech companies has set its underwriting lineup. QlikTech has picked bankers and will look to put in its IPO paperwork shortly, according to several sources. (Morgan Stanley, CitiGroup and JPMorgan will reportedly be running the books on the offering.)

We noted a possible future offering more than two years ago, coming off a year when the analytics provider increased revenue 80% to $80m. QlikTech followed that up with $120m in revenue for 2008, and we understand that the vendor actually boosted its top line again in 2009. If indeed QlikTech does file its S1 and eventually manages to go public, it will help to replenish a bit of the market that got picked over pretty thoroughly. Recall the shopping spree by tech giants back in 2007 that saw BI vendors Hyperion Solutions, Business Objects and Cognos all get erased from the public markets. The collective tab for that BI shopping spree: $15bn.

Will Google land On2?

Brenon Daly

Contact: Brenon Daly

At this rate, Google may never again go shopping on the public market. Its contentious reach for On2 Technologies, which has been bogged down for a half-year, will come to some kind of resolution after the close of the market today, with shareholders of the video compression software vendor set to vote on Google’s $136m offer. While Google has acquired nearly 50 companies in its history, the proposed purchase of Amex-listed On2 is the first time the search giant has bid for a public company.

When Google initially announced the planned purchase back in early August, it said it hoped to close the deal in the fourth quarter. (As an aside, we’d note that since the original announcement, Google has picked up six private companies, all of them without the drama that has surrounded the proposed On2 acquisition.) The target deadline came and went, and then in early January, Google said it was adding a cash kicker to its original all-equity bid for On2.

Google’s first offer of roughly $106m of its shares for On2 hadn’t drawn enough support from On2’s shareholders. So, the deep-pocketed buyer reached a bit deeper into its pockets to add a $26m all-cash sweetener. Google says the $136m bid is its ‘final’ offer. On2’s board of directors, as well as the three main proxy advisory firms, have all urged the vendor’s shareholders to vote for Google’s proposed purchase this afternoon.

Autonomy and Art Technology: Lower after raising

Brenon Daly

Contact: Brenon Daly

There’s money, and then there’s expensive money. To underscore the difference, consider a pair of recent money-raising offerings from notably acquisitive companies. First, the worst. Art Technology Group announced earlier this month that it intended to hold a 25-million-share secondary, with an undisclosed portion of it earmarked for possible acquisitions. The plan didn’t find many fans on Wall Street, who carped about a profitable company adding 25 million additional shares on top of a base of about 135 million.

Art Technology shares promptly went into a tailspin. By the time the e-commerce firm had priced them, investors had clipped 22% off the stock. So instead of raising about $113m, the vendor had to settle for $88m (excluding overallotments). Even though Art Technology had to take a haircut on the secondary, it did at least get it done. With it, the debt-free company more than doubled the amount of cash it has on hand and could be a serious consolidator in the market. Already this year, Art Technology made a rather smart purchase of InstantService, a startup providing customer service through online chat and email.

And, although the reaction wasn’t nearly as severe, Autonomy Corp also took a mild hit from its investors when it announced plans to raise some $785m in a convertible offering last week. Adding those proceeds into its already well-stocked treasury will give Autonomy more than $1bn to go shopping with, although some of that will have to go to pay for its earlier Interwoven acquisition. Over the past three years, Autonomy has picked up five companies for a total of $1.2bn, although Interwoven accounts for two-thirds of the aggregate spending. As to what Autonomy might be looking to buy with its newfound riches, my colleague Nick Patience says in a recent report that he could imagine Autonomy going into marketing automation and BI, and he even has a few names that could well be on Autonomy’s shopping list.

Pouring cold water on the latest Sourcefire rumor

Brenon Daly

Contact: Brenon Daly

At the tail end of last week, the market was buzzing that Sourcefire may be back in play. Of course, that’s not all that unusual for the Snort shop, which has seen two publicly disclosed acquisition offers in the past four years come to nothing. (Recall that Check Point Software failed to land Sourcefire because of vague and off-target ‘national security concerns’ in early 2006. And then, in mid-2008, Barracuda lobbed an opportunistic low-ball bid for Sourcefire. Talks between the two sides never really got going, according to at least one source.)

So who’s the new bidder? Rumor has it that IBM may be looking at Sourcefire now. While the pairing has been making the rounds, we have our doubts about whether Big Blue would actually reach for the security company. Its $1.3bn acquisition of Internet Security Systems in mid-2006 has never generated the returns that IBM had hoped. (The ISS business, which was centered on the company’s Proventia boxes, never really fit well inside IBM Global Services.) Having little to show for that purchase of an intrusion-prevention system (IPS) vendor, we doubt that Big Blue would double down on another IPS vendor, Sourcefire.

And while IBM could certainly afford it, Sourcefire has gotten a little pricey. Over the past year, shares have more than tripled, giving the security vendor a market capitalization of about $600m. Backing out the $100m in cash and short-term investments gives Sourcefire an enterprise value (EV) of $500m. Without a takeout premium, Sourcefire commands a valuation (on an EV basis) of five times trailing sales and four times projected sales. Paying a premium on top of Sourcefire’s trailing P/E that’s in the triple digits might be tough for IBM, which trades at a trailing P/E of just 12.

Yahoo: glad for the greenbacks

Brenon Daly

Contact: Brenon Daly

Completing its second divestiture in less than a month, Yahoo said Wednesday that it was selling its online help-wanted site HotJobs to Monster Worldwide. Yahoo will get $225m in cash for HotJobs, roughly half the $436m the search engine paid for the job-listing site back in December 2001. The original acquisition called for Yahoo to cover the purchase with half cash and half stock. On the divestiture, we’re pretty sure Yahoo is glad terms called for straight cash.

We understand that at various points during the process, which played out over the past 15 months, Yahoo considered taking a mix of cash and Monster equity or even Monster shares outright for HotJobs. That would have been a kick in the gut to Yahoo, which has had enough problems with its own equity in recent times. The reason? Monster stock dropped 12% on Thursday after the company came up short of Wall Street earnings expectations for the fourth quarter amid a 27% decline in revenue. Had Yahoo taken Monster shares, the $225m deal would be worth just $198m at the end of its first day.

Will Iron Mountain soon be sipping a Mimosa?

Brenon Daly

Contact: Brenon Daly, Kathleen Reidy, Simon Robinson

For what was once a fairly staid Old Economy business, Iron Mountain has done a better job than most companies in acclimating itself to the digital age. The records management vendor has accomplished that with eight acquisitions over the past half-decade, picking up technology for online backup and e-discovery, among other offerings. The $158m purchase of e-discovery provider Stratify stands, in many ways, as Iron Mountain’s marquee acquisition for its digital business. It has maintained the Stratify name and, last November, turned its whole digital subsidiary over to Ramana Venkata, the founder and former CEO of Stratify.

After that purchase in October 2007, Iron Mountain stayed out of the market for more than two years, despite many adjacent sectors that it could buy its way into. (And, from what we remember of the past two recession-wracked years, prices for startups weren’t particularly steep.) The M&A drought ended last month with the pickup of a San Francisco-based services company, Legal Imaging Technologies, that provides electronic document conversion. Terms weren’t disclosed.

But now we wonder if that small buy might be followed by a large deal. Several sources have indicated that Iron Mountain may be looking to snare a digital-archiving startup. It had relied on its partnership with MessageOne, but since that company’s acquisition by Dell, Iron Mountain has moved on, partnering with Mimecast last April. The partnership – combined with the fact that both businesses deliver their offerings through a subscription model – makes an acquisition of Mimecast by Iron Mountain a logical fit.

However, the market has been buzzing recently with another possible pairing for Iron Mountain – Mimosa Systems. Although Mimosa has talked in the past about going public this year, we have always thought that an acquisition of the company was more likely. (It has raised $50m in backing and, according to one source, was tracking to about $40m in bookings last year.) While Mimosa’s technology is highly regarded, the fact that it’s on-premises rather than on-demand would pose some integration challenges. However, it does have an emerging cloud story that would likely be of interest to Iron Mountain.

More than one way to market

Brenon Daly

by Brenon Daly

Apparently, UPEK really wants to be a public company. It put in its IPO paperwork back in mid-2007, only to pull it in March 2008. Unlike other former filers, however, the biometric security vendor hasn’t dusted off its S-1 in an attempt to hit the public markets. (In the past week, both Convio and GlassHouse Technologies have re-filed to go public.) Instead, UPEK wants to get on the Nasdaq by picking up a rival that already trades there.

UPEK lobbed an unsolicited offer at AuthenTec on Friday that basically envisioned consolidating the two companies, which make fingerprint sensors, into a single business. Equity ownership would be evenly divided between the two sides. For its part, AuthenTec has been a public company since mid-2007, although its shares have lost some three-quarters of their value in that time. On Monday, AuthenTec, advised by America’s Growth Capital, rejected UPEK’s ‘highly dilutive and speculative transaction.’