Category: technology stocks

Cold settles in on January M&A

Brenon Daly

Contact: Brenon Daly

Much like the stock market, the M&A market opened solidly in January but petered out as the month went along. We previously noted that big-name buyers (including EMC, Oracle, Apple and Cisco Systems, among others) all kicked off 2010 with an acquisition in the first week folks were back at their desks. However, the pace of deals slowed noticeably after the initial flurry.

Overall for January, we tallied 281 transactions, totaling $4.4bn in spending. Some 62% of the deals (175 transactions) came in the first two weeks of the month, compared to just 38% (106 transactions) in the back half of the month. And although spending in the last two weeks of January outstripped the first half, the increase is entirely due to a single mammoth deal, Tyco’s $2bn purchase of Brink’s Home Security Holdings. If we subtract that consolidation play, we see that some 71% of spending took place in the first half of the month. The remaining 29% came in the last two weeks of January, when the Nasdaq recorded virtually all of its full-month decline of 4%.

No recession for mobile advertising M&A

-Contact Thomas Rasmussen

Following Google’s purchase of AdMob in November, we predicted a resurgence in mobile advertising M&A. That’s just what has happened and, we believe, the consolidation is far from having run its course. Apple, which we understand was also vying for AdMob, acquired Quattro Wireless for an estimated $275m at the beginning of the year. At approximately $15m in estimated net revenue, the deal was about as pricey as Google’s shopping trip for its own mobile advertising startup. And just last week, Norwegian company Opera Software stepped into the market as well, acquiring AdMarvel for $8m plus a $15m earnout. We understand that San Mateo, California-based AdMarvel, which is running at an estimated $3m in annual net sales, had been looking to raise money when potential investor Opera suggested an outright acquisition instead.

These transactions underscore the fact that mobile advertising will play a decisive role in shaping the mobile communications business in the coming years. For instance, vendors can now use advertising to offset the costs of providing services (most notably, turn-by-turn directions) that were formerly covered by subscription fees. Just last week, Nokia matched Google’s move from last year by offering free turn-by-turn directions on all of its smartphones. Navigation is only the beginning for ad-based services as mobile devices get more powerful and smarter through localization and personal preferences.

While traditional startups such as Amobee will continue to see interest from players wanting a presence in the space, we believe the next company that could enjoy a high-value exit like AdMob or Quattro will come from the ranks that offer unique location-based mobile advertising such as 1020 Placecast. The San Francisco-based firm, which has raised an estimated $9m in two rounds, is a strategic partner of Nokia’s NavTeq. As such, we would not be surprised to see Nokia follow the lead of its neighbor Opera by reaching across the Atlantic to secure 1020 Placecast for itself.

Informatica: an MDM deal of its own?

Brenon Daly

Contact: Brenon Daly

With one rumored pairing in the master data management (MDM) market still buzzing, word of another deal is beginning to circulate as well. Several sources have indicated that Informatica may have picked up Siperian and could announce the transaction as soon as Thursday, when it reports fourth-quarter results. (On that note, Wall Street analysts project that Informatica will report earnings of roughly $0.28 per share on sales of $139m, which would represent growth of 12% over the previous fourth quarter.) We would note that Siperian has relatively close ties to Informatica, and continues its OEM relationships with two companies the data integration giant previously acquired (Identity Systems and AddressDoctor).

The Informatica-Siperian chatter comes as IBM is thought to be close to announcing the purchase of fellow MDM vendor Initiate Systems. (Once an IPO hopeful, Initiate instead is rumored to be heading to Big Blue, with a deal expected to be announced in the next week or so.) According to our knowledge, Siperian is slightly less than half the size of Initiate, which we estimate finished last year with around $90m in revenue. We understand that Siperian, which now counts more than 50 enterprise customers, recently crossed into profitability.

While we couldn’t learn the exact price Informatica is paying for Siperian, it is likely to be a significant transaction for a company that typically inks deals totaling around $50m. (In the previous seven buys Informatica made since 2002, it paid between $28-85m.) In fact, one source indicated that the purchase of Siperian could be in the neighborhood of twice the size of its previous largest acquisition, its April 2008 pickup of Identity Systems. Informatica closed three deals last year.

Is IBM about to ‘initiate’ a major MDM purchase?

Brenon Daly

Contact: Brenon Daly

Although we recently noted that SAP may be considering a major master data management (MDM) move, we understand that the next buyer in the market may actually be IBM. We’ve heard from several sources that Big Blue is close to announcing an acquisition of Initiate Systems. If the deal does indeed happen, Initiate would substantially boost IBM’s offering for the healthcare industry. Despite being competitors, Initiate and IBM Global Services have been longtime partners for healthcare projects. The transaction could happen as soon as this week, we’re told. And we gather that it’ll come at a rather rich valuation for Initiate.

One of the largest stand-alone MDM vendors, Initiate filed to go public back in November 2007, but withdrew its IPO paperwork the following summer. (Goldman Sachs was lead underwriter of the planned offering.) Shortly after it pulled its prospectus, it announced a $26m funding round that included strategic investments from both EMC and Informatica. However, we hear that the biggest competition for IBM’s rumored bid for Initiate may have come from the public market.

Given the very real prospect that Initiate could reheat its plans to go public, IBM would effectively have to top the valuation that Initiate could receive in an IPO and afterward. We understand that the company was running around breakeven and likely did just shy of $90m in 2009. (That would imply mid-teens growth from the $76m in revenue that Initiate recorded in 2008.) With that dynamic at play, Initiate may well garner 4.5-5x sales in the trade sale to IBM, according to sources.

salesforce.com: All dressed up and nowhere to go

Brenon Daly

Contact: Brenon Daly, China Martens

We noted late last week that it has emerged recently that salesforce.com did indeed make an (unannounced) acquisition to help bolster its upcoming enterprise collaboration product, Chatter. The purchase of GroupSwim, which had just 30 customers, was undoubtedly a tiny one. That’s been the case in the five previous buys by salesforce.com, as well.

But now, the market is buzzing that salesforce.com may be looking to take on a larger deal. Why else would a profitable company that already has $1bn on its hands raise another $500m in an upcoming convertible offering? If that sort of reasoning worked for Occam, then it’ll work for us. All that remains, then, is to figure out where salesforce.com is going to spend that money.

It turns out that coming up with a shopping list for salesforce.com is actually a bit more complicated than it is for many other companies. For starters, the firm positions itself as a platform vendor, which means that it is designed to be open and inclusive. That is exactly counter to M&A. So while it might make sense for salesforce.com to move into marketing automation (MA), for instance, by picking up Unica or Constant Contact Inc, a play like that would immediately alienate all other MA providers on AppExchange. (Currently, there are 29 different MA applications listed on AppExchange, among more than 170 applications in the broader ‘marketing’ category.)

Salesforce.com has worked around that by looking more to partner than purchase, as it did to co-create FinancialForce.com, a partnership with Unit 4 Agresso. Clearly, salesforce.com could afford to buy Unit 4 Agresso outright. (The Dutch company has a market capitalization of about $650m.) We suspect that partnerships might be the approach that salesforce.com uses to cover human capital management (HCM). A number of rumors have tied the CRM giant to either of the big HCM players, Taleo or SuccessFactors. (As an aside, we might be willing to pay money to listen to any M&A negotiations between salesforce.com’s laidback, New Age-y chief executive Marc Benioff and the blunt-talking, hard-driving CEO at SuccessFactors, Lars Dalgaard. We can only imagine the look on Dalgaard’s face if Benioff invited him to sit zazen, which wouldn’t be out of character for the salesforce.com honcho.)

So having scratched most names, what’s one company that we could imagine salesforce.com reaching for? InContact. The acquisition would boost salesforce.com’s Service Cloud, taking the firm even deeper into the call center. The (hypothetical) deal would fit nicely with InStranet, which salesforce.com acquired in mid-2008 for $31.5m, and would hardly break the bank. InContact has a market capitalization of merely $90m. And as a final bonus, salesforce.com would finally be able to shed its limited ticker ‘CRM’ in favor of the bigger, more encompassing ticker of ‘SAAS,’ which is what inContact currently trades under.

Cadbury gets sweet deal; Yahoo sours

Brenon Daly

Contact: Brenon Daly

When Kraft Foods first launched its bid for Cadbury four months ago, we termed the offer ‘an Old Economy rendition’ of Microsoft’s reach for Yahoo in early 2008. And while it wasn’t a direct parallel, there were a number of similarities: A diversified, dividend-paying company makes an unsolicited play for a target that’s only just into a restructuring program, with a goal of bolstering a business where it’s currently an also-ran.

The parallels diverged even wider on Tuesday, as the British confectioner agreed to a raised bid from Kraft. Cadbury shareholders will pocket $19.5bn in cash and Kraft stock for their company, about 11% higher than Kraft initially offered. It represents the highest-ever price for Cadbury stock on the London Stock Exchange.

So that’s the reward to shareholders from a selling company. What about on the other side? What’s happened to the owners of Yahoo since the Internet giant spurned the advances of Microsoft (as Cadbury once dismissed the interest of Kraft)? Shares of Yahoo currently trade at just half the level that Microsoft bid for them. And it isn’t just the fact that shares got hit by the biggest economic upheaval since the Great Depression since Yahoo turned down Microsoft’s interest. In the nearly two years since that decision, the Nasdaq has basically flat-lined while Yahoo stock has dropped by one-third.

A short-lived bid for Chordiant

Brenon Daly

Contact: Brenon Daly

In many ways, CDC Software’s unsolicited bid for Chordiant Software was over before it even began. As it was, the end became official late Thursday, as CDC Software pulled its $105m cash-and-stock offer for the money-losing CRM vendor just a week after floating it. It was clear that the hastily assembled ‘proactive offer’ (as CDC Software referred to it) was never going to get very far with Chordiant. Shares of the company spent virtually all summer above CDC Software’s bid of $3.46, which reflected a scant 14% premium over the closing of Chordiant shares in the previous session.

Chordiant, advised by Morgan Stanley, brushed aside CDC Software’s proposal with the ever-popular dismissal that the bid ‘significantly undervalues’ the company. (CDC Software didn’t retain an adviser, we understand.) Chordiant’s rebuff, combined with the poison pill it has in place, effectively killed the deal. CDC Software pretty much acknowledged that earlier this week when it announced that it intended to unwind its tiny 1.3% stake in Chordiant, which totaled just less than 400,000 shares. Incidentally, speaking of shares, although Chordiant stock dipped a bit when CDC Software pulled its offer, it was still closed above the bid price on Friday.

salesforce.com goes for a GroupSwim

Brenon Daly

Contact: Brenon Daly, China Martens

Almost two months ago, we noted that several sources had indicated that salesforce.com may have reached outside its own walls for a little help in getting its Chatter product out the door. (Salesforce.com showed off Chatter, an enterprise collaboration product, at its Dreamforce conference in November, although it is not yet available.) The official company line at the time was that Chatter was developed in-house, which is consistent for acquisition-averse salesforce.com. The vendor has done just six deals – all of them tiny – in the decade that it has been in business.

In recent days, it has surfaced that salesforce.com did indeed acquire a startup. A visit to the homepage of GroupSwim indicates that the company ‘is now part of salesforce.com.’ We have followed GroupSwim since mid-2008, with my colleague Kathleen Reidy initially writing that the startup’s pairing of semantic analysis with content sharing/collaboration appeared to be a promising approach in a rather crowded market. When we last visited with GroupSwim a year ago, the 15-employee firm claimed 30 customers. It was still living off angel money.

In contrast to the rather meager financial situation at GroupSwim, salesforce.com is closing in on an all-time price for its shares. (Current market capitalization: $8.6bn, which works out to a triple-digit P/E ratio on a trailing basis.) And the on-demand giant just priced $500m in a convertible note offering that will bring its total holdings of cash and marketable securities to $1.5bn. With such a rich treasury, salesforce.com could likely buy hundreds more startups like GroupSwim. Or maybe it’s thinking of something bigger?

Plenty of capital for Human Capital Management buyers

Brenon Daly

Contact: Brenon Daly

For the fragmented market segment called human capital management (HCM), we’d put the emphasis on ‘capital.’ Both of the two largest public HCM vendors (Taleo and SuccessFactors) have done secondaries in recent months, despite already having pretty fat treasuries. Taleo, which held some $77m in cash at the end of the most recent quarter, sold more than $130m worth of stock in late November. That offering came a month after rival SuccessFactors, which held $122m in cash, raised some $215m in its secondary.

Despite all the cash, neither player has been particularly concerned with using it to go shopping. SuccessFactors has never bought a company while Taleo has inked just one deal in each of the past two years. In May 2008, Taleo consolidated rival Vurv Technology for $128.8m in cash and stock. Last September, it spent $16m in cash for startup Worldwide Compensation, an acquisition that followed an initial early investment in the compensation management vendor. We have noted for some time that both SuccessFactors and Taleo are likely to be busy, and in fact, we heard gossip that SuccessFactors came very close to closing a deal at the end of 2009, but it fell through.

We were thinking about all this potential M&A last week, when one of the HCM rollups got rolling. Authoria, which is owned by buyout firm Bedford Funding, announced its first deal since it got snapped up in September 2008. We estimate that the $100m purchase of Peopleclick will more than double Authoria’s revenue. Not that the deal tapped out Authoria’s bank account, either. It still has some $700m to spend. Adding up the money the would-be buyers (both financial and strategic) have to shop in this market, we expect HCM deals to follow in 2010.

Deals on the rebound

Brenon Daly

Contact: Brenon Daly

More than 100 people dialed into our webinar earlier today, joining us in a discussion of whether the tech M&A rebound is real. And while not everyone agreed that deals will flow smoothly – and voluminously – in 2010, there was a shared sense that the M&A recession of 2009 has mostly lifted. Still, a rebound is one thing, while recovery is something else entirely.

We have definitely seen the pace of dealmaking pick up so far in 2010. We noted earlier that we tallied 60% more deals in the first workweek of this year than during the same period last year, and both tech investment bankers and corporate development executives have forecast a busier year for M&A in 2010. If you’d like to get a copy of our slides from this morning’s webinar, send us an email.