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.

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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.

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Marketing automation overshadows Web content management

Contact: Alan Pelz-Sharpe

The marketing automation industry is upending the Web content management (WCM) space. Our research tells us that pure-play WCM technology is unlikely to continue to grow as a market in any substantial way. We believe that going forward, the technology is likely to be bundled along with marketing automation platforms, rather than sold as stand-alone WCM systems. That prognosis is reflected in the pattern of M&A activity in the two sectors.

The critical fact missed by the WCM market was that the central content repository was not the be-all and end-all that it was claimed to be – certainly not for all organizations. While having marketing collateral in a single ordered, managed system is important, it is only when that content is connected to a chain of events that it results in a transaction of any value.

The last WCM acquisition of note was that of Day Software by Adobe in July 2010 for $243m. In sharp contrast, the marketing automation sector has been a hotbed of M&A and IPO activity. In the first week of June, salesforce.com announced the purchase of marketing automation provider ExactTarget for $2.5bn. A few weeks prior, rival Marketo came public in a well-received IPO and currently garners a market cap of $750m. Subscribers can click here for a full report on the WCM industry and prospects for existing players.

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Here comes consumer hardware?

Ben Kolada

Contact: Ben Kolada

MakerBot Industries recently turned about $11m in funding into a potential $604m sale ($403m in stock upfront, with $201m in earnout potential). Just as the company transforms its newfound parent Stratasys’ market potential, moving the commercial 3-D printer manufacturer into the consumer market, the MakerBot sale may also help transform the greater technology industry, and bring consumer hardware back into favor.

We’ve written before about the emergence of consumer hardware in the form of wearable technology. As we noted then, the majority of companies tackling this nascent market are large multinational corporations such as Nike, Apple and Google.

That could soon change. VCs often lament that hardware is too capital intensive and can quickly get commoditized. But MakerBot’s growth and exit valuation certainly don’t reflect those concerns.

After only a few years in business, and having taken in roughly $11m in funding, MakerBot was able to grow total revenue to $15.7m last year. The company was set to smash that this year – in just the first quarter, it recorded $11.5m in sales.

Meanwhile, some VCs have complained recently that consumer software startups have become too stale, and the market too fad-driven. (Of course, some of that griping may be coming from VCs that missed out on the $1bn exits of consumer-focused startups Tumblr and Waze in the past month.) Nonetheless, MakerBot’s gold-plated exit may help some of the venture shops broaden their investment areas.

MakerBot’s funding history

Year – Amount – Investors
2009 – $75,000 – Individual investors
2010 – $1.2m – 500 Startups, Angel Investors, Bezos Expeditions, Founder Collective, High Line Venture Partners, Lerer Ventures, Thrive Capital, True Ventures
2011 – $10m – Angel investors, Bezos Expeditions, Foundry Group, RRE Ventures, True Ventures

Source: The 451 M&A KnowledgeBase

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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.

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Datawatch acquires Panopticon for its visualization software

Contact: Tejas Venkatesh

Datawatch is buying Swedish data visualization software vendor Panopticon Software for $31.4m in stock (Datawatch ended March 2013 with just $10m in its treasury). The deal fills an important product gap in Datawatch’s portfolio, adding real-time data visualization software to its back-end-oriented portfolio and furthering its positioning around ‘big data’ visual discovery. On the announcement of the acquisition, Datawatch traded up more than 15% on the Nasdaq.

Panopticon adds a presentation layer to Datawatch’s back-end capture and transformation wares for semi-structured and unstructured information. The startup’s technology includes an internally developed StreamCube in-memory OLAP data model and visualization layer, which includes heat maps and tree maps.

Three-fourths of Panopticon’s business comes from partner-driven deals in the financial services industry, due to its applicability for visual analysis with sub-second latency for trading and risk applications, for example. SAP and Thomson Reuters are reportedly Panopticon’s two largest partners. We’ll have a full report on this transaction in our next Daily 451.

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‘Progress-ing’ in a restructuring

Ben Kolada

Contact: Ben Kolada

Continuing its yearlong restructuring, Progress Software is selling its Apama complex event processing (CEP) assets to Software AG, effectively unwinding its 2005 acquisition of the startup. Although asset sales have become particularly popular and Progress has certainly been on a corporate diet lately, this move wasn’t widely expected in part because Progress had seemed to indicate that Apama was part of its core business.

In April 2012, Progress announced a restructuring plan that, among other moves, would refocus on its core OpenEdge, DataDirect and Apama products. However, the company has since had a change of heart regarding Apama. In announcing the divestiture, Progress said Apama’s target market of Wall Street and big telcos, as well as its deployment and sales model, differ significantly from Progress’ application development platform, which targets the midmarket. (We note that Progress is retaining Apama’s core decision analytics capability.)

The deal follows Progress’ sale of 10 product lines during the two previous quarters. Terms weren’t disclosed. (For the record, Progress paid $25m for Apama in April 2005.) According to our understanding, Software AG is paying less for Apama – both on an absolute and relative basis – than TIBCO paid in a directly comparable CEP deal earlier this week, when it reached for StreamBase Systems. We’ll have a longer report on this acquisition in an upcoming Daily 451.

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Gigamon soars on debut

Contact: Tejas Venkatesh, Christian Renaud

A year after first filing its IPO papers, Gigamon finally debuted on the public markets Wednesday. The network traffic monitoring vendor sold 4.5 million shares at $19 each, raising $85.5m and creating $560m in market value. By midmorning, the stock changed hands at $25, up more than 35% from its debut price. Goldman Sachs & Co, Bank of America Merrill Lynch and Credit Suisse acted as lead joint book-running managers for the offering, with Gigamon trading under the ticker symbol GIMO on the NYSE.

The rapid growth of cloud computing and the move to dynamic virtual environments has created the need for increased visibility and control over network traffic. Gigamon’s revenue growth reflects that potential: sales have more than doubled since 2010, hitting $106m for the fiscal year ended in March. The company has managed that impressive growth while running solidly in the black, netting $7.6m in 2012.

Gigamon’s traffic visibility fabric combines hardware and proprietary software, offering independent traffic visibility across multivendor networks. Last year, the company also unveiled a software-only product, GigaVUE-VM, for cloud-based applications. This new release allows Gigamon to provide network managers with integrated visibility into their physical, virtual and cloud traffic. The nine-year-old company raised $23m in funding from Highland Capital Partners, which owns about one-quarter of Gigamon following the IPO.

The network monitoring sector has also seen a fair bit of M&A activity. For instance, Danaher acquired Gigamon rival VSS Monitoring last summer for an estimated $180m, or 5.1 times trailing sales. Around the same time, Ixia reached for Anue Systems, paying $145m, or 3x sales. Gigamon is currently trading at a market cap of $760m, or 7.2x trailing sales. Its larger size and impressive growth almost certainly helped garner a premium valuation compared with the trade sales in the market.

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. 

The value of information

Ben Kolada

Contact: Ben Kolada

In its largest-ever acquisition, IHS is paying $1.4bn for Southfield, Michigan-based automotive data and information provider R.L. Polk & Co. Consumers may know the company better as the provider of the CARFAX vehicle information product. The deal is a significant move to grow a relatively young IHS division.

While IHS Automotive was launched just two years ago, Polk was founded in 1870, nearly four decades before Henry Ford’s first Model T hit the road. The company today provides online market research and a database of VINs for the automobile industry. Its Polk division accounts for about 40% of revenue. The remainder of revenue comes from its CARFAX division, which provides an online database of vehicle history information for used car dealers and consumers.

IHS claims growth potential was the rationale for this acquisition. Although Polk’s total annual revenue has only grown in the mid- to single-digit range, its CARFAX product has recorded ‘solid’ double-digit growth annually. Meanwhile, IHS says CARFAX is only 20-30% penetrated in the US. IHS also sees particular upside in international markets, where Polk currently generates just 12% of its sales.

IHS is paying $1.4bn (90% in cash and 10% in stock) for Polk, valuing the target at 3.5x its annual revenue and approximately 14x its adjusted EBITDA. (IHS disclosed that Polk generated adjusted EBITDA in the mid-20% range.) Evercore Partners advised Polk, while M. Klein and Company advised IHS.

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