Marketo looks to the market

Brenon Daly

Contact: Brenon Daly

Looking to join a recent run of well-received marketing automation IPOs, Marketo said Tuesday that it has filed its prospectus. Like most other recent would-be debutants, Marketo took advantage of regulatory changes and has filed its paperwork confidentially. Somewhat unusually, however, it did note its IPO filing on its website.

Although Marketo didn’t reveal its financials, we understand that the company has doubled revenue in each of the past three years: $14m in 2010, $30m in 2011 and about $55m in 2012. Marketo has raised some $107m from five different VC firms since 2006.

Last summer, rumors were swirling that Oracle might be looking to acquire Marketo. Instead, the acquisitive software giant reached for Eloqua, paying almost $1bn for that marketing automation vendor. (Meanwhile, we hear that other large enterprise software companies – notably, SAP, Intuit and salesforce.com – continue to sniff around the marketing automation market.)

Assuming Marketo goes ahead with its offering, it will join ExactTarget and Eloqua as IPOs from the sector. (Although, as noted, Eloqua got snapped up just four months after its offering.) As one indication of Wall Street’s bullish view on marketing automation, consider that ExactTarget trades at $1.5bn value on sales of about $300m.

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AirWatch raises $200m to propel growth

Ben Kolada

Contact: Ben Kolada, Chris Hazelton

AirWatch, considered one of the largest mobile device management (MDM) vendors, has raised $200m in its first round of outside funding. Insight Venture Partners led the round. This round of funding will build on several hundred million dollars the company has already invested in its MDM products and now-growing focus on mobile application deployment and management.

Terms of the investment weren’t disclosed, but we’re told the funding round values AirWatch at a whopping $1bn, which no doubt restricts its options in terms of an exit. The largest MDM acquisition we’ve seen so far was Citrix’s takeout of Zenprise for $327m. Zenprise had raised a total of $79m.

The investment will be used to increase staff in Asia as the company looks to build on 2012 revenue of nearly $100m, expanding on earlier international growth. Specifically, AirWatch says the funding will be used for product development and strategic M&A. The latter is particularly noteworthy, since the company has so far focused solely on organic growth, and hasn’t announced a single acquisition since its founding in 2003.

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Informatica’s shy M&A

Ben Kolada

Contact: Ben Kolada

Those merely glancing at the headlines of Informatica’s press releases would see that on Wednesday the company unveiled the latest version of its cloud-integration PaaS product, Cloud Spring 2013. However, only by reading further would an interested party see that the company has also quietly acquired cloud process automation vendor Active Endpoints. This isn’t the first time Informatica has been shy with its M&A announcements, but recent financial results could give the company the confidence to be much louder with its future acquisitions.

Informatica’s previous small tuck-in of Data Scout only came to light with the launch of Informatica Cloud MDM in September 2012 and the subsequent release of Informatica Cloud Winter 2013. Perhaps that deal didn’t deserve significant attention, as it cost Informatica just $6m.

In fact, with the exception of Heiler Software, Informatica’s dealmaking since 2011 has involved mostly small, sub-$10m tuck-ins. Its median deal size from the beginning of 2011 to today (including Heiler Software) is just $7m. That compares with a median deal size of $55m for the 11 transactions it announced before then.

The turn toward smaller acquisitions, and hiding some of them in product announcements, could be explained to a degree by the unfolding economy in Europe. Europe’s struggling economy eventually hit home and weighed heavily on Informatica’s Q3 2012 profit.

Although Europe is still experiencing economic turmoil, Informatica seems to have been able to cushion the continent’s effect on its top line. After a downturn in profit in the third quarter, the company recently released results that showed better-than-expected revenue in the fourth quarter. (However, net income still came in below the year-ago period.) If future results continue to play to Informatica’s favor, we could see the company becoming more boisterous with its M&A announcements in the future. We’ll have a longer report on Informatica’s acquisition of Active Endpoints in our next Daily 451.

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Xyratex acquires Lustre IP from Oracle

Contact: Tejas Venkatesh, Peter ffoulkes

Xyratex has announced a fairly rare deal with the acquisition of some of Oracle’s assets. Specifically, Xyratex is picking up the intellectual property related to the Lustre file system from Oracle, which the database giant itself obtained as part of its Sun Microsystems buy. Having already made significant investments in Lustre-based high-performance storage systems, the move helps Xyratex stabilize the Lustre community, and thus strengthen its product strategy.

The deal is a natural fit for Xyratex following its purchase of Lustre-based file storage management systems vendor ClusterStor in November 2010. ClusterStor CEO Peter Braam, the original developer of Lustre, joined Xyratex as part of the transaction and remains with the company today.

Xyratex is trying to build a reputation for itself as a leading storage systems provider. To do that, the company is leveraging its expertise in high-performance storage systems, for which Lustre is an appropriate parallel file system technology. Xyratex generated sales of roughly $1.2bn for the 12 months ended November 2012. For its part, Oracle divests a business that it hadn’t been investing in anyway.

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Tableau tees up an IPO

Brenon Daly2 Comments

Contact: Brenon Daly

After a pair of tech companies publicly announced their intent to hit the market late last week, we understand that a high-profile private company is coming up right behind them. Tableau Software is rumored to have quietly filed its IPO paperwork under the JOBS Act, according to a number of sources. It’s the first step toward an offering that could value the data-visualization company in the neighborhood of $2bn.

Founded a decade ago, Tableau has grown quickly and steadily as customers snap up its software that helps makes sense of the ever-increasing levels of data. According to our understanding, Tableau was running at less than $10m in 2007, but finished last year at about $110m in sales. The company, which has raised only $15m in venture backing, has also been generating cash in recent years even as it scales its business.

In addition to its stunning growth, Tableau has a number of other characteristics that should play well on Wall Street. It has a larger rival, QlikTech, that enjoys a healthy valuation of 6x trailing sales, even as it grows roughly 20%, or about one-quarter the rate of Tableau. (QlikTech recently forecasted sales for 2013 of roughly $470m, nearly three times Tableau’s expected sales this year.) Further, Tableau is likely to have broad support in the investor community thanks to its long list of rumored underwriters: Goldman Sachs, J.P. Morgan Securities, Morgan Stanley and Credit Suisse, among other banks.

By filing under the recently passed JOBS Act, Tableau can put in a prospectus without publicly revealing it has done so. Assuming the offering goes according to plan, Tableau would likely announce the filing in the next few months and then go on its roadshow. We expect the company to be well received in that process, and it is likely to join the richly valued quartet of enterprise vendors that went public in 2012: Workday, ServiceNow, Palo Alto Networks and Splunk. The cheapest of those four companies trades at 13x trailing sales.

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Opera’s cautious move into video optimization

Ben Kolada

Contact: Ben Kolada

Coinciding with its fourth-quarter earnings release, mobile Web developer Opera Software has announced the acquisition of mobile video optimization startup Skyfire Labs for $50m in cash and stock, with an earnout potentially tripling that price. The deal is a strategic combination – bringing together Skyfire’s carrier-focused mobile video optimization offerings with Opera’s mobile browser products – but its conservative structure suggests that Opera isn’t yet confident enough to put all of its eggs into the video optimization market.

Using an enterprise value of $50m (Skyfire had $8m cash on its balance sheet), the purchase – Opera’s largest ever – is valued at 12.2x trailing revenue. However, if Skyfire’s sales live up to expectations, its price-to-projected revenue valuation would be a more palatable 2.9x. Architect Partners, which helped Skyfire raise its $8m series C round, advised the company on its sale. Skyfire had raised $41m in venture capital. (We’ve made our M&A KnowledgeBase record on the transaction, which includes full financial details and round-by-round funding information, freely available here.)

Besides the $50m upfront payment, Opera is on the hook for an earnout of up to $105m in cash and stock. We’d note that although Opera also just announced a $100m credit facility, it could elect to pay $79m of the earnout in stock.

Opera is no stranger to earnouts, using them in all six deals we’ve recorded for the company, but the sheer size of this earnout suggests that the company isn’t fully confident in the video optimization market’s potential. And rightfully so – nearly every video optimization vendor we know of has seen total revenue flatten over the past few years, and many are anxiously seeking exits. (For a longer report on the mobile video optimization market, click here.)

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IPO drought lifts, as Marin Software and Model N reveal their paperwork

Brenon Daly

by Brenon Daly

Both Marin Software and Model N revealed their IPO paperwork Wednesday evening, setting the pair up to be the first new technology companies to come to market since mid-November. Both planned offerings have a $75m cover raise, and given the new regulations around IPOs, won’t actually hit the market until mid-March at the earliest. But at least the end to the recent IPO drought is (apparently) near.

Although they share the same filing date, the two companies are very different. Model N sells revenue management software, primarily to the life sciences industry although it has also expanded to tech vendors recently. Model N, which is almost twice as old as Marin Software, sells both perpetual licenses and a subscription product. License sales and related maintenance account for the majority of Model N’s revenue, which totaled $89m in 2012. J.P. Morgan Securities and Deutsche Bank Securities are leading the offering.

Founded in 2006, Marin Software only really began selling its subscription-based digital advertising platform in 2009. Since then, the company has been growing quickly. Through the first nine months of 2012, it recorded $43m in sales, up 72% from the same period in 2011. Marin Software’s revenue retention rate has topped 100% in each of the past two years. Bookrunners are Goldman Sachs & Co and Deutsche Bank.

With the different vintages, business models and markets, Model N and Marin Software will undoubtedly appeal to different investor classes on Wall Street. Along with that, they will undoubtedly garner different valuations. Loosely, we figure Model N will debut at about a $400m valuation and Marin Software may come out at roughly $600m. After the dry spell that we’ve seen in the IPO market recently, $1bn or so of value creation from the two companies will be a welcome development in Silicon Valley.

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Corsair acquires streaming audio systems provider Simple Audio

Contact: Tejas Venkatesh

Its IPO plans may not have materialized, but high-performance hardware designer Corsair is continuing to add to its product capabilities. In its first-ever acquisition, Corsair has reached for Simple Audio, a maker of streaming systems that enable consumers to remotely listen to music stored on computers and mobile devices. With audio being an integral part of gaming, the deal adds complementary audio products to Corsair’s stable of headsets, speakers and memory modules.

Corsair should also be able to use its worldwide distribution channels to drive sales of Simple Audio’s products. Terms of the transaction were not disclosed but the target described it as a ‘multimillion-dollar’ deal. According to a press release from Young Company Finance, which tracks and reports on early-stage high-growth companies in Scotland, Simple Audio generated about $2.1m in revenue for the nine months ended September 2012. The company only started selling its products in January 2012.

Corsair designs high-performance DRAM modules and other gaming peripherals for personal computers, with a focus on gaming hardware. The low-margin DRAM business accounts for more than two-thirds of its revenue. The company was on track for an IPO before pulling its paperwork in May 2012, citing poor market conditions. For the year ended March 2012, Corsair generated a top line of $480m, with a gross margin in the mid-teens.

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Go Daddy the trendsetter

Ben Kolada

Contact: Ben Kolada

Shortly after acquiring accounting startup Outright Inc, GoDaddy.com announced that it has picked up mobile website creation startup M.dot for an undisclosed amount. With these two deals, the domain name registration and Web hosting giant is becoming a bit of a trendsetter in its M&A strategy. We’ve been predicting a trend of mass-market hosting providers moving beyond providing simply Web hosting to offering more services for their small business customers.

M.dot provides a smartphone application that enables iPhone users to design and develop mobile websites without any coding. The company, less than a year old, had raised $700,000 in funding from Archimedes Labs, FLOODGATE Fund, SV Angel and angel investors. The deal makes sense since more and more people are more often accessing mobile, rather than fixed, websites.

With M.dot, Go Daddy further reinforces its desire to become a service provider, rather just another website hoster. Usually a pair of acquisitions of small startups wouldn’t merit much attention, but Go Daddy’s dealmaking sets the stage for a trend we expect to see more of – mass-market hosting companies buying their way into services. We’re working on a longer report on this trend that will be published soon.

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In tech M&A, it’s go big or go home

Brenon Daly

Contact: Brenon Daly

Tech buyers aren’t actually doing much buying so far this year, but when they close the deals, they have been big purchases. At least that’s the early read on deal flow so far in 2013. To put some numbers on the activity: Through the first five weeks of this year, the number of announced transactions by tech buyers around the globe was running about 15% lower than the comparable level in either 2011 or 2012.

However, the total spending from January 1-February 8 hit a whopping $55bn, which is higher than we would typically see for an entire quarter. Indeed, the year-to-date total is 2.5 times higher than the $22bn recorded for the same five-week period in the two previous years combined.

The surge in spending is being led by a flurry of big-ticket purchases. So far in 2013, we have tallied eight transactions valued at more than $1bn, up from just one in the same period in 2012 and four in 2011. Topping this year’s list, of course, is the proposed $24.4bn buyout of Dell, which stands as the largest announced tech deal since mid-2007. Also of note, Liberty Global reached across the Atlantic for Virgin Media Group in a $16bn acquisition and Oracle announced the $2bn purchase of networking vendor Acme Packet.

As is evidenced by those transactions, however, the activity at the top end of the market is hardly what we would call precedent-setting. (The Dell buyout – with the cash and equity participation of a company founder, plus a $2bn loan from Microsoft – is hardly a model for other take-privates.) Below those mega-deals, we aren’t seeing many signs of strength in activity that could sustain a recovery in tech M&A for the full year. Keep in mind, too, that we’re coming out of 2012, a year where we saw the value of tech transactions drop 20% from 2011 to end even slightly below the level of 2010.

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