Breaking up the M&A way

Ben Kolada

Contact: Ben Kolada

Though previously engaged in a joint venture (JV) named Monitise Americas, mobile banking startup Monitise and Fidelity National Information Services (FIS) have been growing apart. Through a series of moves, the two companies, though still partners, seem to be getting ever closer to completely severing their relationship.

The eventual breakup appears to be spearheaded by Monitise. For just over three years, Monitise and FIS owned a JV named Monitise Americas. However, in November 2011, Monitise brought the JV completely under its own control, perhaps as a prelude to its next major M&A play.

Following the severing of that venture, FIS threw its weight behind Monitise competitor mFoundry, participating alongside MasterCard and existing investors in an $18m round of financing for mFoundry that was disclosed in December 2011. Not only was FIS’s involvement here a competitive slap in the face, but the inclusion of MasterCard in the round put another nail in the coffin, as MasterCard rival Visa and its affiliates have been longtime investors in Monitise.

In response, just three months later, Monitise announced its $173m all-stock acquisition of North American counterpart Clairmail. Clairmail was a direct competitor to mFoundry, similar in both headcount and product portfolio.

With tension mounting, FIS recently announced that it is acquiring the remainder of mFoundry that it doesn’t already own for $120m in cash. If the relationship between FIS and Monitise continues, it certainly won’t be as amicable as before. Although Monitise still called FIS a partner in its most recent annual report (released in September 2012), the feeling may no longer be mutual.

Breaking up the M&A way

Date Event
November 2011 Monitise buys out the remainder of Monitise Americas that it didn’t already own from FIS.
December 2011 FIS invests alongside MasterCard in Monitise competitor mFoundry.
March 2012 Monitise acquires mFoundry rival Clairmail for $173m.
January 2013 FIS acquires the remainder of Monitise/Clairmail competitor mFoundry that it didn’t already own for $120m.

Source: The 451 M&A KnowledgeBase, 451 Research

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salesforce.com ‘connects’ with EntropySoft

Brenon Daly

Contact: Matt Mullen

Announcing its first acquisition in five months, salesforce.com has reached across the Atlantic for Paris-based startup EntropySoft. The eight-year-old target had raised just $3.5m in a single round of funding. EntropySoft produces perhaps the most complete set of enterprise system connectors in the marketplace. These bits of technology allow the interoperability of data between management platforms, and have found their way into many Web content management, enterprise content management and enterprise search platforms.

While connectors will never be seen as ‘sexy’ technology, they are a fundamental underpinning of many integration strategies for vendors and provide a stable income for those that create and maintain them. So why would salesforce.com, a company that will put up about $3bn in revenue this year, want a stable if unexciting income stream? The truth is that it doesn’t.

What it wants, from our view, is EntropySoft’s technology. Specifically, salesforce.com wants the ability to make greater inroads toward positioning CRM as the single repository for enterprise information. Having the predominant connectivity stack as part of its toolkit makes that process simpler. It allows, for example, much easier exposition of content from legacy systems to the CRM repository and the platform that salesforce.com has built atop it with Force.com and Site.com.

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Silver Lake’s two very different elephants

Brenon Daly

Contact: Brenon Daly

Silver Lake has placed its bet, and it’s a big one. As noted, the planned $24.4bn take-private of Dell is the largest tech leveraged buyout (LBO) since the end of the recession. It’s also twice the price of Silver Lake’s previous mega-LBO, the $11.3bn club deal for SunGard Data Systems.

As we look at the two mammoth transactions, they don’t line up very closely at all. For starters, they belong to different eras: SunGard was an early, prelapsarian private equity (PE) transaction, while Dell comes as the credit markets have only recently returned to health after the worst economic recession in several generations.

Further, the two companies find themselves exiting the public market with very different outlooks for their business. SunGard has been riding the steady trend of business services, while Dell has been taking steps to catch emerging trends but still relies on PC sales for more than half its revenue.

The separation between the pair of companies is clear when we look at their financials: Unlike Dell, SunGard was growing at the time of its LBO, not to mention the fact that it ran at a 28% EBITDA margin compared with about 8% at Dell. (SunGard also got valued at twice the price-to-EBITDA multiple that terms give to Dell.)

Finally, we would note that since the Silver Lake-led LBO, SunGard has acquired some 45 companies. The steady M&A, along with organic growth, has seen SunGard bump its top line from about $3bn when it went private eight years ago to about $4.5bn now. We highly doubt that Dell will put up that kind of performance, at least not right away. There’s a lot of work to do at Dell.

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Once indelibly on the market, Dell looks to go private

Brenon Daly

Contact: Brenon Daly

In the third-largest tech leveraged buyout (LBO), Dell will end a quarter century as a public company in a $24bn take-private led by Silver Lake Partners. The private equity firm will be joined by Michael Dell, who is maintaining a significant minority stake in the company that he will continue to lead once it goes private. The LBO comes after Dell has struggled for much of the past half-decade to recast its business away from the rapidly diminishing PC market.

As part of that shift, Michael Dell returned as CEO to his namesake firm in early 2007 and (somewhat belatedly) began an M&A spree that eventually totaled some 20 transactions with a tab of $10bn. The acquisitions got Dell into virtually every part of the tech landscape, including IT services (Perot Systems), security (SecureWorks, SonicWALL), networking (Force10 Networks), storage (Compellent, AppAssure) and infrastructure software (Quest Software).

However, the acquisitions and other strategic shifts that Dell has made have yet to show up in the company’s financials. Dell, which just wrapped its fiscal year, is likely to post revenue that’s nearly 10% lower than the previous year. The company’s operating income has dropped by about one-third.

Since Michael Dell returned to the corner office six years ago, shares of the company have lost about half their value. Rightly or wrongly, Wall Street still views Dell – which gets half its revenue from PC sales – as a low-value ‘box maker’ rather than a strategic supplier of IT products and services. In the end, Dell is exiting the market at just one-quarter the value it once commanded.

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Oracle sets its sights on networking, reaches for Acme Packet

Brenon Daly

Contact: Brenon Daly

After consolidating huge swaths of the software landscape, Oracle has turned its attention to networking with a landmark acquisition. The company will hand over about $2bn in cash for Acme Packet, which Oracle hopes will allow it to capture more business with service providers and enterprises as networks look to deal with higher-level traffic like voice and video in which Acme specializes. Acme – which gets about three-quarters of its revenue from product sales and the remaining one-quarter from maintenance and support – counts about 1,900 service providers and enterprises as customers.

However, Acme has run into difficulties recently. Sales dropped almost 10% through the first three quarters of 2012, and the company has found itself running in the red after years of profitable operations. Before Oracle’s bid, Acme shares had dropped more than 20% over the previous year, underperforming nearly all of the company’s beaten-down networking rivals. Even reflecting the premium, Oracle is acquiring Acme at just half the level that Acme commanded on its own as recently as mid-2011.

Not that Acme is ending its six-and-half-year run as a public company on the cheap. Oracle will hand over $29.25 for each share of Acme, or an enterprise value of $1.7bn. That works out to 5.9x Acme’s trailing sales, which is roughly inline with most of Oracle’s other big-ticket purchases. However, we would note that the 5.9x valuation is more than twice the median valuation for the 50 largest transactions over the previous year, according to The 451 M&A KnowledgeBase.

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The ‘fiscal cliff’ hangover

Ben Kolada

Contact: Ben Kolada

Talks of a ‘fiscal cliff’ and potential changes in capital gains taxes spurred company executives and their bankers into action in the final hours of 2012. In a way, that anxiety spilled over into the beginning of this year when we saw a flurry of acquisition announcements in the first few weeks of January.

However, many of the announcements in early January were deals that closed in December. Throughout the month, we saw a continuation of the downward trend in deal volume. On the heels of a 6% decline in total deal volume for full-year 2012, the total number of transactions announced in January 2013 dropped 15% from the year-ago period. It was the fewest number of announcements in the first month of a year since the recession year of 2009.

Contributing to the slowdown in M&A activity is the fact that, according to the US Department of Commerce, the US GDP shrank 0.1% in the fourth quarter (though that number is subject to revision). Although many consider the dip a one-time slump due to declining government spending, much of the tech industry is struggling to find any growth.

In a survey conducted at the end of 2012 by ChangeWave Research, a service of 451 Research, 26% of respondents expected their IT spending to decline in the first quarter of 2013 – a full 10 percentage points higher than the level of respondents who projected increased IT spending in the quarter.

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On its way to (eventual) IPO, Alfresco does its first bit of M&A

Brenon Daly

Contact: Brenon Daly

In its first-ever acquisition, Alfresco Software has reached for an existing partner, WeWebU Software. The purchase of the 13-year-old German startup adds more management capabilities – specifically, a roles-based, configuration application framework – on top of Alfresco’s core ECM platform. In addition to customization, WeWebU should also enhance the mobile offering at Alfresco with its iOS-focused MobileWorkdesk front end.

The purchase comes as the open source company transitions from a founder-led, relatively low-profile business to one that’s eyeing the public market, at least down the road. As part of that change, just two weeks ago Alfresco appointed Doug Dennerline to the top job at the company.

A SaaS-veteran, Dennerline joins Alfresco as it finds itself competing on a new front. In addition to established ECM rivals such as EMC (Documentum), OpenText and, of course, Microsoft’s SharePoint, Alfresco is increasingly bumping into newer cloud-based startups, notably Dropbox and Box.

To combat that, Alfresco has shored up its platform with increased security and compliance to appeal to IT departments, as well as added a cloud offering of its own. Additionally, it has stressed that ECM is part of a larger business process – a function that should be made easier now with the addition of WeWebU’s configuration technology.

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Sierra Wireless sells AirCard business to NETGEAR for $138m

Contact: Tejas Venkatesh

NETGEAR is acquiring Sierra Wireless’ AirCard business for $138m in cash, adding external modems that it will sell to mobile network operators such as Sprint and AT&T. AirCard modems plug into PC Card slots or USB ports in laptops and other electronic devices to help them connect to the Internet through cell phone networks. NETGEAR will use its global distribution capabilities to increase sales of AirCard products in emerging markets, while allowing Sierra to focus on machine-to-machine (M2M) connectivity for the ‘Internet of things’ future.

The AirCard business generated revenue of $247m in 2012, giving the deal a valuation of 0.6x trailing sales. The ho-hum valuation reflects the low-margin profile of the business as well as declining sales. According to Sierra’s regulatory filings, the AirCard business has shrunk every year since 2008, when it generated revenue of $409m. However, most of the future growth lies in parts of the emerging markets, where cell phone networks are the only way to access the Internet, due to a lack of wired infrastructure.

In its conference call, Sierra made clear that it intends to deploy the proceeds from the sale toward M2M acquisitions. That is consistent with the direction of its previous M&A activity. In December 2008, Sierra acquired Wavecom for $277m for its GSM/GPRS, CDMA, EDGE and 3G Wireless CPUs. More recently, last June Sierra purchased Sagemcom’s M2M business for $56m, adding 2G, 3G, GPRS and EDGE wireless semiconductors.

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Making sense of j2’s Ziff Davis acquisition

Ben Kolada

Contact: Ben Kolada

At first glance, j2 Global’s acquisition of Ziff Davis Media seemed to be a stretch. However, upon further review of j2’s M&A strategy and recently released financial statements for Ziff Davis, the company actually meets many of j2’s requirements for its diversification acquisitions: Ziff Davis has a strong management team, operates in a fragmented market and, perhaps most importantly, is increasing revenue.

Technology content provider Ziff Davis Media was a powerhouse in its time, but it struggled as consumers moved from print to digital media. Total revenue at the company declined from $300m in 2001 to $76m in 2007, when more than half of its revenue was still coming from print advertising.

Ziff Davis filed for bankruptcy in 2008, and was subsequently carved up in four transactions. The Ziff Davis chunk being acquired by j2 is owned by CEO Vivek Shah and Great Hill Partners. Shah, a digital publishing veteran with experience at Time Inc and the Fortune/Money Group, and his team helped turn around ailing Ziff Davis, bump up revenue and return it to profitability.

J2 released financial statements this week for Ziff Davis that show the company is in growth mode. Unaudited results for the nine months ended September 30 show revenue increased 70% over the prior year to $32m. In the 12 months ended September 30, the company generated almost $45m in revenue, with nearly $8m in EBITDA.

For anyone interested in what goes on in The 451 M&A KnowledgeBase, we’ve updated our merger record for j2’s acquisition of Ziff Davis and made it available for free. Click here to view the record.

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MediaMath strikes twice in Akamai deal

Ben Kolada

Contact: Ben Kolada, Tejas Venkatesh

Marketing analytics startup MediaMath and CDN giant Akamai have engaged in a two-pronged deal that should help accelerate MediaMath’s already astounding growth rate. MediaMath is acquiring Akamai’s Advertising Decision Solutions assets and data cooperative, and is gaining exclusive access to Akamai’s pixel-free technology, which tracks online user behavior without using tracking pixels.

Adding to its already successful TerminalOne platform, MediaMath is picking up Akamai’s advertising data management platform and opt-in data-sharing cooperative. MediaMath says the assets will help its advertiser clients better profile audiences and predict audience behavior.

Terms of the transaction also provide MediaMath with multiyear, exclusive access to Akamai’s pixel-free technology. The traditional method for advertisers to collect user data has been to install tracking pixels on users’ computers when they access websites. However, Akamai’s pixel-free technology bypasses that strategy. Since Akamai has access to a significant portion of Web traffic through its content delivery and site acceleration services, it can directly observe user behavior. Its pixel-free technology leverages its content delivery roots to track user online behavior without the need to install tracking pixels.

We’d note that even before the addition of Akamai’s assets, MediaMath had done quite well for itself. With primarily organic growth, the company, founded in 2007, grew revenue last year to $180m, more than double the $78m it recorded in 2011.

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