A deal-maker departs Dell

Brenon Daly

Contact: Brenon Daly

The top dealmaker at Dell, David Johnson, has left the computer maker for buyout shop Blackstone Group. Johnson joined Dell in mid-2009 as SVP for Corporate Strategy after an acrimonious split from IBM, where he had worked for 27 years. In mid-2010, Johnson was also named head of Business Development, overseeing acquisitions and investments at the company that has been trying to expand beyond simply being a ‘box seller.’

Johnson’s arrival at Dell came at a time when the company, which was a late-comer to the tech market consolidation, had just started shopping. In his time at the Round Rock, Texas-based giant, Dell announced 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 return on that spending has yet to show up. Dell is still shrinking. It will likely end fiscal 2013, which wraps at the end of this month, with sales of about $57bn. That’s some $5bn, or 8%, lower than the company’s revenue in its previous fiscal year. Again, that decline comes despite a not-insignificant addition of aggregate revenue from its M&A spree. (For instance, Quest, which Dell closed in late September, was generating almost $900m in annual sales when it was acquired.)

The lack of growth at Dell is the reason the stock is out of favor on Wall Street. Since mid-2009, when Johnson joined Dell, the company has lost almost 20% of its value while the Nasdaq has tacked on 75%. The market values Dell at slightly less than $20bn.

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Imation continues storage push with Nexsan acquisition

Brenon Daly

by Simon Robinson

Imation, a company perhaps best known for selling consumer CDs and DVDs, has announced that it has acquired 14-year-old storage systems specialist Nexsan for $120m in cash and stock. Though Nexsan has been seeking a buyer for some time, the company has a good-sized and well-established business serving SMBs and enterprises. Imation, which says the purchase is part of its own strategic transformation that has seen it focus on storage and security, plans to use the move as a platform to begin targeting this audience more directly with Nexsan’s range of purpose-built storage systems and appliances.

Under terms, Imation is handing over $105m in cash and $15m in stock. We understand that Nexsan generated revenue of about $90m in 2012, meaning Imation is paying roughly 1.3 times trailing sales. The acquisition of Nexsan is the largest purchase Imation has done in a half-decade and substantially thins its treasury. At the end of September, Imation, which is burning cash, had $186m in cash and equivalents. Click here to see our full report.

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A bit of shopping of our own

Brenon Daly

Contact: Brenon Daly

The 451 Group did a bit of holiday shopping of our own over the recent break. We’re excited to announce that we just closed our acquisition of Yankee Group, a move that significantly enhances our coverage of the mobile communications market. Terms of the deal weren’t released.

Founded in 1970, Yankee Group was the first independent IT research and advisory firm focused on the communications industry. It has built on that original focus, establishing itself as one of the largest research firms covering the highly disruptive mobile market. Yankee Group will operate as an independent, stand-alone division of The 451 Group.

The purchase of Yankee Group continues our efforts to expand our portfolio by acquiring IT insight and research firms. In 2011, we added survey firms ChangeWave Research and TheInfoPro, while in 2009 we picked up datacenter consultancy Uptime Institute and in mid-2005 we bought Tier 1 Research, which focuses on the hosting and collocation markets.

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Tech M&A recovery stalls in 2012

Brenon Daly

Contact: Brenon Daly

After two straight years of post-recession increases in tech M&A spending, the value of transactions announced in 2012 slipped lower. For the just-completed year, we tallied deals valued at roughly $177bn across the globe. That’s a 21% drop from 2011 and slightly below the level of 2010.

M&A activity last year was undermined by a heightened level of economic and political uncertainty. In Europe, the lingering debt crisis flared to a point where in mid-2012, the 17-nation Eurozone appeared to be fraying beyond repair. Meanwhile, in the US, dark clouds of uncertainty rolled out of Washington DC due to the outcome of national elections and, more importantly, the unresolved ‘fiscal cliff.’ Overhanging all of this is the fact that the global economy slowed in 2012, and is likely to further slow in 2013.

Still, against that difficult backdrop, there were a few notable transactions in 2012. SoftBank’s $20bn purchase of a majority stake of Sprint stands as the largest tech/telco deal in a half-decade. Cisco’s $5bn acquisition of set-top box software vendor NDS Group last March is the serial acquirer’s second-largest transaction ever. Meantime, big-ticket SaaS acquisitions continued to gain pace, with Ariba, Taleo, Eloqua and Kenexa all taken out last year in deals valued, collectively, at $8.8bn.

Global tech M&A

Year Deal volume Deal value
2012 3,539 $177bn
2011 3,759 $225bn
2010 3,270 $188bn
2009 3,030 $143bn

Source: The 451 M&A KnowledgeBase

The top tech deal of 2012: VMware-Nicira

Brenon Daly

Contact: Brenon Daly

With 2012 winding down, it’s time to look back over the year to see what stood out in what’s shaping up to be a tough year for tech M&A. As we always do in our annual survey, we asked corporate development executives to cast their vote for the most significant transaction of the year. For 2012, they overwhelmingly tapped VMware’s acquisition of Nicira as the Tech Deal of the Year.

Certainly, the $1.3bn transaction had a number of intriguing aspects. It’s a big price – $1.3bn is about the same amount that VMware has spent on its entire M&A program since being partially spun off from EMC. And it’s a bold move, even at the cost of picking a fight with longtime friend and networking ally Cisco Systems. But if VMware can have even part of the success in virtualizing networking with Nicira that it has already had by virtualizing computing, the acquisition will pay for itself many times over.

All of those elements figured into the corporate dealmakers handing the Golden Tombstone for 2012 to VMware. And, we should note that after two consecutive years of tight races, the voting in 2012 wasn’t even close. Twice as many survey respondents picked VMware-Nicira ahead of this year’s second-place transaction, Facebook’s reach for Instagram.

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Oracle pays up for an ‘Eloquent’ marketing platform

Brenon Daly

Contact: Brenon Daly

Two months ago, we noted that Oracle was rumored to be looking to acquire a marketing automation vendor. At that point, the buzz was that the acquisitive software giant, which has done social media-flavored marketing deals recently, was eyeing Marketo to be its platform. Instead, Oracle went with Eloqua, paying $956m for the company (on a fully diluted equity basis).

Eloqua, which went public in August but recently shelved a subsequent follow-on offering, had about $85m in cash, giving the proposed transaction an enterprise value of $871m. Using that figure, Oracle is valuing Eloqua at about 9.7x trailing sales – a valuation that’s about 50% higher than it paid in either of its acquisitions of fellow publicly traded SaaS application vendors over the past 14 months. (Both RightNow and Taleo went off at closer to 6.5x trailing sales.)

For Eloqua, the deal wraps a short – but rather profitable – stint on the public market. It only went public four months ago, but it is leaving the Nasdaq at twice the price it joined. Eloqua first sold shares to the public at $11.50, while Oracle is paying $23.50 for each share in the acquisition. The transaction is expected to close before mid-2013.

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End of an encryption era?

Ben Kolada

Contact: Ben Kolada

There has been considerable consolidation in the drive encryption sector over the past half-decade, most recently with Dell acquiring OEM partner Credant Technologies. However, with Dell taking Credant off the table, meaningful consolidation may be complete as there are few potential buyers left.

Dell is buying its OEM disk encryption software partner Credant in what could be seen as a tech tuck-in. The acquisition provides Dell with the IP rights to technology it already sells – Credant’s Data Protection Suite was available on Dell’s laptops and workstations as a preconfigured option. Terms weren’t disclosed, but we’re hearing that Credant generated trailing revenue in the $20-30m ballpark. (We’ll have a full report on the transaction in our next Daily 451.)

After earlier rounds of consolidation in this sector by security giants Symantec, McAfee and Check Point Software, there aren’t many potential acquirers left. In fact, it appears that the number of likely targets may outnumber the likely acquirers. Although M&A in this sector seems to be either at its end or near it, two remaining targets we would point to are still-independent vendors WinMagic and Zecurion.

Similar acquisitions to Dell buying Credant

Date announced Acquirer Target Deal value TTM revenue
September 22, 2011 Wave Systems Safend $12.8m Not disclosed
April 29, 2010 Symantec GuardianEdge Technologies $70m $18m
April 29, 2010 Symantec PGP $300m $75m
October 8, 2007 McAfee SafeBoot $350m $60m*
November 20, 2006 Check Point Software Technologies Protect Data [dba Pointsec] $586m $63.8m

Source: The 451 M&A KnowledgeBase *451 Research estimate

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A bearish outlook for tech IPOs in 2013

Brenon Daly

Contacts: Brenon Daly

In our just-published report on our annual survey of corporate development executives, the shoppers told us they don’t expect to have to outbid the public market when they consider acquisition targets. Almost half (47%) said they anticipate the IPO market to offer ‘less competition’ in 2013, which is three times higher than the 15% that predicted ‘more competition.’ (For comparison, last year one-third of responses (33%) forecasted more competition from IPOs, while one-quarter (26%) indicated less competition.)

The chilly outlook for offerings underscores just how difficult the IPO market has become. In the back half of 2012, there have been only about a half-dozen tech offerings. Although there have been some eye-popping market caps created (for instance, Workday, which came public in mid-October, now trades at $8.5bn), there just haven’t been enough to see a real threat of ‘dual tracking,’ according to corporate buyers.

If anything, the IPO market will be even quieter in 2013. The median forecast from our corporate development executives called for just 20 offerings, down from about 25 offerings in each of the two previous surveys. Click here to see our full report on the outlook for tech IPOs and M&A in 2013 from a key market participant: corporate development executives.

Projected number of tech IPOs in coming year

Period Median response
December 2012 for 2013 20
December 2011 for 2012 25
December 2010 for 2011 25
December 2009 for 2010 15
December 2008 for 2009 5

Source: 451 Research Tech Corporate Development Outlook Survey

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Tech buyers pull in their M&A plans for 2013

Brenon Daly

Contact: Brenon Daly

Even as 2012 is shaping up to be a lackluster year for tech M&A, next year could be even quieter. In 451 Research’s annual survey of corporate development executives, these buyers dramatically pulled in their acquisition plans for 2013. Just 38% of corporate shoppers said they would be increasing their M&A activity in the coming year – the lowest forecasted activity level in the six years of our survey.

On the other side, fully one out of five respondents (20%) indicated they would be slowing their purchases in the coming year, up significantly from the previous two years. It’s also important to note that the dour forecast for 2013 is coming off an already low base. With just two weeks of the year remaining, tech M&A spending for 2012 is all but certain to come in below the level of both 2011 and 2010. That would snap two straight years of increased spending.

The views of corporate development executives are an important indicator of the overall health of the tech M&A community, as they go a long way toward setting the tone in the market. We will have a full report on the survey results – including the outlook for valuation and specific types of acquisitions – in tomorrow’s Daily 451.

Projected change in M&A activity

Period Increase Stay the same Decrease
December 2012 for 2013 38% 42% 20%
December 2011 for 2012 56% 30% 14%
December 2010 for 2011 52% 41% 7%
December 2009 for 2010 68% 27% 5%
December 2008 for 2009 44% 33% 23%

Source: 451 Research Tech Corporate Development Outlook Survey

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Oracle buys DataRaker, adding energy analytics software

Contact: Tejas Venkatesh

Continuing to acquire software companies that target specific industry verticals, Oracle on Thursday announced the acquisition of smart energy meter analytics vendor DataRaker. The enterprise software giant has used M&A to buy its way into specific markets such as retail, financial services, healthcare and energy.

Five-year-old DataRaker provides smart energy meter analytics that enable utilities to integrate smart grid systems and analyze the resulting flood of new data. The software also helps utilities diagnose problems, forecast demand and detect tampering. Oracle’s purchase comes almost exactly a year after Siemens bought DataRaker rival eMeter for an estimated $200m. However, the two energy startups differ in one key area: DataRaker appears to have raised no outside funding, while eMeter took in a fair amount of venture capital.

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