A return to dealmaking for Epicor?

Ben Kolada

Contact: Ben Kolada

After Apax Partners combined ERP giants Epicor Software and Activant Solutions last year, the new firm has been fairly quiet in the M&A market. Now that the dust has settled on the $2bn combination and declining revenue has been reversed, we wonder if the ‘new’ Epicor might return to the M&A market in fuller force.

Neither Activant nor Epicor had fully recouped the losses they suffered during the recession. But Apax’s Epicor announced fiscal 2012 results today that show revenue is steadily growing. On a trailing basis, Activant and Epicor combined posted revenue of $813m in the 12 months leading up to their pairing. Revenue for the just-closed fiscal year, which ended September 30, rose 5% to $855m.

After having some time to digest the merger, we wonder if the new Epicor may return to dealmaking. In their previous lives, Epicor and Activant were fairly frequent acquirers. The two companies combined had announced a dozen deals in the decade leading up to their merger. Since selling to Apax, the new Epicor has done just three, two of which were sub-$10m tuck-ins.

However, Epicor recently made a move that signals it may return to big-ticket M&A. In October, Epicor closed its $155m acquisition of ERP, SCM and BI software vendor Solarsoft Business Systems, which was doing about $90m in annual revenue.

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It’s war over MIPS Technologies

Contact: Tejas Venkatesh

The bidding war over mobile and embedded chip IP company MIPS Technologies continued Tuesday as CEVA upped the ante again, offering $90m for the operating business of MIPS. The topping bid came just one day after Imagination Technologies raised its offer to $80m. MIPS will give CEVA a boost in its existing markets and a chance to extend into system-on-chip products from simple digital signal-processing (DSP) cores, which aren’t seeing much growth.

CEVA’s latest offer is a 50% premium to Imagination’s initial agreement with MIPS three weeks ago. The current round of bidding values the company at 1.1x trailing sales. MIPS is a solid fit for either suitor. While CEVA is motivated by declining prospects in its core single-function DSP market, MIPS will help Imagination better compete with ARM Holdings. There is little overlap with their products and customers, and the deal will help Imagination enter brand-new niches in networking and infrastructure. MIPS is also already directly supported by the Android OS.

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Honeywell acquires struggling Intermec

Contact: Tejas Venkatesh

After forecasting 2013 growth below Wall Street expectations, Honeywell today announced the acquisition of RFID and retail systems provider Intermec Technologies for an enterprise value of $600m. The deal helps the diversified conglomerate add voice and barcode technologies, and bulks up its core scanning and mobile computing business.

Intermec hasn’t turned a profit since 2008 amid declining revenue. For the 12 months ended September 30, Intermec reported revenue of $810m, below its fiscal 2008 revenue of $891m. And six weeks ago, the company announced that it had retained Bank of America Merrill Lynch as its financial adviser. The deal values Intermec at 0.7x trailing sales, right in line with Motorola Solutions’ pickup of Psion in June for an enterprise value of $162m, or 0.6x trailing sales.

The acquisition is Honeywell’s fourth of 2012, according to The 451 M&A KnowledgeBase, and comes soon after the company forecasted 2013 growth below analysts’ expectations, due to defense cuts and slow economic growth. Honeywell projected 2013 revenue of $39-39.5bn, while analysts on average expect $39.4bn.

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SEOmoz’s acquisition announcement gets listed

Ben Kolada1 Comment

Contact: Ben Kolada

Search engine optimization (SEO) specialist SEOmoz could also be considered a public relations expert. Rather than issuing a staid press release that follows the typical format, the company announced its acquisition of GetListed on Tuesday in rare form that included both style and substance. Having one characteristic without the other can cause a release to be a flop, but when combined together the impact can be profound.

Privately held SEOmoz announced on Tuesday the $3m cash and stock acquisition of GetListed, also privately held, using both a more formal press release and a ‘ransom note’ format.

The strategic rationale for the deal makes sense. The purchase of GetListed provides SEOmoz with software tools that SMBs use to analyze and utilize free local marketing outlets, such as Google Places. The deal adds a local component to SEOmoz’s otherwise geo-agnostic software.

But the substance of the announcement arguably carried more weight than the rationale of the fairly small transaction. Privately held companies are not required to disclose sensitive details of acquisitions, such as price, and very few choose to do so.

In providing both substance (the price of the transaction) and style (the ransom note format), SEOmoz was able to generate considerable media coverage. For example, a quick Google search for ‘seomoz’ and ‘getlisted’ generated more than three times as many results as a search for ‘urban airship’ and ‘tello’ – a pairing that was announced the same day.

Though perhaps a stretch, after seeing the success of its own public relations model, we wonder if SEOmoz may want to offer public relations capabilities to its customers. If it decides to go this route, one likely target would be young startup AirPR, which provides a platform for companies to find public relations professionals.

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EMC lays out a ‘Pivotal’ plan

Brenon Daly

Contact: Simon Robinson, Brenon Daly

Those wondering what ex-VMware chief Paul Maritz would end up doing as head of EMC strategy now have part of an answer: he’s going to run the Pivotal Initiative, what looks like a pending spinoff that brings together a number of ‘big data’ and cloud assets that EMC and VMware have developed and acquired in recent years. This new, 1,400-person organization (600 from VMware and 800 from EMC) will be ‘formally united’ by mid-2013, though the operational structure has yet to be determined.

At the core of the move is a desire to help EMC and VMware better capitalize on the effects that cloud computing is having on the application development and big data markets, with ‘new levels of focused investment.’ The initiative is centered on EMC’s Greenplum and Pivotal Labs, VMware’s vFabric (including Spring and GemFire), Cloud Foundry and Cetas, as well as other unspecified groups. Moving these assets into a single division also will allow both EMC and VMware to focus on their core businesses.

The planned joint venture continues the ongoing shuffle of assets between the parent company and its subsidiary. Since EMC sold a minority stake of VMware to the public in mid-2007, the company has sold at least two businesses to VMware. In early 2010, EMC divested its Ionix unit, with the service management unit finding a home in vCenter. A little more than a year later, the enterprise storage giant (quietly) sold its consumer online backup business, Mozy, to VMware.

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A mixed November for tech M&A

Brenon Daly

Contact: Brenon Daly

Lifted by three deals each valued at more than $1bn, tech M&A spending in November jumped 63% to $11.4bn. That marks the second consecutive month where spending increased, year-over-year, and only the fourth month that has been the case in 2012.

With just one month to go in the year, overall spending in 2012 is almost certain to come in lower than each of the past two years. So far this year, the aggregate value of transactions is about 20% lower than the first 11 months of last year and 7% lower than the same period in 2010.

In November, a trio of significant deals – each representing distinctly different strategies – contributed to the year-over-year increase in spending. (Although we should note, on an absolute basis, the November total came in lower than the average spending of about $15bn in the preceding 10 months of 2012.)

The largest transaction of the month, RedPrairie’s $2bn take-private of JDA Software Group, was an old-fashioned consolidation move. Meanwhile, Priceline.com’s $1.8bn reach for Kayak.com represented a platform expansion, while Cisco Systems made a pricey cloud play with its $1.2bn purchase of Meraki.

2012 monthly activity

Month Deal volume Deal value % change in spending vs. same month, 2011
January 342 $4.1bn Down 65%
February 280 $10.4bn Up 16%
March 292 $16.8bn Down 30%
April 282 $14.1bn Down 47%
May 314 $15.6bn Down 47%
June 301 $13.3bn Down 20%
July 338 $21.1bn Up 52%
August 279 $10.3bn Down 74%
September 281 $5.8bn Down 38%
October 289 $32.6bn Up 125%
November 278 $11.4bn Up 63%

Source: The 451 M&A KnowledgeBase

NCR rings up another software purchase with Retalix

Brenon Daly

Contact: Brenon Daly

NCR will hand over $763.5m in cash for Retalix, the latest example of an old-line hardware vendor using M&A to build up its more valuable software and services business. The deal is actually the second significant software acquisition by the company formerly known as National Cash Register, and takes the equity value of the transactions to a collective $2bn. In mid-2011, NCR dropped $1.2bn on fellow publicly traded company Radiant Systems.

NCR leaned on the credit market to finance nearly all of its purchase of Radiant, the largest acquisition the company has done. It will add a bit more debt to cover the just-announced reach for Retalix. An Israeli company, Retalix has no debt and about $133m in cash, lowering the net cost of the business to roughly $650m.

In comparing NCR’s two software plays, the valuations line up rather closely. NCR’s bid for Radiant valued the company (on the basis of enterprise value) at about 3.2 times trailing sales and 21x trailing EBITDA. For Retalix, the comparable figures are 2.4x trailing sales and 25x trailing EBITDA.

Further, the premium NCR paid for Radiant, compared with the stock price 30 days prior, came in at 47%; for Retalix it was 50%. A final similarity between the two deals: the advisers. J.P. Morgan Securities banked NCR in both deals while Jefferies & Company worked for both Radiant and Retalix.

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Zillow steps up its shopping

Contact: Tejas Venkatesh

After going public in the summer of 2011, real estate website Zillow has gone on an acquisition spree, purchasing five companies for an aggregate value of more than $80m. On Monday, it announced its latest buy: rental search website HotPads for $16m in cash. The San Francisco-based company, which took in just $3m in funding from Meakem Becker Venture Capital, helps Zillow access a younger and more rental-focused audience.

The deal comes just three weeks after Zillow announced the acquisition of mortgage-pricing SaaS provider Mortech for $17.5m. Sensing increased competition, Zillow has picked up the pace of its M&A program, buying three companies in the past two months. (The vendor has been able to cover those purchases, in part, by a well-timed secondary offering in September. It raised more than $150m – twice as much as it landed in its mid-2011 IPO – in early September, selling shares at about $40 each. The stock is now roughly $25.)

Zillow isn’t alone in stepping up its M&A activity. Move Inc, the owner of REALTOR.com, has inked two pickups of real estate websites in the past two months, after being out of the market for more than a year. We wonder now if fellow real estate website Trulia will also go shopping. The company certainly has the money, following its IPO two months ago in which it raised about $100m.

A late April Fool’s

Ben Kolada

Contact: Ben Kolada, Tim Miller

Contrary to a published press release (and several media outlets that took the bait), Google is not acquiring Wi-Fi provider ICOA. A poorly written press release published Monday morning led many to initially believe the deal was being done for $400m. However, a cursory look at the announcement’s grammatical errors, as well as the 3,700x price-to-trailing sales multiple, gave clue that something was amiss.

The oddball pairing had the flavor of one of Google’s notorious April Fool’s pranks, but neither Google nor ICOA was laughing. Representatives from both companies told us the announcement was false and both denied publishing it. ICOA even went so far as to say they are not having this kind of conversation with anyone at the moment.

That’s not to say the prank didn’t have a purpose. One explanation the release was published is rooted in the volatility of penny stocks, and the relative ease of inflating a penny stock’s value. Following the announcement, shares of ICOA, which trade at less than a penny on the OTC Pink Sheets, shot up nearly five-fold on heavy trading volume. Throughout the swing, more than 300 million shares traded hands, compared with the stock’s three-month average daily trading volume of less than three million shares.

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Imagination faces challenge over MIPS bid from CEVA

Contact: John Abbott

It may not be all done and dusted for the proposed acquisition of semiconductor IP company MIPS Technologies by Imagination Technologies, as MIPS has received an unsolicited better offer. CEVA, one of the oldest developers of licensable IP cores for communications, mobile handsets and multimedia, is offering $75m, compared with the $60m Imagination put on the table.

This shouldn’t affect the separate deal MIPS put in place to sell its patents for $350m to Bridge Crossing, an acquisition vehicle formed by patent consortium Allied Security Trust. What CEVA is bidding for is the operating MIPS business (with $83m in revenue and 160 employees), plus full licensing rights to the MIPS architecture, including just those patents directly related to MIPS products.

From a product portfolio perspective, CEVA is a very good fit for MIPS. Formed in November 2002 by the merger of two veteran chipmakers, DSP Group and Parthius Technologies, CEVA has focused steadily on developing and licensing digital signal-processing (DSP) cores for mobile, consumer and networking devices. Having shipped one billion CEVA-powered devices in 2011, it is one of the major suppliers of DSPs alongside much larger rivals such as Texas Instruments and Freescale. Its 200 licensees include Broadcom, Intel, Samsung, Sony, ST-Ericsson and Toshiba.

Given all that, it’s something of a shock to see that CEVA’s recently announced revenue for Q3 2012 was just $12m, down 19% compared with the same quarter last year. CEVA says the economic climate impacted licensing revenue but claims robust demand for DSPs to be used in next-generation products. It also claims to be making significant inroads into the lucrative 3-D smartphone space, with design wins from Huawei, Lenovo, Samsung and ZTE. And while CEVA may be smaller than MIPS in terms of revenue, it does have $156m of cash in the bank and no debt.

There’s little growth nowadays in sales of single-function DSP devices, although demand for DSP capabilities isn’t going away – it’s just becoming embedded in broader devices, such as system-on-chip (SoC) products. Hence the motivation behind CEVA’s bid for MIPS, which, despite a fairly late start in the SoC device sector compared with its primary rival ARM Holdings, has at least been pushing in that direction since 2006. Combining with MIPS would give CEVA a boost in its existing markets and a chance to broaden out from simple DSPs. Imagination, whose shares fell 3% on the news, may well come back with a revised offer of its own.