Buying into the social side of HR

Brenon Daly

Contact: Brenon Daly

After three consolidation plays in the fragmented human capital management (HCM) market, private equity-backed rollup Peoplefluent has expanded into enterprise collaboration with the acquisition of Socialtext. Although 10-year-old Socialtext was one of the pioneers of collaboration software (or ‘wikis,’ as they were known in the early days) and did attract some 6,500 users, it struggled to actually put up revenue.

According to our understanding, Socialtext was only generating about $5m in revenue. Peoplefluent – backed by Bedford Funding, whose principals served as executives at ERP rollup Geac – isn’t renowned for paying high multiples. It paid less than 2 times sales for both of its main consolidation acquisitions, 2008’s platform purchase of Authoria and 2010’s reach for Peopleclick. (Earlier this year, it also added a learning management vendor, Strategia Communications.)

Peoplefluent’s move to add collaboration to its HR platform comes almost exactly two years after HCM giant SuccessFactors paid $50m for social enterprise software provider CubeTree. Additionally, we’ve seen salesforce.com combine elements of its acquisition of collaboration software startup Manymoon with its step into the HCM market through its high-multiple purchase of Rypple. And salesforce.com just added another small part to its collaboration offering, tucking in tiny startup Stypi

Tech M&A slump continues in April

Brenon Daly

Contact: Brenon Daly

The deal drought continued into April, with spending on tech transactions around the globe during the just-completed month coming in at only $12bn. That’s less than half the level of spending on tech M&A that we recorded in April during the same month last year.

Spending on deals this year has now dropped in three of the four months, compared with 2011. (The $12bn of spending in April essentially matched the monthly average of the previous three months so far this year.) Additionally, the number of acquisitions in April slumped to its lowest level this year.

The low spending and light volume goes against what most observers projected for 2012. Many buyers – flush with cash and enjoying their highest stock price in a decade or so – indicated that they would be active in the M&A market after many deals got knocked off the table due to the European debt crisis in the back half of 2011.

But now, it seems like pricing is the problem. In the recent M&A Leaders’ Survey from 451 Research / Morrison & Foerster, two-thirds of respondents said rich valuation expectations at target companies were keeping deals from getting closed. Only 10% of the survey respondents said pricing wasn’t a hindrance in closing deals. (See the full report.)

In terms of the acquisitions that did get announced last month, we couldn’t help but notice the stark contrast between the two targets of the largest (non-patent) deals in April.

On the one hand, we saw Vodafone Group’s $1.7bn purchase of Cable & Wireless Worldwide, a company that traces its roots back to the 1850s, generates nearly $3.5bn of sales and has 6,000 employees. And on the other hand, there was Instagram – a company with no revenue, only a dozen employees and a 2010 vintage that nonetheless fetched $1bn in its sale to Facebook.

2012 activity, month by month

Month Deal volume Deal value % change in spending vs. same month, 2011
January 340 $4.1bn Down 65%
February 272 $11.1bn Up 16%
March 289 $19.9bn Down 30%
April 267 $12.3bn Down 55%

Source: The 451 M&A KnowledgeBase

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

Will patience pay off for RGB Networks?

Contact:  Thejeswi Venkatesh

On its way to an IPO, Envivio tripled its top line in just two years, reflecting increased demand for high-quality video content on a range of platforms and devices. Yet with just $50m in sales in its last fiscal year, we’re not sure if the video-processing and distribution provider was quite big enough to be a public company. That was evident in Wall Street’s chilly reception of Envivio as it made its way to the Nasdaq. Unlike many other recent tech IPOs, the company had to price its offering below the target range. Then, for most of its first few days as a public company, it traded below the reduced offer price. With a market cap of less than $250m, Envivio won’t quite make the list of hot stocks on Wall Street, which tends to favor larger companies and higher liquidity.

Meanwhile, Envivio’s primary competitor RGB Networks continues to grow its business steadily. We understand that RGB generated $56m in revenue for 2011, which is slightly higher than Envivio’s top line during the same period. Perhaps learning from its rival’s travails, RGB wants to wait before putting in its papers to go public. If all goes according to plan, the company is likely to be much larger at the time of its public debut, which seems to be what Wall Street is buying these days.

Intuit pays up for SMB-focused Demandforce

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

Intuit on Friday announced its largest M&A move in six years, acquiring SMB-focused marketing automation startup Demandforce for $423.5m. The deal, and Demandforce’s valuation, was primarily driven by the target’s market traction. The company, founded just in 2003, has amassed a customer roster of more than 35,000 SMBs. The transaction also demonstrates the accounting and tax giant’s desire to further penetrate this market with additional products and services – this is its first major play in marketing automation.

The Demandforce acquisition complements Intuit’s QuickBooks software and expands its offerings for SMBs. (We’d note that Intuit already offers a marketing management and productivity application called QuickBase, though that product is for enterprises.) Demandforce provides marketing automation SaaS and helps businesses maintain an online profile and better communicate with their customers. The company has grown considerably over its short lifetime. According to Inc.com’s annual survey of the fastest-growing companies, Demandforce generated $15.3m in revenue in 2010, up from $6.4m in 2009. Continuing that growth rate would put its 2011 revenue at roughly $25-30m.

Intuit is handing over $423.5m in cash for Demandforce, making this deal Intuit’s largest since it forked over $1.35bn for transaction processor Digital Insight in 2006. Demandforce’s growth certainly factored into its valuation. Assuming that Demandforce maintained historical growth rates, Intuit’s offer would value the target at a whopping 15-20 times trailing sales. If our initial estimates are correct, that valuation is double and even triple some precedent valuations. For example, in 2010, IBM bought Unica for 4.4x sales. Unica had flatlined during its final years as a public company, with revenue remaining in the $100m ballpark for the four years before its sale. The valuation is also double Teradata’s Aprimo acquisition, also announced in 2010. Teradata paid $525m for Aprimo, or 6.3x sales.

Survey: lots of M&A talk, but few prints

Brenon Daly

Contact: Brenon Daly

Although key members of the broad dealmaking community indicate they have stepped up their activity in the M&A market recently, actually closing deals has proven challenging so far this year because of pricing and renewed concerns about the stability and growth outlook across the globe. That’s one of the main findings from the inaugural survey by 451 Research and Morrison & Foerster of more than 300 executives, corporate development officials, lawyers/bankers and other dealmakers.

In the survey, slightly more than half of the respondents (52%) said they are seeing more activity over the past half-year than they have during the same period in either of the two previous years. That’s more than twice the number who said activity has tailed off recently. Further, respondents projected that the heightened activity will translate into actual prints at some point this year: Nearly six out of 10 (59%) respondents said they expected to be busier in 2012 than they were last year, compared to just one out of 10 (8%) who said the opposite. We’ll have a full report on the survey in tonight’s Daily 451, including what’s driving current dealmaking and what’s keeping respondents from doing deals.

M&A spending outlook

Period Increase Stay the same Decrease
2012 forecast 59% 33% 8%

Source: M&A Leaders’ Survey from 451 Research / Morrison & Foerster, April 2012

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

LANDesk’s measured return to M&A

Brenon Daly

Contact: Brenon Daly, Dennis Callaghan

As a company that has had five different owners in recent years, LANDesk hasn’t necessarily always had the stability and support that’s needed to do deals of its own. But on Tuesday, the systems management vendor, which traces its roots back to the mid-1980s, stepped back into the M&A market with a measured, try-before-you-buy acquisition of existing partner Managed Planet. LANDesk already licensed Managed Planet’s analytics product as part of its larger offering, easing the technical due diligence in the transaction.

LANDesk’s purchase of analytics vendor Managed Planet represents a relatively low-risk – but potentially high-value – return to acquisitions, adding capabilities such as hardware discovery and analytics to LANDesk’s existing offering. Although small, the deal helps LANDesk know more about managing the business of technology, getting metrics on the value and usage of IT assets, guiding future purchases, upgrade decisions, cloud migrations and so on.

The transaction stands as the first one since Thoma Bravo carved LANDesk out of Emerson Electric in August 2010. With the acquisition, LANDesk – and its deep-pocketed private equity owner – appears to be telegraphing that it will continue shopping. We understand that LANDesk is currently looking at another potential purchase that might get done in the next few months.

Spirent secures its testing platform with Mu

Brenon Daly

Contact: Brenon Daly, Eric Hanselman

A relatively infrequent shopper, Spirent Communications has picked up Mu Dynamics, adding security testing for applications to the company’s performance-testing portfolio. The deal, which is only the British company’s second acquisition in the past half-decade, was announced last week and closed Monday. Spirent paid $40m in cash for Mu, which is projected to contribute about $18m in sales next year. (We understand that talks got going only in December, with Duff & Phelps’ Pagemill Partners unit advising Mu.)

The purchase of Mu Dynamics should also help Spirent expand its market, both in terms of customers and products. Traditionally, Spirent has sold its performance analysis offering as a hardware-based platform to network equipment manufacturers that use it to test the performance of products before they launch them. (It primarily competes in this market with Ixia, although Spirent is much larger and more profitable than its rival.) With Mu, Spirent will get a software product that can be more quickly and easily deployed, even within corporate IT departments.

As more and more applications are run on virtualized infrastructure, the process of testing is adapting. Where hardware-based systems have traditionally been used in test environments, it’s much more difficult to connect them to the virtual and ‘cloudy’ application deployments that are predominating. Spirent’s move will give it tools to address these environments. Ixia has also developed product capabilities in this area. Software versions of testing products can also scale well to match the increased scaling demands placed on applications.

Additionally, Spirent obtains Mu Dynamic’s small – but potentially disruptive – cloud-based testing division called Blitz.io, which bumps up against startups such as SOASTA, Apica, AppDynamics, LoadStorm and other SaaS testing providers. Blitz.io already has some 15,000 users.

While both the performance and security of applications is important to increased cloud application adoption, security is turning out to be a far more significant factor. In a survey earlier this year, ChangeWave Research, a service of 451 Research, found that companies gave higher marks to the reliability of cloud apps than they did to the security of them. Further, of the companies that are not currently running cloud applications, one-third of them cited ‘security concerns’ as the reason they have passed so far. That was twice as high as any other concern voiced by the more than 1,500 respondents to our survey.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

Persistence may not pay off for Vodafone

Ben Kolada

Contact: Ben Kolada, Thejeswi Venkatesh

After three deadline extensions and interest from competitor Tata Communications, Vodafone Group announced on Monday its latest attempt to acquire Cable & Wireless Worldwide (CWW). Vodafone is offering £1bn, or approximately $1.7bn, to buy CWW. However, its offer has already hit a roadblock. CWW’s largest shareholder, Orbis, which owns 19% of the company, has rejected the bid on the grounds that it undervalues CWW. Vodafone initially expressed interest in acquiring CWW on February 13.

Orbis’ argument does hold some ground. Although Vodafone’s offer represents a 92% per-share premium to when the deal was originally announced, it still values CWW below some precedent transactions. Vodafone is valuing CWW at half times revenue and just 2.7x EBITDA for the 12 months ending September 30, 2011. In comparison, US cable company Knology recently sold to WideOpenWest for 2.8x sales and 8x EBITDA, while SureWest Communications was valued at 2.2x revenue and 6.8x EBITDA in its sale to Consolidated Communications in February. For more business-focused comparisons, PAETEC was valued at 1.3x sales and 8.4x EBITDA in its sale to Windstream Communications in August 2011. Level 3 Communications paid 1.1x revenue and 7.3x EBITDA for Global Crossing in April 2011.

Given the strategic significance of this deal to Vodafone, we expect that the company could appease Orbis with a higher bid. We’ve previously written that Vodafone, which is light on its fixed-line capacity in the UK, would likely use the acquisition to enable more bandwidth availability for its mobile users. The UK wireless operator will be able to take advantage of CWW’s vast infrastructure to backhaul its own cellular services, rather than rely on third-party operators. Throughout the wireless industry, cellular operators are increasingly feeling their networks squeezed as users consume more and more high-bandwidth data. Further, with £7.7bn ($12bn) of cash and marketable securities in its treasury, Vodafone could certainly afford a higher offer.

Groupon diversifies its dealmaking

Contact: Brian Satterfield

Before its IPO last November, Groupon acquired 16 companies, 10 of which were competitors that expanded the daily deal heavyweight’s reach into regions such as South America, Asia, Africa and the Middle East. Having grown its coupon empire to cover most corners of the globe and established itself as the sector’s market leader, Groupon has since taken a broader approach to M&A, buying into areas that complement its core coupon business.

Since the capital infusion that accompanied its Nasdaq debut last November, Groupon has been on an acquisition spree. More than one-third of its total 25 deals have come in just the past five months. In fact, according to its recently filed annual report, the company completed six transactions in just the first two months of 2012. But with the exception of the purchase of Mertado in January, Groupon has strayed away from scooping up other daily websites, instead targeting businesses that allow the company to bolster its online community and commerce capabilities. More specifically, Groupon’s recent M&A moves have been primarily to obtain the startups’ expertise in information database development, search engine development, location-based technologies, merchant products and support, and transactional marketing.

Earlier this week, Groupon picked up San Francisco-based Ditto, the maker of an iPhone application that enables users to plan activities with friends based on their location. A Ditto blog post hinted that the deal was primarily geared toward Groupon’s need to add community features, the same rationale that likely drove the company’s purchase in February of online travel enthusiast community Uptake Networks. Groupon’s other post-IPO mobile play also came in February, when it reached for VC-backed Kima Labs, which developed an iPhone application that allowed consumers to make online purchases with their phones. That same month, the company made yet another e-commerce move when it took out online shopping recommendation software provider Adku.

It’s also worth noting that while Groupon has expanded its M&A strategy in terms of technology, its geographic focus has clearly shrunk. Eight of the nine companies it has acquired post-IPO have been based in the US.

Splunk soars in rip-roaring IPO

Brenon Daly

Contact: Brenon Daly

In a rip-roaring debut, Splunk soared onto the public market Thursday in an IPO that created more than $3bn of market value for the data analytics vendor. That’s a heady, double-digit valuation for a company that’s likely to generate only about $200m in sales this year. (Just as we predicted in last week’s special IPO report, the company has captured the attention of Wall Street. Subscribers can click here to read what else we see coming in the IPO pipeline in the next few months, and how the offerings are likely to fare.)

But Splunk’s rich pricing simply reflects the tremendous opportunity that the company has in front of it. If the name ‘Splunk’ conjures up images of exploring a cave, or ‘spelunking,’ we might suggest that a more accurate way to view the company is one ready to run – and run quickly – into a wide-open greenfield.

The company, which has already garnered 3,700 customers across a broad number of industries, makes the pitch that any company with large amounts of data is a potential customer. Splunk’s core offering is a search product that helps users make sense of the ever-increasing volumes of data, much of it machine-generated.

After it got going in 2003, Splunk had most of its use cases around IT operations and security. However, the company has expanded its product to also cover application performance management, online customer experience monitoring, marketing and beyond.

Originally, Splunk’s seven underwriters set a range of $8-10 for each share, but then ended up pricing at double that level at $17 each. In the aftermarket, the stock nearly doubled again, changing hands in the low $30s in mid-Thursday trading on the Nasdaq. (It trades under the ticker SPLK.)

A final interesting little market anecdote about the offering: With roughly 100 million shares outstanding, Splunk is starting its life as a public company at almost exactly the same amount ($3.3bn) that Hyperion Solutions finished its life as a public company. Splunk’s current CEO Godfrey Sullivan was previously CEO at Hyperion, which sold to Oracle five years ago.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.