Maybe M&A for McAfee?

Brenon Daly

Contact: Brenon Daly, Andrew Hay

With the ink barely dry on the M&A papers of SolarWinds’ purchase of TriGeo, we understand that another deal in the enterprise security information management (ESIM) market may be already in the works. Several industry sources have indicated that McAfee and NitroSecurity are thought to be close to an agreement that would give Intel’s subsidiary a solid ESIM offering.

McAfee has been looking in this market for some time. We gather that the company lobbed a bid (thought be in the neighborhood of $600m) for ESIM kingpin ArcSight before that company went public in February 2008. More recently, we weren’t surprised to hear that McAfee was in the process early for ArcSight last summer but got outbid by Hewlett-Packard, which ended up paying $1.65bn, or a steep 8 times trailing revenue for ArcSight.

If the acquisition indeed comes together, NitroSecurity would make a great deal of sense for McAfee. NitroSecurity, which we understand is running at about $40m in revenue, sells big-ticket installations to enterprises and the federal government – a market that McAfee clearly wants to be in. (NitroSecurity is also one of the few security vendors that has been able to crack into the industrial control system market, which gives the company a shot at lucrative contracts securing some of the nation’s critical infrastructure.)

The only other ESIM provider of size that might also give McAfee a comparable presence in the enterprise market would be Q1 Labs. However, that firm has a deep relationship with Juniper Networks, which is its single largest OEM partner. Nonetheless, Q1 has ascribed itself a fairly rich valuation, according to sources. The market may well soon have its vote on that, as Q1 recently indicated that it is looking toward an IPO.

Different exits at different prices

Brenon Daly

Contact: Brenon Daly

Imperva’s pending IPO offers a fairly intriguing counterpoint to the trade sale of rival Guardium nearly two years ago. In 2009, both companies would have been rather similarly sized (basically, $35-40m) and posting roughly comparable growth rates.

Rather than continue as a stand-alone vendor, however, Guardium took a relatively rich bid from IBM for what we understand was about $232m, or about 6 times trailing sales. For a deal that was announced in November 2009, when the overall market was only starting to recover from the credit crisis, Guardium’s valuation looked positively platinum. (It was even more shiny when we consider that the Boston-based company raised just $21m in venture backing.)

But now with Imperva’s IPO, we may well get to see what Guardium might have been worth if it had opted for the other exit. (Obviously, there are a lot of flaws built into standing Imperva as a proxy for Guardium, and doing so glosses over the impact of time and risk on the return. But, arguably, it’s still a useful exercise.)

Nonetheless, assuming that Imperva can garner roughly the same trailing valuation that Guardium got in its sale, that would imply an initial valuation of about $330m – or roughly $100m more than its rival’s clearing price. That $330m would work out to about 4.5x this year’s expected revenue, which seems like a reasonable starting point for Imperva when it does hit the NYSE. (See our speciual report on Imperva’s offering.)

All quiet on the Eastern front

Ben Kolada

Contact: Ben Kolada

In contrast to the surge in deal flow that we’ve seen so far this year, IT giant IBM has been extremely muted. So far this year the Armonk, New York-based company has announced only one deal – the pickup of real estate and facilities management vendor Tririga in March for an undisclosed amount. In comparison, last year Big Blue announced 15 transactions worth more than $5bn. But that’s not to say that the company hasn’t been looking for new properties, and likely would have inked a couple of extra deals had it not been for Oracle’s meddling. In fact, Oracle’s most recent move could motivate IBM to announce a transaction of its own soon.

We’ve written in the past that IBM may have looked at Datanomic, which Oracle quietly picked up April. We considered Datanomic a nice complement to the business Big Blue got when it bought Initiate Systems in early 2010. (Initiate had an OEM arrangement with Datanomic.) More recently, though, the company was once again thwarted by Oracle in the Web content management (WCM) sector. Oracle announced yesterday that it is acquiring WCM vendor FatWire Software, and we see IBM as the potential loser here. Big Blue could use a stronger WCM component, as it is also positioning for Web experience management, and we hypothesized recently that FatWire could possibly fill this gap. However, there are a few alternatives left for IBM. For instance, the company could make a play for CoreMedia, which is the only other WCM independent with a Java-based offering that competes at the high end.

Taleo targets Europe, acquires Jobpartners

Ben Kolada

Contact: Ben Kolada

In its first acquisition outside North America, Dublin, California-based Taleo announced today that it is buying European HCM vendor Jobpartners for €26m ($38m). While the price is a fraction of the $145m in cash that Taleo held at the end of March, it’s a fairly rich value for what we understand was a struggling company. We expect that Jobpartners’ wide European reach was the primary influencer for the company’s valuation, particularly since Taleo’s competitors are also looking to expand internationally.

Taleo is paying €26m in cash for Jobpartners and expects to close the deal in its third quarter. That price should be considered plentiful since we understand that the target was burning through cash (at least €36m in VC equity financing, by our tally) and that its revenue was likely in decline. Taleo hasn’t provided full-year revenue for Jobpartners, but expects the target to generate $2-3m in GAAP revenue from the date the deal closes to the end of the year. Annualizing that number would put Jobpartners’ full-year 2011 revenue at about $8-10m, or roughly €5-6m based on current conversion rates. That’s a nearly 50% decline from 2005, when the company issued a press release saying that its fiscal-year revenue hit €8m. We’ll have a longer report on this transaction in tomorrow’s Daily 451.

What would Palm be worth today?

Brenon Daly

by Brenon Daly

We have to hand it to Palm Inc – the smartphone maker got out while the getting was (relatively) good. At least that’s one way to think about Palm’s decision to sell to Hewlett-Packard in April 2010 for $1.2bn. Hitting that bid looks even smarter in light of the beating that Research In Motion has taken since then, including Friday’s capitulation by many longtime shareholders. Consider this: since Palm became an HP business, RIM on its own has lost 80% of its market value. (Meanwhile, the Nasdaq is up slightly during that period.)

While some of RIM’s staggering decline can be traced back to the company’s own missteps around product delays, its fortunes also stand as a sort of proxy for the ‘non-hot’ (i.e., not Apple iOS- or Google Android-based) mobile market. And in that way, we shudder to think how Palm would have fared there if it remained a stand-alone smartphone vendor.

After all, Palm was barely holding on with a single-digit market share, not to mention the fact that it was teetering financially at the time of its sale. The unprofitable company was burning cash and, in the quarter the deal was going through, had just forecast that sales would fall off a cliff. In contrast, RIM is still profitable and growing. But you wouldn’t know that from the relative valuations of the firms. In its sale, Palm was able to fetch a not insignificantly higher valuation than RIM currently garners on the market.

Online coupon service providers a hot commodity

Contact: Brian Satterfield

With Groupon’s IPO looming on the horizon, the online coupon business model is attracting more attention than ever before. That’s also coming through in deal flow, with the number of transactions in the emerging sector having increased more than six-fold so far this year compared to last year. The main driver for these deals is the push by deal-a-day sites to buy their way into new markets, mostly overseas. (We’ve already noted how Groupon got an incredible value on its primary international purchase, Berlin-based CityDeal.)

Like the online coupon market itself, M&A in the sector is accelerating at a dizzying rate after a very recent start. As a proxy for the overall daily deal market, consider the almost unprecedented growth of Groupon: the Chicago-based company launched in November 2007, generated less than $1m in sales in 2008 but then posted sales of $30m in 2009 and more than $700m last year. In terms of acquisitions, we only tallied the first online coupon transaction in the sector in April 2010. That was one of just five acquisitions in the market that we recorded in the first half of 2010. In comparison, we’ve already had 29 online coupon acquisitions this year – a 500% increase.

Geographic expansion is the primary factor driving the robust growth in this sector, as more than half of the 43 total online coupon deals that we’ve seen appear to be driven by a push into new markets, both domestically and overseas. Groupon, which has been the buyer in nearly one-quarter of all online coupon transactions, exemplifies this trend, pocketing a total of 11 competitors overseas. Meanwhile, the company hasn’t made a single consolidation move in its home market. That’s not surprising, given that Groupon’s international operations, which account for the majority of its revenue, are growing faster and run at a higher margin than its US business.

Online coupon transactions

Period Deal volume
Q1-Q2, 2009 0
Q1-Q2, 2010 5
YTD 2011 29

Source: The 451 M&A KnowledgeBase

RIM calls internationally

Brenon Daly

by Brenon Daly

As Research In Motion gets set to report fiscal first-quarter financial results later this afternoon, investors will be paying particularly close attention to the company’s international business, which has essentially provided most of the growth it has put up recently. Overseas sales have outstripped lackluster sales in RIM’s core markets of the US and Canada to the point where the home markets account for less than half of total sales.

It’s perhaps fitting, then, that RIM’s acquisition strategy shares a similar cosmopolitan approach. We’ve already noted the company’s recent acceleration of M&A activity, with the smartphone maker announcing as many deals so far in 2011 as it did in all of 2010. And yet, that deal flow has increasingly been coming from overseas. RIM’s previous two acquisition targets – Scoreloop, a mobile gaming developer, and mobile device management vendor ubitexx – were both headquartered in Germany. Add in its December purchase of Swedish design firm The Astonishing Tribe, and fully three of RIM’s eight deals over the past year have been done overseas.

Intermedia ‘acq-hires’ Zlago

Ben Kolada

Contact: Ben Kolada

Less than three weeks after its own sale to private equity firm Oak Hill Capital Partners, mass-market hosting provider Intermedia has already inked its first acquisition, picking up complementary vendor Zlago. From our view, this deal looks like more of an ‘acq-hire’ than the typical bolt-on purchase that PE-backed hosting providers are known for. Overall, talent acquisitions are rare in the hosting industry, but this transaction is particularly notable given Zlago CEO’s past, and the impact he could have on Intermedia’s future M&A.

Talent certainly seems to be the primary driver for this deal. Indeed, Intermedia goes so far as to highlight Zlago’s ‘cloud expertise’ in the press release announcing the move. But while talent acquisitions throughout tech M&A tend to involve engineers, we wouldn’t be surprised if the talent that Zlago provides is more M&A-focused. Zlago CEO Michael Gold, who joins Intermedia as president, was previously CEO of cloud services vendor Sphera, which he led through to its sale to Parallels in September 2007. We expect that Intermedia and Oak Hill Capital will draw on Gold’s previous M&A experience to target higher-end cloud providers as it looks to grow through M&A.

We’ve noticed that PE firms tend to refocus their mass-market hosting companies on more specialized, higher-end cloud services. This strategy most recently generated champagne-popping returns for Nazca Capital, which maneuvered acens Technologies through its four-year ownership to higher-end cloud hosting services. That deal played out particularly well for Nazca, since we gather that acens’ sale to Telefónica provided the Spanish buyout shop with a greater than 100% return on committed capital. We’ll have a full report on the Zlago purchase in tomorrow’s Daily 451.

A little leads to a lot as Citi buys Ness

Brenon Daly

Contact: Brenon Daly

More than three years after buying a small stake in Ness Technologies from a fellow buyout shop, Citi Venture Capital International (CVCI) has offered some $307m in cash for all of the IT services vendor. The private equity arm of Citigroup initially picked up a 9.6% stake in Ness in early 2008 from Warburg Pincus, which funded the Israeli firm in 1999. Ness put some of that money to work in M&A, acquiring a dozen (mostly small) companies over the past decade.

Ness had been out of the market for the past year, however, as it was put in play by an unsolicited bid. (Jefferies & Company advised Ness on the sales process, along with the company’s longtime adviser Bank of America Merrill Lynch. Merrill was co-underwriter on Ness’ 2004 IPO.) We understand that Ness had attracted a fair amount of interest over two rounds of bidding, including a look from Vector Capital. CVCI’s offer of $7.75 per share represents the highest price for Ness stock since October 2008. (Interestingly, terms include a ‘no shop’ provision and a breakup fee of $8.35m, or a standard 2.7% of deal value.) CVCI expects to close the transaction within a half-year.

Callidus learns to love Litmos

Brenon Daly

Contact: Brenon Daly

Continuing to broaden its portfolio beyond its core commission-calculation offering, Callidus Software recently reached across the Pacific Ocean to snag early-stage learning management system (LMS) vendor Litmos. Based in New Zealand, Litmos had yet to raise any outside capital but had nonetheless drawn in more than 150 customers, which likely put revenue in the mid-single digits of millions of dollars. The acquisition should help Callidus in two main areas: in-application training and mobile learning.

In that way, Callidus’ move is unlike many of the other noteworthy deals over the past year in the LMS market, which has been dominated by talent management providers buying their way into the training and education space. Last September, for instance, Taleo picked up longtime partner Learn.com for $125m, while in April rival SuccessFactors paid $290m for Plateau Systems. Over the past year, we’ve tallied more than $1.8bn worth of spending on LMS deals.

Undoubtedly, the acquisition of Litmos won’t add much to the total spending in the sector. But the transaction is nonetheless significant for Callidus, particularly as more and more sales activity is done in the field. (Litmos can be used not only to update sales records and provide onsite sales coaching, but also to give training courses.) And Callidus may not be done buying. The company recently netted about $60m through a convertible offering, and we understand that it may well put some of those proceeds to work on another purchase in the next month or so