Meltwater in the market

Brenon Daly

Contact: Brenon Daly

Having built a $100m business with its core media monitoring offering over the past decade, Meltwater Group is looking at picking up a small company or two this year to speed the development of the company’s next big line of business, CEO Jorn Lyseggen said earlier this week. Speaking at the Pacific Crest Emerging Technology Summit, Lyseggen said the bootstrapped private company is ‘leaning toward’ deals that bring specific IP that could bolster its recently launched products around media distribution and ad spending analytics, among other areas.

Meltwater used that strategy about a year ago to help expand an existing offering that monitored social media sources. The company already had a product, Meltwalter Buzz, before picking up BuzzGain, a 25-person startup. (We understand that Meltwater paid less than $5m for BuzzGain, its first acquisition.) Recently launched offerings by Meltwater, which claims 18,000 customers, include Meltwater Press, Meltwater Reach, Meltwater Drive and Meltwater Talent

The 451 Group picks up ‘voice of the consumer’

Brenon Daly

Contact:  Brenon Daly

For today’s deal, we move a little bit closer to home: The 451 Group announced today that it has acquired the assets of TheInfoPro, a New York-based advisory and research firm. Founded in 2002, TheInfoPro counts more than 100 organizations as clients and draws on extensive surveys of those IT buyers to get real-world perspectives and forecasts on IT innovation. Focus areas for TheInfoPro include security, storage, networks, servers as well as virtualization.

With the acquisition, TheInfoPro will become a division of The 451 Group, joining the New York City office. (Terms of the transaction weren’t disclosed.) The deal is the third significant purchase by The 451 Group in the past half-decade to expand our offerings around analyzing and advising our clients on the business of IT innovation

Google adds zynamics to its security capabilities

Ben Kolada

Contact: Wendy Nather, Ben Kolada

Reverse engineering and code analysis vendor zynamics just announced that it is being acquired by Google for an undisclosed sum. Google has made other security plays before, with the largest being the $625m purchase of SaaS messaging security vendor Postini in July 2007, but this is its first reverse engineering deal. Google isn’t providing details on the rationale for the transaction, but we suspect that the target could be used for a number of purposes, including inspecting its ad streams for malware.

Bochum, Germany-based zynamics was founded as Sabre Security in 2004 by Thomas Dullien (aka Halvar Flake), who in 2007 was barred by the Transportation Security Administration from entry to the US as he attempted to travel to Las Vegas to present at the Black Hat conference. Google isn’t disclosing the deal terms, but when we covered zynamics back in 2008 we noted that it was profitable, with revenue of just over a half-million dollars. Google is retaining the entire zynamics team.

Google hasn’t divulged what it plans to do with zynamics’ IP and team, but given the target’s specialties, a pretty obvious use would be to check its hosted ads for malware, as well as improve detection of malware in the Android application market (given that Google just pulled 21 applications from the market today for security issues, this is an ongoing concern). We assume that Google will be using the zynamics assets to augment or replace what it’s presumably using today for these activities. But even in that case, Big G could have just licensed the software, which would mean that it plans to use the zynamics team and its talent to expand upon it for its own use – and since Google has such a wide footprint on the Internet, it’s a target-rich environment.

An extended cold snap in the M&A market

Brenon Daly

Contact: Brenon Daly

The tech M&A spending slump continued into February. For the sixth straight month, the aggregate value of deals came in at only about $10bn. (Specifically, we tallied 256 deals in February, worth just $9.7bn – the lowest monthly spending total in a year.) The rather anemic recent spending comes after a flurry of dealmaking last summer had many observers speculating about a return to a more robust M&A environment.

Instead, recent monthly spending has flat-lined at just half the level it was last summer. Another way to look at the activity: The total value of deals so far this year (January and February combined for $20.6bn in spending) is only equal to the single-month totals from April to August last year.

One reason why 2011 has gotten off to such a slow start is that many big-name tech buyers haven’t been in the market. Among the companies that have yet to open their M&A account this year: Microsoft, Symantec, Oracle, IBM, EMC, BMC and others.

Midmarket and boutique banks bounce back

Ben Kolada

Contact: Ben Kolada, Adam Phipps

The US tech M&A advisory market regained a bit of its footing in 2010, and midmarket and boutique banks were the primary beneficiaries of the rise in activity. According to our 2010 Tech M&A Banking Review, midmarket banks took 15% of the total tech advisory market in 2010, up six percentage points from 2009. Turning to the boutiques, their sector also regained lost market share, due in part to the growing trend of boutiques co-advising on larger deals. Last year, the boutique banking sector accounted for 10% of the aggregate advised deal value, up from 6% in 2009.

But the boutiques’ bullish results should not spur too much optimism. In September 2010, we published a report in which we argued that declining sell-side mandates and the increasing number of boutique banks would force consolidation among boutiques. Indicators of this consolidation over the past couple of years include Morgan Keegan & Co’s pickup of Revolution Partners, Signal Hill’s acquisition of Updata Advisors, Pacific Growth Equities’ takeout of Wedbush Morgan Securities and Stifel Financial’s reach for Thomas Weisel Partners, among others.

With the boutique banking market still extremely competitive (some firms are even discounting their fees to get a print), some senior tech bankers expect that consolidation will continue in 2011. In our recent banking outlook survey, 45% of respondents anticipated an increase in acquisitions of boutiques by larger banks, while 46% predicted no change. Asked about the rate of failure in 2011 for boutiques, 44% of bankers forecasted that the number of failures would rise, while 38% expected no change.

Advisory market share, annual

Bank type 2010 2009 2008 2007
Boutique 10% 6% 11% 9%
Bulge Boutique 10% 11% 6% 9%
Full-service Midmarket 15% 9% 14% 15%
Bulge Bracket 66% 74% 69% 67%

Source: The 451 Group’s 2010 Tech M&A Banking Review

PE firms back at the table

Brenon Daly

Contact: Brenon Daly

The buyout barons might not be as powerful as they were before the Credit Crisis, but that doesn’t mean the financial buyers can’t elbow aside their rivals from the corporate world. Earlier this week, Golden Gate Capital topped an existing agreement that Conexant Systems had with fellow chipmaker Standard Microsystems. While it wasn’t unusual for private equity (PE) firms to take auctions when credit was flowing cheap and easy, it’s been relatively rare in the past two years.

Terms call for Golden Gate to hand over $2.40 for each share of Conexant, giving the deal an equity value of roughly $180m. (Additionally, the company carries $86m of net debt.) The buyout firm’s all-cash offer topped a cash-and-stock bid of $2.25 per share from Standard Microsystems. The new agreement has a ‘no shop’ clause and is not conditional on financing. It also carries a $7.7m breakup fee, exactly the same amount that Standard Microsystems is pocketing for its trouble.

A 7% bump in acquisition price may not seem like much, but it could be an early signal that PE firms are getting much more aggressive in deals. That’s actually what corporate development executives told us they expected in 2011 from their PE rivals. In our annual survey, nearly four out of 10 (38%) corporate buyers said they expected more competition from buyout shops, compared to just 13% who said the opposite.

The year of the privately held storage supplier?

Contact: Simon Robinson

The storage M&A market is expected to favor smaller private providers this year, as recent activity has reduced the number of available midsize public targets. Indeed, in the past 24 months, Data Domain, 3PAR, Isilon Systems and Compellent have all been taken off the market. And buyout speculation caused by this recent spate of activity has bloated valuations at remaining public firms, such as CommVault, making them less likely to be acquired next.

But while recent public storage acquisitions may have halted the sales of their public peers, they may have actually benefited private suppliers. For example, EMC’s reach for Isilon highlighted the growing requirement for high-scale storage systems in markets where the exponential growth of highly rich – or ‘big’ – data is a key pressing challenge. Indeed, that deal could be important in refocusing attention on the remaining privately held players.

We took a look at several of the remaining private targets in a recent Sector IQ and noticed that would-be buyers still have several options to choose from. Though the IPO window has been closed for a couple of years, there are many attractive storage specialists that are fairly mature on both the product and go-to-market fronts, and a closer examination reveals a number of storage system specialists that were formed in the late 1990s that are still making headway today. Click here for our full report on potential targets in the storage sector.

RSA = Rumors Swirling Around

Brenon Daly

Contact: Brenon Daly

Candidly, one of the main reasons we’ve always enjoyed the RSA conference is all the gossip at the event. From the show floor to get-togethers that take place along the periphery of the conference, people talk. That’s especially true at the boozy after-hours parties sponsored by vendors and their backers, where the focus is more on martinis than malware.

And once again, last week’s conference didn’t disappoint, with ‘RSA’ once again living up to its abbreviation of ‘rumors swirling around.’ Of course, most of the speculation centered on which security company was going to get taken out next. That’s more than a guessing game if you consider the following conference regulars that have been gobbled up just since last year’s RSA event: McAfee, ArcSight, PGP, SonicWall, Arcot Systems along with dozens of other smaller companies.

As for the next significant player to go, we heard a fair amount of M&A buzz around NetWitness. The company sells a powerful network-analysis platform for traffic capture, classification and analysis, and is thought to be running at roughly $60m in sales. The Washington DC-based startup is run by Amit Yoran, who already sold a company to Symantec back in 2002. (Private equity firm Summit Partners picked up a minority stake in NetWitness about a year ago.) The two names that came up most often as the rumored buyer of NetWitness were Hewlett-Packard, looking to add to its recent ArcSight acquisition, and Cisco, which has already done deals to add security to its core network business.

Out with the old, in with the new

Brenon Daly

Contact:  Brenon Daly

Just over the past week, we’ve been struck by the fact that after in-house development efforts came up short, companies simply reached out of house for other companies that were doing the same thing – only better. In one case, it was to buy; in another case, it was just to partner.

Take Hewlett-Packard’s purchase earlier this week of Vertica Systems. (Subscribers can see our full report on the transaction, including our estimates of the undisclosed deal terms.) The purchase came just three weeks after HP said it was phasing out its Neoview platform, which never caught on in the otherwise fast-growing data-warehousing market. (We’re just guessing, but the move might have also been rooted in personal reasons, as well as financial reasons. Neoview was closely associated with HP’s former CEO Mark Hurd, who has been taking shots at his former shop ever since he joined Oracle.)

Although that acquisition doesn’t entirely line up with Nokia’s ‘strategic alliance’ with Microsoft, there are more than a few echoes. In both cases, a tech giant – armed with tens of millions of R&D dollars, not to mention dozens of engineers dedicated to the effort – was in danger of slipping into irrelevancy in an explosively growing market. The agreements represented dramatic about-faces for HP and Nokia. But that’s probably better than both trying to put a good face on what the market has said is a losing effort.

Match made in heaven?

Ben Kolada

Contact: Ben Kolada

As telcos look to stem losses in their business divisions and hosters look for partners to help them continue revenue growth, the two industries are increasingly merging together. The recent Terremark and NaviSite sales have already set a new record for dealmaking between these two sectors, eclipsing the nearly $1bn worth of deals that we saw in 2010. And unlike in other industries, where companies or assets may be acquired and then squandered, the strategic potential that telcos and hosters offer each other is too valuable to be wasted, and pairings between the two industries usually benefit both sides. (Click here to check out our longer report on this growing trend.)

Verizon’s Terremark purchase represents the most synergistic pairing that we’ve seen between these two industries. But the hosting sector in general can benefit from partnering with complementary telcos. Perhaps the greatest opportunity may actually be for regional and smaller telcos (which we loosely define as providers with revenue between $100-500m) to buy smaller hosters. The hosting market is still fragmented, particularly among smaller providers, and many of these firms are experiencing capital constraints that are preventing expansion. Regional and local telcos will be able to take advantage of this fragmentation and acquire small complementary hosting providers without spending too much money, since smaller providers tend to garner smaller valuations.

Benefits for hosting providers partnering with telcos:

  • Telcos often already have some level of existing Internet infrastructure services that can be complemented by purchasing providers to round out those offerings or expand geographically.
  • Telcos have access to capital to support continued growth.
  • Telcos have long histories of service provision for both large and small business.
  • Telcos have institutional knowledge with respect to offering multiple products and services simultaneously across more than one geography, often with widely varied requirements and expertise.

Source: Tier1 Research