An Oak accord

Brenon Daly

Oak Investment Partners has finally helped broker a marriage for portfolio company Talisma – a full half-decade after the startup stumbled on its way down the aisle. In both cases, however, it isn’t exactly clear whether the investment firm should be sitting on the bride’s side or the groom’s side at the wedding. In fact, Oak would have a seat on both sides of the aisle.

In this go-round for Talisma, Oak’s late-March investment of $50m in nGenera helped the SaaS rollup add Talisma to its portfolio. If the strategy sounds familiar, it’s because Oak, which owns a majority of Talisma, had a nearly identical plan for the CRM vendor in late 2003. In that case, Oak wanted to stitch together Talisma with fellow portfolio company Pivotal Corp, in a deal that valued publicly traded Pivotal at $48m. Just as that deal was heading toward a vote, however, two other companies outbid Oak for Pivotal. (First, it was Onyx Software, then it was CDC Software. Of course, those companies would go at it again three years later when CDC tried to spoil the purchase of Onyx by Consona, which was then known as M2M Holdings.)

What exactly Oak plans to do with its newly enlarged portfolio company, nGenera, is anyone’s guess. However, it could do a lot worse than follow the strategy of Consona, which was taken private by Battery Ventures. Since the LBO, we understand Battery has pulled out something like six times its money from the CRM rollup, which is still rolling along. Maybe nGenera will serve as Oak’s enterprise SaaS rollup. The company has already done six deals – and counting. 

nGenera’s (fka BSG Alliance) acquisitive history

Announced Target Deal value Target description
May 21, 2008 Talisma Not disclosed SaaS customer service automation
March 5, 2008 Iconixx Not disclosed On-demand talent management HR software
Oct. 3, 2007 Industrial Science Not disclosed Business simulation software
Nov. 29, 2007 New Paradigm Not disclosed Research company
Sept. 13, 2007 Kalivo Not disclosed On-demand collaboration provider
May 7, 2007 The Concours Group Not disclosed Research and executive education firm

Saving on services at HP

Brenon Daly

Like so much at Hewlett-Packard these days, CEO Mark Hurd seems to be succeeding where his predecessor, Carly Fiorina, failed. In this case, Hurd is set to buy outsourcing giant EDS in a $13.9bn deal. While Wall Street roughed up HP a bit, there wasn’t anywhere near the outcry that hit Fiorina when she tried to pull off her multibillion-dollar services deal in late 2000. Following the hammering from investors, Fiorina relented and backed away from her plan to pick up the consulting business at PricewaterhouseCoopers after just two months. (Of course, IBM ended up getting a bargain two years later on the PwC unit, paying $3.5bn for it in 2002. That was just one-fifth the amount HP was set to hand over.)

The goal of the moves by Fiorina and Hurd is the same: build up the services arm of the hardware-oriented company. (With 2007 revenue of $22bn, EDS would more than double the size of HP’s services business.) Hurd has already used that strategy in the company’s software portfolio, shelling out $4.5bn for Mercury Interactive to effectively double the size of that division. Of course, we suspect the support Hurd is enjoying for his planned acquisition has more to do with fiscal reasons than strategic ones. Paying less than 1x sales for EDS is a very ‘un-Fiorina’-like valuation. 

Rival moves in services

Acquirer Target Announced Deal value Target TTM sales
IBM PwC (consulting arm) July 30, 2002 $3.5bn (adjusted to $3.9bn) $4.9bn
HP EDS May 13, 2008 $13.9bn $22bn

Evercore’s short cycle

Brenon Daly

Investment banking, as everyone knows, is a cyclical business. In the case of Evercore Partners, the downswing lasted about a day. On Monday morning, CEO Roger Altman was on a call with disenchanted investors trying to explain why the company booked just half the amount of revenue in the first three months of this year that it did in the same period last year. (Setting aside the utter ridiculousness of projecting quarterly revenue on an advisory business, Evercore’s first-quarter revenue of $45m came in about one-third below the amount Wall Street had projected.) On the report, Evercore shares sank to their lowest level since the boutique bank came public almost two years ago.

By Monday afternoon, however, it was looking like Evercore was set to pocket tens of millions of dollars for the bank’s role in co-advising EDS on its $13.9bn sale to Hewlett-Packard. Depending on how Evercore and Citigroup divvy up the advisory fee, Evercore could end up taking home more money from its EDS mandate than it booked in the first three months of the year. (HP’s purchase is expected to close in the second half of 2008, so the success fees will flow after that.) We guess that’s what Altman, who worked firsthand on the EDS sale, meant when he said the bank’s backlog was ‘fine.’ Evercore shares, however, haven’t recovered and, in fact, are changing hands below where they were on Monday.  

Banking HP-EDS

Company Advisers
HP JPMorgan, Lehman Brothers
EDS Citigroup, Evercore Partners

Netezza nibbles

Brenon Daly

A few months after indicating it was ready to buy its way into analytics, Netezza has inked its first deal as part of the initiative. The company said last Thursday that it will pay $6.4m for NuTech Solutions. It’s largely an HR move, with Netezza picking up 30 scientists and engineers from the startup. The addition should help Netezza as it looks to run different types of complex analytics inside Netezza Performance Server, rather than just enlist help from partners – including vendors, academic institutions, developers and consultancies – through its existing Netezza Developer Network.

Rival data-warehousing vendors are also looking to add more smarts to their boxes. So far, however, that hasn’t meant much shopping. For instance, Teradata and SAS Institute cozied up and unveiled a joint roadmap last October involving integrating various SAS wares, including its analytics and data-mining algorithms, into the Teradata database. (Netezza also has partnerships with SAS and rival predictive analytics vendor SPSS.) Meanwhile, Greenplum also announced support for embedded analytics in the latest release of its warehouse, G3.

We wonder if the NuTech deal – Netezza’s first acquisition – is a bit of an appetizer ahead of a larger bite of the analytics market. We’ve highlighted a couple of tasty targets for Netezza, including existing partner Manthan Systems, which focuses solely on the retail industry, or KXEN, which would fit well with Netezza’s mission to expand the scope of its query technology. With its treasury stuffed with cash from its recent IPO, Netezza certainly has the resources to do the deals.  

Selected data warehousing-analytics transactions

Acquirer Target Announced Deal value
Teradata DecisionPoint Software Nov. 2005 Not disclosed
IBM Alphablox July 2004 $37m*
Netezza NuTech Solutions May 2008 $6.4m

Will Larry buy Switzerland?

Brenon Daly

Informatica’s acquisition of Identity Systems, which closed last Thursday, brought the data integration specialist even closer to Oracle. The two companies have had an odd relationship, with Informatica competing against the behemoth virtually since it opened its doors some 15 years ago. (Despite the fact that Oracle gives away its bare-bones Warehouse Builder, Informatica has been able to build up a business that rang up nearly $400m in sales last year, having grown revenue more than 20% for three straight years.)

Through its non-stop acquisitions, Oracle actually OEMs three bits of technology from Informatica, including the just-acquired Identity Systems. Mantas – an anti-money-laundering vendor acquired by Oracle’s i-flex solutions – includes the identity resolution technology from Identity Systems. (Informatica had older OEM arrangements with Hyperion Solutions and Siebel Systems, both of which were gobbled up by Oracle.)

Recently, rumors have been picking up that Oracle may be looking to own Informatica outright. Making such a move would dramatically strengthen Oracle’s data-quality offering, as well as beef up its semi-structured and unstructured data integration story. (Those are areas where IBM has a pretty solid portfolio.) Oracle has already made a small acquisition in this market, spending an estimated $45m on Sunopsis in October 2006. But it still trails the business that rival IBM has acquired through its purchases of Ascential Software and DataMirror.

Of course, one of Informatica’s main selling points is that it’s a neutral party and doesn’t push other applications. That pitch has resonated with customers. Last year, Informatica posted license revenue growth of 20%. Of course, that neutrality would be gone if Oracle gobbled up Informatica. However, Ellison and the rest of the sharp-penciled M&A group at Oracle are realists at the bottom line. Financially, it may be worthwhile for them to give up several hundred of Informatica’s 3,000 customers as a way to protect a database revenue stream. 

Selected data integration deals

Acquirer Target Announced Deal value
IBM Ascential March 2005 $1.1bn
IBM DataMirror July 2007 $162m
Oracle Sunopsis Oct. 2006 $45m*

Trapeze swings to a deal

Brenon Daly

After nearly a year on the block, Trapeze Networks has been sold for about $150m, several sources have told us. An announcement is expected late next week. The buyer for the wireless LAN switch vendor isn’t immediately known – but it isn’t Juniper Networks. An OEM partner of Trapeze, Juniper also put money into Trapeze’s series D funding two years ago. One source indicated the two sides got very close to a deal last summer – at a price well north of the $150m Trapeze is expected to sell for now – but couldn’t agree on a final valuation.

We understand Trapeze looked to push the price higher, following the strong IPO of rival Aruba Networks. Aruba went public in late March 2007 at $11 per share and had doubled in price by July. At its peak, Aruba traded at a market capitalization of $1.9bn. However, Aruba has been stumbling recently, including reporting sales that were 20% lighter than Wall Street expected last quarter. The company now trades at just under a $500m market capitalization. Trapeze’s valuation also got caught in that downdraft. The rumored $150m price tag for Trapeze would value the company at roughly three times 2007 sales.

If indeed Trapeze is acquired, that would leave Meru Networks and Colubris Networks both looking for an exit. We understand that Meru, which is larger than Trapeze, is looking to hit the public markets when the IPO window opens again. In the past, we heard that Meru had talked with Foundry, although there was no indication of serious discussions. Meanwhile, Colubris would be a smaller acquisition, as it is running at about $30m in sales. Nortel Networks may be interested in Colubris. Whatever consolidation plays out in the WLAN switch market, most observers would agree that it’s overdue: It’s been more than three years since Cisco shook up the space with its $450m purchase of Airespace – a move that most expected to trigger a wave of deals. 

Rumored WLAN matchmaking

Company Rumored exit
Trapeze $150m sale to public company, to be announced next week
Meru Potential IPO, though reports of talks with Foundry
Colubris Rumors of talks with Nortel

Big Yellow’s purple elephant

Brenon Daly

Asked not too long ago to explain the slump in Symantec’s stock since acquiring Veritas three years ago, CEO John Thompson memorably called the combined company ‘a purple elephant.’ The allegorical description was a bit of a departure for the straight-laced, straight-talking ex-Big Blue executive, who went on to add that since Wall Street had never seen such a large security-storage company, it didn’t know how to value it. (Generally speaking, however, investors have known how to value it: lower. Since announcing the $13.5bn acquisition in December 2004, Symantec shares have shed about 22% of their value, compared to a 15% gain in the Nasdaq over that same time.)

The purple elephant has turned into a bit of a sacred cow, with Thompson defending the combination at every turn and forcefully knocking down any suggestion that Symantec should shed some of the Veritas assets. (Of course, Symantec already ditched Precise – an application performance management product that it inherited from Veritas – back in January.) Talk of possible divestitures surfaced last week following a research note from Cowen and Co analyst Walter Pritchard, who speculated that NetBackup and Data Center Foundation, a storage and server management product, may find their way onto the auction block. Not so, countered Thompson on Symantec’s first-quarter earnings call last Wednesday. The company has ‘no plans to divest anything – none.’ A senior corporate development guy at a company named as one of the possible buyers of the Foundation business told us recently that he hasn’t even been informally approached to gauge the company’s possible interest in Foundation, much less seen a book on the possible asset sale.

Of course, M&A is cyclical, to some degree tracking the overall economy. And we know this about dealmaking in a recession: When times get tight, ties get thin. We’ve already seen that most dramatically in the private equity world, whether it’s former buyout buddies taking each other to court or banks looking to get out of their lending agreements they’ve already signed. That same thinking (‘maybe we shouldn’t have done…’) is now hitting the C-suite. Consider the ongoing sell-a-thon at Time Warner, with the company planning to split off its cable services business, and, we speculate, finally putting AOL’s core US access business on the block. Or, there’s eBay entertaining the idea of jettisoning Skype Technologies, after writing down basically half of the $2.6bn purchase price. Or, if current reports are to be believed, Sprint Nextel may unwind the $39bn acquisition that has soured into a money-burning debacle. Although Thompson says Symantec isn’t a seller, this is clearly the climate in which companies are being pushed to reexamine their acquisitions. That could very well mean taking the knife to the purple elephant again.

Reversing deal flow

Company Assets Comment
Symantec NetBackup, Data Center Foundation, according to rumors Symantec says it’s not looking to sell.
Time Warner Cable services business, and (we speculate) AOL’s US access unit AOL has already shed ISP businesses overseas.
eBay Skype Technologies New CEO says next few quarters will determine if company keeps its overpriced acquisition.
Sprint Nextel Nextel WSJ reports this week that Sprint may unwind Nextel deal, and look to sell itself.
VeriSign Numerous units picked up in 20-company shopping spree VeriSign has already divested three businesses this year.

Wounded Bear

Brenon Daly

Given all the hardships (self-inflicted and otherwise) that have hit Bear Stearns over the past two months, we thought we found some good news for the investment bank earlier this week. Leafing through the paperwork around Borland’s sale of its CodeGear division to Embarcadero Technologies on Wednesday, we saw Bear listed as one of the advisers to CodeGear, along with boutique firm GTK Partners. (Embarcadero, owned by the sharp-penciled buyout guys at Thoma Cressey Bravo, didn’t use a banker.)

So does this mean Bear, whose rescue sale to JPMorgan is set to be voted on at the end of this month, stands to get a payday from the CodeGear engagement? Unfortunately not. Like so much happening at the bank these days, they’re in line for scraps. (For the record: Bear Stearns ranked 17th in our league tables last year, advising on nine deals collectively valued at $8bn.)

Bear Stearns had a long connection with Borland, particularly during the days of former CEO Dale Fuller, who was replaced in 2005 by current chief executive Tod Nielsen. (Bear banked Borland’s $185m acquisition of TogetherSoft and its $24m acquisition of Starbase, both in October 2002.) So it was natural for Borland to tap Bear when it decided two years ago to shed its CodeGear division as part of a step out of the developer tools business. To put it charitably, the Bear-led divestiture was fitful. A source familiar with the divestiture says the division was pulled out from under several possible acquirers, leaving the market a bit soured on the asset as the process dragged on for months.

Whatever the case, Borland pulled Bear off the deal last October and engaged boutique bank GTK Partners. (Why GTK? Managing director Ali Tabibian had previously worked with CodeGear CFO Cynthia Mignogna on the 1999 sale of Infoseek to Walt Disney. Mignogna also served as CFO there.) So GTK will be pocketing the majority of the advisory fee, with Bear getting a very small portion of that as part of a ‘tail.’ It’s just another sad event as the swan sings for Bear.

i2: The king watches an auction

Brenon Daly

Nearly three years after getting re-listed on the Nasdaq, i2 Technologies may well find itself taken off the exchange again. While accounting mistakes got the supply chain software vendor bumped the first time, a sale of i2 is likely to end its 12-year run as a public company sometime soon. Having shopped itself for a year now, i2 said last week there are ‘ongoing talks’ with two interested parties.

In our view, a far more important sign that the company is ready to sell is the fact that it knocked founder Sanjiv Sidhu from his spot as chairman of the company. Removing Sidhu is key to getting any deal done, in our view, because few software executives have dominated their companies to the degree that Sidhu has at i2. He had served as the company’s chairman for two decades since cofounding i2 in a Dallas apartment. He only gave up the CEO title three years ago. (Not even an SEC investigation into shady accounting – and a subsequent $10m fine paid by i2 – could dislodge Sidhu from his seat of power earlier this decade.)

Of course, any deal for i2 still has to flow through Sidhu. He owns 5.5 million, or 26%, of the company’s 21.4 million shares outstanding. And while he may be content to let the company’s ‘strategic review’ drag on, other large shareholders may not be as patient. Hedge funds BlackRock and SAC Capital Advisors both own about 1.9 million shares of i2 and are likely to push the company to get a deal done. (JPMorgan is advising i2 in the process.) Despite the tight credit market, we still think i2 will get snapped up by a private equity shop rather than a strategic acquirer.

Taleo shops with Vurv

Brenon Daly

After sitting out an earlier wave of consolidation of on-demand human capital management (HCM) vendors, Taleo will spend roughly $129m in cash and stock for rival Vurv. The deal would double the number of customers at Taleo. The acquisition values Vurv at roughly 2.8 times trailing revenue, a bit lower than other recent HCM transactions. In mid-2006, three comparable deals got done at roughly 3-5 times trailing revenue and Taleo itself trades at about 3.7 times trailing sales. Since the consolidation wave hit the HCM sector two years ago, we have heard that Vurv was being shopped several times.

However, we would note that Taleo and Vurv have a fair amount of overlapping technology, particularly in the offering around employee recruitment. A similar transaction by the one-time HCM market darling, Kenexa, caused a number of integration headaches, which landed it in the penalty box on Wall Street. Kenexa shares currently change hands about 25% lower than they did in October 2006, when it grabbed ahold of BrassRing for $115m.

Significant HCM deals

Announced Acquirer Target Deal value Target TTM sales
May 2008 Taleo Vurv $129m $45m*
Oct. 2006 Kenexa BrassRing $115m $36m*
Aug. 2006 ADP Employease $160m* $30m*
July 2006 Kronos Unicru $150m $40m*

*Official 451 Group estimate. Source: The 451 M&A KnowledgeBase