Workday nabs Platfora for big-data analytics

Scott Denne

Contact: Matt Aslett

In keeping with the trend of SaaS application vendors snagging stand-alone analytic capabilities, human capital management specialist Workday has bought Platfora, a big-data discovery and visualization provider. Workday’s motivation for the purchase is to complement the analytic capabilities already built into Workday Financial Management and Workday Human Capital Management – without users having to export data outside Workday.

Workday is not disclosing how much it is paying for Platfora, and while we imagine it was more than the $26.3m and estimated $35m it previously spent for Identified and Cape Clear Software, respectively, we would be surprised if the target’s backers generated a significant return on the combined $95.2m they invested in its four funding rounds.

While it has been reticent to share exact numbers, Platfora has clearly built up a decent-sized list of customers. Over time, the company has shifted its focus beyond Hadoop visualization to also address data discovery and preparation, while adding support for open source SQL-on-Hadoop projects and the Apache Spark in-memory processing engine. Platfora also provides Workday with a data discovery and visualization offering that it can use to complement the analytic capabilities that it has already added to its own applications, as well as enable business users to access data from external sources and bring it into Workday for analysis.

Workday’s Platfora buy follows similar acquisitions of analytic specialists by other SaaS application providers – such as Salesforce’s reach for EdgeSpring and Zendesk’s pickup of BIME Analytics (formerly known as We Are Cloud), although Workday doesn’t compete directly with either of these. In fact, it could be said that all three are looking to add value to take on a common enemy – incumbent enterprise application vendors such as Oracle, SAP and Infor.

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Nuance voices desire to expand in customer service with TouchCommerce buy

Scott Denne

Contact:  Scott Denne Sheryl Kingstone

Nuance Communications breaks a two-year M&A dry spell with the $215m purchase of TouchCommerce. Building off its earlier acquisitions of Varolii and VirtuOz in 2013, today’s announcement gets Nuance deeper into the customer service segment with analytics software and tools for both self-service and agent-assisted service via multiple mobile and desktop channels.

Amid flat revenue and a cost-cutting program, Nuance hadn’t announced a new acquisition since its tuck-in of document software provider Notable Solutions in July 2014. In previous years, it directed some of its M&A spending toward customer service, although most went toward building out its medical transcription division – its largest business and one that declined slightly through its last fiscal year and the first two quarters of its current one.

Nuance isn’t the only one increasing its investments in customer service. According to 451 Research’s M&A KnowledgeBase, acquirers have spent $1.4bn on that category so far in 2016, putting it on pace to be the second-largest year on record. Our data suggests that the investments, particularly in mobile-heavy players like TouchCommerce, is warranted. According to a recent 451 Research Voice of the Connected User Landscape survey, 37% plan to deploy customer self-service capabilities over the next 24 months.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Dollar Shave Club: a rare unicorn indeed

Brenon Daly

by Brenon Daly

With a reported unicorn-sized exit, Dollar Shave Club has been able to pull off what few other high-profile e-commerce startups have done recently: actually deliver a return to its investors. The e-tailer, which raised more than $150m since its founding four years ago, sold to consumer products giant Unilever for $1bn, according to numerous press reports. Assuming that 10-digit price tag is correct, Dollar Shave Club investors stand to pocket a tidy return.

The same can’t be said for the backers of two other websites that frequently found themselves in the headlines for ‘disrupting’ the staid retail industry, but came up short when they sold earlier this year to the very brick-and-mortar companies they set about disrupting. Both Gilt Groupe (acquired by Hudsons Bay Company in January) and One Kings Lane (acquired by Bed Bath & Beyond in June) sold for less than the money they raised from VCs. Investors lavished about a quarter-billion dollars on both Gilt Group and One Kings Lane, or some $100m more than Dollar Shave Club took in.

The distressed sales of Gilt Group and One Kings Lane initially confirmed that some of the air appeared to be leaking out of the valuation bubble for many of Silicon Valley’s highest-valued startups. That shouldn’t come as a surprise. After all, a majority of the respondents to the M&A Leaders’ Survey from 451 Research and Morrison & Foerster forecast last October that the unicorns that would exit in the coming year would do so at a lower valuation than they had commanded in their latest VC fundings.

MoFo Unicorn outlook

SoftBank makes hard turn into IoT market with purchase of ARM

Scott Denne

Contact: Scott Denne

SoftBank Group digs deep into its treasury for a bet that won’t pay off for several years. The company will spend $32.4bn to acquire ARM Holdings, a provider of chip designs for the mobile ecosystem. SoftBank will hand over $22bn of its own cash and fund the remainder of the all-cash deal with a bridge loan that it expects to repay with the proceeds of its sale of Supercell and a chunk of its Alibaba stock (both transactions were previously announced). That will leave SoftBank, which finished its recent fiscal year with negative free cash flow of $4bn, with about $2.5bn in cash and $25bn in debt.

The acquisition is the second-largest semiconductor deal, edged out by Avago’s $37m purchase of Broadcom last year. Despite the wave of large-scale consolidation in the chip industry over the past two years, $30m-plus chip pairings are rare. The third-largest transaction, the take-private of Freescale Semiconductor, was announced almost a decade ago and was just over half the size of today’s deal.

SoftBank will pay 20.9x trailing revenue for ARM. That’s the first time any company has cracked the 20x mark in a $1bn-plus chip acquisition. Even 10x has only been passed on two previous occasions, according to 451 Research’s M&A KnowledgeBase. As a supplier of intellectual property, not the chips themselves, ARM has a stronger profit margin compared with other chip vendors. That accounts for some of the high multiple. Still, the roughly 46x EBITDA multiple is one of the highest among such transactions.

Part of the rationale for the deal – and the valuation – is built on the emerging Internet of Things (IoT) opportunity. As a major licenser of system-on-chip technologies, ARM stands to play a major role in that market. And SoftBank, as a provider of wireless connectivity services in both Japan and the US, anticipates that substantial synergies will develop among the companies’ offerings, although it admits that such synergies won’t generate meaningful revenue or cost savings for many years.

That said, the overall growth of IoT will provide tailwinds for ARM to grow into its valuation with or without synergies. According to 451 Research’s Market Monitor, service providers globally will post $11bn in annual revenue servicing M2M connections. That number will nearly triple by the end of 2020.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Mobvista sees path to a broader gaming platform with GameAnalytics in the fold

Scott Denne

Contact: Scott Denne

Mobvista makes its second international deal of the year with the acquisition of mobile behavioral analytics vendor GameAnalytics. Fueled by its recent listing on China’s NEEQ exchange, an over-the-counter board for Chinese startups, Mobvista is expanding from its roots as a mobile ad network into a broader platform for gaming monetization. Its previous transaction, the $25m purchase of NativeX, brought it reach into the US market as well as video advertising and other rich media formats.

Today’s pickup of Copenhagen-based GameAnalytics gets it software that provides game developers with audience behavioral and segmentation data that can be deployed for marketing campaigns or product development. The move mirrors Tapjoy’s (much earlier) transformation from a mobile ad network into a gaming monetization platform with its reach for South Korea’s 5Rocks two years ago. Other competitors selling a broad platform for game developers include Chartboost and Unity Technologies, a game engine developer that announced a $181m funding round earlier this week.

Mobvista is one of an expanding number of China-based businesses using M&A to grab a bigger share of the mobile app ecosystem. So far this year, Chinese companies have acquired 10 mobile assets for a total of $9.2bn – both numbers are higher than the total at the same point in any other year, according to 451 Research’s M&A KnowledgeBase. This year’s deal value total, bolstered by Tencent’s $8.6bn acquisition of Supercell, is already double that of any other previous year. Mobile apps are a large and high-growth market in China. According to 451 Research’s Mobile Marketing and Commerce Forecast, mobile advertising revenue in China will increase 86% this year to $11.6bn and account for more than one-quarter of the global market.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

A fast-growing market for marketing software

Scott Denne

Contact: Scott Denne

Marketing software M&A is surging through the first half of the year. In the first two quarters of 2016, spending on marketing acquisitions reached $4.2bn, putting this year on pace for a category record, according to 451 Research’s M&A KnowledgeBase. In no small measure, the boom is being fueled by private equity (PE) firms. Already this year, financial sponsors have spent $3bn on vendors in this space. That’s triple last year’s total, a level that itself was more than the cumulative total of the previous seven years.

Uncharacteristically, the PE deals have also carried the highest multiples. Vista Equity Partners’ $1.8bn take-private of Marketo valued the target at 7.9x trailing revenue – higher than any other marketing target with over $10m in sales. EQT’s $1.1bn purchase of Sitecore was the third-highest multiple at 5.2x. (Telenor’s pickup of ad-tech firm Tapad was the second-highest.)

The companies garnering the lowest valuations were those providing marketing software for small businesses. In late June, ReachLocal sold to Gannett for just $156m, or 0.4x, following a painful restructuring to focus on more profitable SMB accounts with a larger suite of products to entice them (the firm was built around search engine marketing software). Its competitor Yodle fared just a bit better, selling for $342m, or 1.6x, as slowing growth set up obstacles to a public offering.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

In latest infosec consolidation, Avast + AVG = AV(G)ast

Brenon Daly

by Brenon Daly

Reversing the flow of typical consolidation moves, privately held Avast Software said it will pay $1.3bn to remove fellow antivirus (AV) vendor AVG Technologies from the NYSE. In addition to flipping the script on the conventional roles of buyer and seller, there’s also a fair amount of irony in the announced pairing of the companies, which share similar roots and vintage. After all, the acquisition comes four years after Avast scrapped its plans to be a public company, a decision that was partly due to AVG’s lackluster performance immediately following its own IPO in early 2012.

Terms call for private equity-backed Avast, which has secured about $1.7bn from a lending syndicate, to pay $25 for each share of AVG. Although that represents a 33% premium over the previous closing price, it is actually lower than AVG shares were trading on their own at this time last year.

Both companies, which have been in business for more than a quarter-century, have struggled to adjust their portfolios to match recent changes in the threat landscape. Specifically, they have been somewhat caught out by the ineffectiveness of their historic desktop-based AV offerings, as well as the emerging threats posed by mobile devices. Over the past two years, Avast and AVG have used M&A to help move into the post-AV world, including doing four acquisitions to bolster their mobile security portfolios.

However, the overall transition of the business has been slow. AVG, for instance, said revenue in the first quarter expanded just 5% and indicated that sales in the just-ended Q2 actually declined slightly. AVG’s sluggish recent performance goes some distance toward explaining its rather muted valuation. Avast is paying $1.3bn, or slightly more than 3x the $433m in trailing sales put up by AVG. That’s just half the average multiple of 6.4x trailing sales in the 10 other information security transactions valued at $1bn or more, according to 451 Research’s M&A KnowledgeBase.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Still early days for IoT security

Brenon Daly

Contact: Christian Renaud Brenon Daly

The Internet of Things (IoT) market is transitioning from early (over) hype to production deployments, causing problems with operational security. This has raised the visibility of an increasing number of IoT startups, ranging from legacy operational technology (OT) security vendors that have been ‘IoT washed’ to IT security providers and pure plays. In a just-published report, we profile 11 startups looking to take advantage of the growing interest in IoT security. (Collectively, these companies have received about $115m from venture investors, and we would note that they represent a small subset of all IoT security technology startups.)

In terms of exits, 451 Research’s M&A KnowledgeBase tallies just nine security-related transactions that we believe were driven entirely, or in large part, by IoT. Spending on just those rather narrowly defined IoT security deals totaled $966m, with one pairing (Belden-Tripwire) accounting for the vast majority of the total.

The fact that security isn’t spurring more IoT acquisitions isn’t all that surprising, when viewed against how M&A has played out in other emerging tech markets. Vendors tend to focus on the opportunities – rather than the threats – that come with the new, new thing. Consider the SaaS space, which essentially changes the delivery of software. Literally, thousands of SaaS applications have been acquired in recent years, whether through consolidation or expansion into adjacent areas.

However, only a handful of transactions have gone toward securing the app, despite the fact that 451 Research surveys have shown that concerns about security are the primary obstacle for SaaS adoption, just as they are for IoT deployments. (For instance, just two of the 43 acquisitions that SaaS kingpin Salesforce has done since its founding have involved security, and both have been tiny deals.) As IoT deployments broaden and become more complex, we expect security to account for more than its current 3% of deal flow. Again, to see which startups might be figuring into upcoming deal flow, see our full report on IoT security M&A.

IoT MA as % of overall

The booming buyout business in tech M&A

Brenon Daly

Contact: Brenon Daly

Amid a record pace of private equity (PE) transactions, buyout shop Apax Partners has announced not one but two billion-dollar deals already this month. The London-based firm sold both ERP vendor Epicor Software and a website for automobile classified ads, TRADER, to fellow PE shops. Thoma Bravo will pick up TRADER for $1.2bn, which marks its fifth transaction of the year, while KKR will acquire Epicor. (Terms of the Epicor acquisition weren’t released, but the software provider generated over $1bn in sales, and the rumored pricing was at least three times that amount.)

Apax’s pair of 10-digit deals brings the number of PE acquisitions valued at more than $1bn so far this year to 10, according to 451 Research’s M&A KnowledgeBase. The transactions have run the gamut of possible structures, including secondaries like TRADER and Epicor, a carve-out (Dell’s software business) and take-privates such as Qlik and Marketo. Altogether, the string of blockbuster deals by buyout firms has put PE spending so far this year higher than the comparable period in any other post-recession year except one. (We would note that 2013’s totals were skewed by a single transaction, Dell’s LBO, which accounted for nearly 60% of the spending during that period.)

More importantly, the pace of both big-ticket deals and overall transactions has accelerated dramatically in the past three months. All but one of the 10 deals valued at more than $1bn has come since April, with 85% of total disclosed YTD spending of $21.9bn coming in just the second quarter, according to the M&A KnowledgeBase. Additionally, buyout firms announced a record number of quarterly transactions in the April-June period, with 72 PE prints. See more on recent PE deals and valuations in our full report on the tech M&A activity in Q2.

PE activity

Period Deal volume Deal value
January-June 2016 137 $21.9bn
January-June 2015 116 $19.5bn
January-June 2014 106 $16.3bn
January-June 2013 90 $42.6bn (includes $24.8bn Dell LBO)
January-June 2012 75 $9.9bn
January-June 2011 97 $12.5bn

Source: 451 Research’s M&A KnowledgeBase

Brexit breaks Q2’s tech M&A rebound

Brenon Daly

Contact: Brenon Daly

For the first two months of the just-completed second quarter, tech dealmakers went about their business at the same sedate pace they had all year. Then came the June boom. Spending on tech, media and telecom (TMT) acquisitions in the final month of Q2 tripled from the average level in the five previous months, with June alone featuring six of the seven largest TMT deals announced in all of Q2, according to 451 Research’s M&A KnowledgeBase. The late flurry of big-ticket transactions helped elevate M&A spending from the middling level it had sunk to in 2016 after last year’s record run.

If Q2 ended with a bang for M&A, the same could certainly be said about geopolitics. In what is widely considered the largest reshaping – and the sharpest reversal – in Europe since World War II, the UK narrowly voted in late June to end its European Union membership. The so-called ‘Brexit’ decision immediately sparked a wave of selling on equity exchanges around the world that incinerated trillions of dollars of market value.

As the political instability and economic uncertainty sparked by the unprecedented vote by members of the world’s fifth-largest economy rippled around the world, shell-shocked dealmakers stepped out of the market. In the final week of June – a period that covers the results of the UK vote and the immediate aftermath – the number of deals dropped by fully one-quarter compared with the weekly average of the first three weeks of the month. More dramatically, transactions announced in the post-Brexit week accounted for only 4% of the total spending in June. (Obviously, these are very short-term reactions to the historic event. See our analysis of the potential longer-term impact of Brexit on the tech economy, including employee movement, taxes and tariffs, privacy, and capital markets.)

Yet even as June ended with a whimper, the robust activity before Brexit boosted overall Q2 spending to $107bn, about 50% higher than the $73bn recorded in Q1, according to the M&A KnowledgeBase. (However, for some perspective on just how far M&A spending has fallen from last year’s historic levels, spending in the just-completed Q2 stands at just half the level of Q2 2015.) Still, the flurry of sizable deals in the first three weeks of June lifts the total value of year-to-date transactions to about $180bn, putting 2016 on track for the third-highest-spending year since the end of the recession.

Recent quarterly deal flow

Period Deal volume Deal value
Q2 2016 1,008 $107bn
Q1 2016 1,031 $73bn
Q4 2015 1,052 $184bn
Q3 2015 1,162 $85bn
Q2 2015 1,074 $208bn
Q1 2015 1,040 $121bn
Q4 2014 1,028 $65bn
Q3 2014 1,049 $102bn
Q2 2014 1,005 $141bn
Q1 2014 854 $82bn
Q4 2013 787 $64bn
Q3 2013 859 $73bn
Q2 2013 760 $48bn
Q1 2013 798 $65bn
Q4 2012 824 $65bn
Q3 2012 880 $39bn
Q2 2012 878 $44bn
Q1 2012 920 $35bn

Source: 451 Research’s M&A KnowledgeBase