Driverless vehicles the focus of latest tech deals by GM, Toyota

Mark Fontecchio

Contact: Erin Zion

GM accelerates its push into driverless vehicles with the pickup of self-driving car systems maker Cruise Automation. The automaker will use the target’s sensor-based navigation technology and 40-person team to develop driverless cars within its recently formed Autonomous Vehicle Development business unit. The race to be first to market with automated driving technology is crowded, and includes traditional automakers like GM and Toyota as well as technology titans such as Google and Apple. The battle will be fought among traditional automakers developing their own smart car technology in-house and technology firms leasing their smart car technology to carmakers or getting into vehicle manufacturing themselves.

In addition to the Cruise acquisition and the formation of its in-house development business, GM has invested $500m in ride-sharing startup Lyft, which it wants to supply with a fleet of on-demand self-driving cars within the next decade. However, it isn’t the only automaker steering into this area. Toyota recently announced the ‘acq-hire’ of 16 automated driving software engineers from Jaybridge Robotics, a deal that follows the announcement last November of a five-year, $1bn investment in its own AI smart car research center called Toyota Research Institute. Tesla Motors has rolled out increasingly hands-free features On its Model X and S such as computer-assisted parking, steering and collision avoidance, and just two weeks ago automotive supplier Continental bought Advanced Scientific Concepts’ driver-assistance camera systems.

Technology vendors, however, have a head start. Google’s Self-Driving Car Project was formed in 2009, and has been continuously and publicly road-testing its LIDAR system-modified Lexus SUVs as well as its own autonomous prototype vehicles. Meanwhile, Apple has kept a tight lid on its work on a self-driving electric car. Uber also plans to fuel the ride-sharing economy with driverless vehicles. Even video-processing semiconductor supplier Ambarella has made inroads into autonomous cars, nabbing navigation control systems provider VisLab last summer.

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Cisco ‘sparks’ collaboration software with Synata buy

Mark Fontecchio

Contact: Mark Fontecchio

The race to replace email as the de facto standard for internal enterprise communications heats up as Cisco acquires Synata to power the search functionality in its Spark enterprise messaging offering. In addition to the tuck-in of Synata’s 10 employees, Cisco announced that it will invest another $150m toward supporting outside developers who are building apps around Spark. The deal marks Cisco’s fifth in the collaboration space since 2013, according to 451 Research’s M&A KnowledgeBase, and the company’s top line has benefited: its collaboration sales jumped 10% to $4.2bn in the past 12 months. The increased investment comes as a number of diverse vendors are converging on the enterprise collaboration and messaging market.

While collaboration software is convenient for instant communications, it can lead to a sea of messaging data that makes it difficult to find past conversations. Better search functionality helps providers pitch enterprise collaboration and messaging tools as a legitimate alternative to the old standby of email. Synata’s technology will help Cisco Spark do just that. In a recent survey of IT decision-makers, 80% said that instant messaging was of high importance when evaluating smartphones for their organization.

Those IT priorities are driving multiple players to push into collaboration. Microsoft recently revamped Lync as Skype for Business and purchased Talko at the end of 2015 to improve its VoIP capabilities. It’s not just legacy enterprises like Microsoft and Cisco that are drawn to this market. High-value startups such as Slack and Huddle are also making a mark here, and unified communications service supplier RingCentral and conference calling firm PGI bought into this sector last year. Even Facebook, with the recent launch of Work Chat, is eyeing this opportunity.

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With two months in the books, 2016 tech M&A is still slogging along

Brenon Daly

Contact: Brenon Daly

For the second straight month, tech M&A in February looked more like the post-recession years leading up to 2015’s record activity than last year’s bonanza. Spending on tech, media and telecom (TMT) acquisitions around the globe in the just completed month hit $28.7bn, according to 451 Research’s M&A KnowledgeBase. While that represents a significant bump from the paltry $20.5bn of aggregate spending in January, February’s total falls more than one-third lower than the average monthly level in 2015. Further, the number of transactions in this leap-year February slipped to the lowest monthly number since late 2014.

Looking inside the pricing of last month’s deal flow, transactions tended to be polarized. On the top end, big buyers Cisco and Microsoft both paid double-digit valuations in their purchases of Jasper Technologies and Xamarin, respectively. Also, in terms of deal size, IBM’s $2.6bn reach for Truven Health Analytics is notable as Big Blue’s largest acquisition since late 2007.

However, as might be expected as the equity markets ground lower across the globe in February, many more tech acquisitions went off at significantly reduced valuations. For instance, onetime IPO hopeful Yodle fetched just $342m, or 1.6x trailing sales, in its sale to Web.com. LoJack got erased from the Nasdaq at just 1x trailing sales. And LeapFrog Enterprises, an educational toy maker whose shares once traded at north of $40 each, is set to be consolidated for just $72m, or $1 per share.

In addition to pressuring valuations, the turmoil in the equity markets has also scared off any companies from going public. Two months into 2016, we still haven’t seen a tech IPO. Even Nutanix – which filed its initial S-1 in late December – hasn’t updated its paperwork in the 10 weeks since then. The drought so far this year comes as corporate development executives in a 451 Research survey gave their lowest forecast for the number of tech IPOs since the credit crisis.

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The Glow of social media businesses

Scott Denne

Contact: Scott Denne

ADTZ Group picks up Glow in the latest instance of a tie-up of two social media firms. Social media is arguably the most potent means for marketers to reach new audiences and engage with known customers. Despite that, there’s limited potential to build a business around this channel: there are few companies reaching significant scale and exits so far have run the (limited) gamut from strategic tuck-ins to outright fire sales.

London-based Glow was one of dozens of players that launched with a platform to enable marketers to make their Facebook ad campaigns more efficient. A few years ago, Facebook was lacking some basic functionality that gave Glow and its peers an opening. Lately, though, the ad formats and new features – including custom audience targeting, the ability to integrate broad product catalogs and a growing suite of ad formats – have limited the need for such tools, which has made growth hard to come by for many vendors servicing this ecosystem.

In the past two weeks, there have been three tuck-ins in this space. Last week, Rakuten Marketing scooped up Manifest Commerce, a provider of a social ad platform for retailers with noticeable overlap with Facebook’s Dynamic Product Ads service (launched a year ago). And in mid-February, Sprinklr inked its eighth deal with the purchase of Postano, a four-year-old social analytics firm with $3m in trailing revenue.

Glow’s focus was on direct-response advertisers and it had built several tools that go beyond what Facebook offers today, such as data integration for building custom audiences and reach into Twitter. Indeed, all companies serving this market struggle with finding the right balance between offering tools that add value beyond what the core platforms provide. If they go too far afield, they narrow the addressable market – if they don’t go far enough, they risk seeing their opportunity swallowed up by Facebook’s next product announcement.

Though the opportunity to launch many of these businesses came from a deficit of product functionality on the part of Facebook, we believe the best opportunity for these vendors today is to provide a range of workflow tools and services (both media buying and strategy) to link multiple social networks. Our surveys show that social media is gaining a leading share of people’s attention; however, if Facebook continues to be the overwhelmingly dominant platform – and from an advertisers’ perspective, it certainly is – there might be little any company can do to build a sustainable, scalable business around social.

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To ‘D’ or not to ‘DSP’: the question for Adobe

Scott Denne

Contact: Scott Denne

Could Adobe be the company to deliver an exit to some of programmatic advertising’s pioneers? Though the shift to programmatic (i.e., automated) media buying is reshaping the landscape of advertising – in digital and beyond – the companies that built the first programmatic media buying platforms (most commonly called demand-side platforms, or DSPs, in the ad-tech space) have seen almost no exits.

Owning a media buying platform fits squarely with Adobe’s strategy of building out a wide suite of marketing software. While other enterprises have wavered from this approach – Oracle took a data-focused strategy, while IBM is turning more toward services and Teradata is abandoning its marketing software ambitions altogether – Adobe has stayed the course with a software-led roadmap. Its strategy has been to scoop up marketing vendors whose products are ancillary related to ones where it has an established channel. For example, its acquired Demdex (an audience management platform) and Efficient Frontier (a paid search platform) units sell largely to existing Adobe Analytics (fka Omniture) customers. It’s been a successful strategy – sales of the company’s Marketing Cloud products grew 16% last year to $1.4bn.

In the past, a combination of higher prices and business models that were more focused on services than software may have kept Adobe out of this segment of ad tech. Now would be a good time for it to get in as more players are proving that they can build direct relationships (and therefore more predictable revenue) with marketers. Currently, many of the large ad agencies still treat media buying platforms as a media purchase, rather than a software purchase, though that’s slowly changing and more agencies are adopting an approach where they advise their clients on which platforms to use. Buying into this market now would enable Adobe to leverage its existing partnerships with agencies – Publicis Groupe was named its ‘Marketing Partner of the Year’ at a recent Adobe sales conference.

Adobe does have media buying capabilities today. It has built display buying services off of the Efficient Frontier (now Adobe Media Optimizer) pickup, though that platform wasn’t initially built for real-time bidding. We view DataXu and Turn as the two best targets for Adobe to explore. Among other capabilities, DataXu has been building out its video advertising and multi-touch attribution technology, which would plug other holes for Adobe. Turn, for its part, has invested in workflow and data analysis capabilities that would align well with Adobe Analytics and possibly with some of the creative software tools that make up a large part of Adobe’s presence in the advertising space.

Adobe isn’t the only vendor that could make a move in this segment. We’ll have a detailed report on the exit outlook for this corner of the advertising software market in our next 451 Market Insight.

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What is Charles Darwin doing at this year’s RSA Conference?

Brenon Daly

Contact: Brenon Daly

In addition to the Pollyanna marketers and go-getter executives that make up most of the attendees at the RSA Conference, there will also be a slightly more unsettling figure looming around the security industry’s marquee event: Charles Darwin. No, the long-dead scientist won’t be actually docking his ship, HMS Beagle, on the San Francisco waterfront to attend next week’s confab. But Darwin’s seminal theory about ‘natural selection’ is going to be one of the more visible – if unacknowledged – themes at this year’s RSA Conference. Bluntly put, some of the 500 companies and sponsors that help put on this year’s event won’t be around when RSA opens the doors on future conferences. (451 Research subscribers, see our full preview of this year’s RSA Conference.)

This isn’t to say that the RSA show floor is somehow going to turn into a killing ground. Rather than viewing it cinematographically, we view it clinically. The RSA Conference is nothing more than a petri dish of organisms that, until now, have had ideal conditions to evolve and reproduce. In the months leading up to this year’s gathering, however, those life-sustaining conditions have deteriorated to the point where some of the organisms will not survive. The weak will be ‘selected out’ – a process that in some ways is overdue in the crowded information security market.

We’re already seeing some of that pressure come through in infosec M&A. Consider the contrast between the two largest acquisitions by FireEye, which has served as a convenient bellwether for the next-generation infosec vendors. Two years ago, it spent almost $1bn, more than 10x trailing sales, for incident response firm Mandiant. Last month, it handed over just $200m upfront for iSIGHT Partners, valuing the threat intelligence specialist at half the multiple it paid for Mandiant. Further, according to our understanding, iSIGHT garnered only a slight uptick in valuation in its sale compared with its valuation in a funding round announced a year earlier. The return can still be boosted, provided iSIGHT hits the targets of a $75m earnout. But even including the additional kicker, it’s still a relatively modest exit for a company that as recently as last year had positioned itself in the IPO pipeline.

That bearishness might not come through on the RSA Conference show floor or even in the afterhours cocktail parties next week. But long after the booths are packed up and the drinks have stopped flowing, infosec startups will have to get back to business. And what they are likely to find is that business for the rest of the year is going to get a whole lot tougher as buyers and backers hold much more tightly onto their life-sustaining purchases and investments, respectively. To help adapt to that new environment, startups might be well served to tuck a copy of Darwin’s On the Origin of Species into their RSA Conference swag bag and look for some pointers on how to make it through the upcoming selection cycle in the infosec industry. See our full report.

CW infosec spend 2016

Acxiom’s ramp beyond email matching

Scott Denne

Contact: Scott Denne

LiveRamp is set to start its annual RampUp conference for the second time under Acxiom’s ownership. That purchase is proving to be immensely successful and in need of a follow-up. Acxiom bought LiveRamp in May 2014, and the target now generates in a quarter what it posted in the entire year leading up to its sale. It has also brought Acxiom meaningful partnerships with a wide swath of the ad-tech ecosystem, something it had struggled with earlier.

Part of the reason for LiveRamp’s success to date is scarcity. There are few other companies that provide the ability to convert customer identity (email addresses, in LiveRamp’s case) into cookies. There’s a growing demand from advertisers to do this as they increasingly look to first-party data to plan and launch digital advertising campaigns. That’s part of a larger trend of advertisers synchronizing and optimizing media spending across channels amid a media landscape that’s shifting rapidly as audiences transition their time to digital (social, mobile, connected TV and other IP-enabled channels). For advertisers to manage and measure this, they’ll need data that connects and links the disparate pieces.

Businesses with a history in legacy media and those that smell an opportunity to enter the media and marketing arena are scooping up assets to help solve this problem. In the former category sits Nielsen, the media measurement giant that nabbed eXelate last March, adding a data exchange and audience management platform to enable Nielsen to provide a digital bridge to link its media measurement business with retail purchase tracking. In the latter category, Oracle made itself into a substantial player through multiple deals, including its recent reach for AddThis.

Linking email and cookies gave Acxiom a piece of the overall data puzzle; however, its competitors are angling to be the de facto data provider for the entire marketing and advertising ecosystem, not just a few select applications. And while there’s a ways to go before the winner is crowned, there is a sense of urgency to expand these data sets. The more diverse data that a vendor can co-mingle on a server, the more accuracy and reach it has. So scale will beget scale in this market. Acxiom has begun to expand its offering into television, with an assist from the tuck-in of Allant Group’s TV unit. To keep pace with both rivals and the needs of marketers, the company will have to continue to explore emerging segments such as cross-device identity matching (it has several partnerships there) and mobile location data.

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

There’s not much data in these shoes

Scott Denne

Contact: Scott Denne

All kinds of legacy brands are racing into the mobile app business. The latest example: shoemaker ASICS’s $85m reach for FitnessKeeper, maker of the RunKeeper app. The purchase is the first step in ASICS’s five-year-plan to become a direct-to-consumer business. To do so, ASICS will need a direct line of communication with and data about its customers. Shoes and apparel provide neither – RunKeeper offers both.

In the past, brands that built businesses via mass-media marketing and retail channels relied on inexact measurements to understand and reach the audience for their products. Data taken from surveys and panels was the main source of such knowledge. The rise of digital marketing ushered in a new set of metrics through which to gauge the success or failure of marketing strategies and tactics: this is finally providing legacy brands with the data and tools they need to execute on the latest metrics.

Sports and fitness companies like ASICS have been particularly aggressive in moving into mobile. Under Armour has picked up four mobile app providers since late 2013, spending more than $700m. Adidas inked a deal of its own last year by paying $241m for runtastic. Weight Watchers, Anytime Fitness and TopGolf have also bought apps related to their core businesses in the past 12 months.

Having that direct line into customers will surely be a boon for ASICS; however, a mobile app is a business unto itself and the challenges of developing and marketing an app are growing. Our conversations with app marketers indicate that the cost of downloads has risen substantially in the past year or two, while our surveys show that downloads are increasing. Therefore, ASICS and its peers will have to compete for engagement with a growing cohort of apps on each user’s phone. In our 2015 US Consumer Survey, 29% of respondents had downloaded five or more apps in the past month, up two percentage points from the same survey a year earlier.

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

Now available: 451 Research’s 2016 M&A Outlook

Brenon Daly

Contact: Brenon Daly

Every year in our M&A Outlook, 451 Research looks ahead and highlights a number of the most significant trends that are expected to shape acquisition activity and valuations for key IT sectors in the coming year. All of the transaction data comes from 451 Research’s M&A KnowledgeBase , while the outlook and predictions for acquisition activity within the specific sectors come from extensive research and forecasts from the more than 100 analysts at 451 Research – who, collectively, will write about 4,500 reports this year on the strategy, innovation and financial events at the companies they cover. The 80-page report, which is our version of an M&A playbook, is now available for download.

In addition to highlighting many of the major trends in their sectors, 451 Research’s analysts also put specific names to the strategy by speculating on deals that could get printed this year. (Altogether, our 2016 M&A Outlook maps nearly 250 potential target candidates to broader themes, including 50 specific parings. Two of the companies we highlighted as attractive acquisition candidates have already been snapped up since we finished writing our forecasts.) In the same vein, our analysts also put forth almost 50 companies that we think are of a size and mind to go public in 2016, even as the IPO market remains a rather inhospitable place.

Similar to overall 451 Research coverage, the 2016 M&A Outlook covers activity from the datacenter all the way out to the device, not only offering insight on the technology developments in each of those sectors, but also bringing a financial consideration to the transactions. The 2016 M&A Outlook report opens with an overview of the tech M&A market, including activity of both corporate and financial acquirers, the valuations they are paying (and expect to pay) as well as what broad forces are likely to shape deals in the coming year. Following that, we feature specific reports from seven sectors: software; systems and storage; information security; enterprise mobility (including the Internet of Things); hosting and managed services; networking; and DCT and eco-efficient IT. Download the full 2016 M&A Outlook.MAO 2016 cover

Infoblox jumps on threat intel bandwagon with IID buy

Scott Denne

Contact: Scott Denne Scott Crawford

Adding threat intelligence to a wider security portfolio has potential, though as a stand-alone offering growth has been tough to come by. Against that backdrop, we’ve seen a notable uptick of acquisitions in this space, with Infoblox’ purchase of IID being the latest. The DNS security vendor will pay $45m in cash for IID and its threat intel capabilities, putting the deal right in the same neighborhood as several other recent transactions.

Today’s move combines two companies with a background in securing network identity. Infoblox has roots inside the network, while IID specializes in external networks. Part of IID’s early focus was to protect individuals and organizations from phishing risks and its offering has since matured into an intelligence aggregation and sharing strategy centered on IID’s ActiveTrust threat data exchange platform. The deal combines Infoblox’s ability to manage and control access to enterprise networks with threat intel gathered from multiple sources, including vetted contributors to ActiveTrust. IID will enrich Infoblox’s capabilities for providing secure DNS, network DHCP/IPAM services and control automation through greater insight into network threats. AGC Partners advised IID on its sale.

The potential to add threat intelligence to an existing channel and related product line is pushing up valuations in this segment. Last year, LookingGlass and Proofpoint paid $35m and $40m for Cyveillance and Emerging Threats, respectively. Though there was some variation in the multiples of those deals, most recent threat intel acquisitions have printed above market valuations. Infoblox appears to be paying north of 4.5x trailing revenue (based on its disclosure that IID had $10m in 2015 billings), while Emerging Threats fetched a valuation closer to 10x. Even FireEye’s purchase of iSIGHT, the largest we’ve tracked in the subsector at $200m, got done at 5x. The Cyveillance sale was the exception to this trend, yet it still landed more than most divestitures at just under 2x.

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