A record year for tech M&A, and so much more

Brenon Daly

Contact: Brenon Daly

Sure, the number of deals and spending on them in 2015 blew away anything we’ve seen since we were surfing the Web on Netscape browsers, but there was a whole lot more going on inside last year’s activity. 451 Research subscribers can get our full report on what happened last year and what’s likely to play out this year. Looking inside the record deal flow we recorded in 451 Research’s M&A KnowledgeBase, for instance, we saw a number of highlights from 2015:

  • Acquirers have never announced more tech, media and telecom (TMT) transactions valued in the billions of dollars than they did in 2015, including two of the three largest pure tech transactions in history.
  • Last year saw an unexpectedly large number of tech giants either sit out the record M&A activity altogether (Symantec, the former JDS Uniphase) or significantly dial back their acquisition programs (SAP, Oracle, Yahoo, Intuit).
  • The value of divestitures by US-listed tech companies hit a new record, coming in at twice the average annual amount over the past half-decade.
  • Private equity firms announced the most acquisitions ever for the industry, more than doubling the number of deals they did during the recent recession.
  • Even as interest rates ticked higher, buyout shops paid unprecedentedly rich multiples at the top end of the market in their purchases.
  • Despite the record number of startups valued at $1bn or more, just one VC-backed company recorded a 10-digit exit in 2015, down from an average of four exits each year over the previous three years.

Our report not only highlights these trends, but also maps them to the views from the main participants in the tech M&A community to give a sense of what will shape acquisitions in the coming year. See the full report.

Valuations of significant* tech transactions

Year Enterprise value-to-sales ratio
2015 3.6x
2014 4.4x
2013 3.3x
2012 2.9x
2011 3.2x
2010 3.4x
2009 2.6x
2008 2.4x
2007 3.8x

Source: The 451 M&A KnowledgeBase *Average multiple in 50 largest acquisitions, by equity value, in each year.

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Flashtalking seeks a second act in data with Encore Media pickup

Scott Denne

Contact: Scott Denne

Flashtalking reaches for Encore Media Metrics, a provider of advertising attribution and analytics, as it looks to challenge Google’s dominant position as the preeminent third-party ad server. The company has a footprint in the ad serving business through its creative capabilities, though it typically trails Google’s DoubleClick for Advertisers (DFA) ad server. Flashtalking hopes that with this deal, along with the recent purchase of Germany-based device-fingerprinting firm Device[9], the combination of its creative optimization and data capture and analysis capabilities will be enough to gain traction as a primary ad server.

The acquisition of Encore Media is likely modest in size. The target appears to have just a handful of employees and is mostly being bought to roll the technology into Flashtalking’s ad server. In those ways it is similar to Device[9], which Flashtalking snagged in September. The pair of transactions are the only two it has made since TA Associates took a majority stake in the firm in August 2013.

Flashtalking’s bid to carve away at DFA’s dominant position is ambitious. Other ad servers have fallen short in previous attempts to dislodge DFA, and Flashtalking’s own attempt comes at a time when Facebook is also making a push for this corner of the ad market. There are, however, reasons to think it could be successful. For one, a company of its size need only capture a modest overall share to reap outsized gains. Also, as programmatic advertising gains momentum, particularly among ad agencies, data-driven advertising rises alongside it. Flashtalking is betting that it can leverage its relationships and track record as a secondary ad server into a primary position.

We’ll have a full report on this deal in tomorrow’s 451 Market Insight.

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

Citrix’s reorg heads to the clouds with Cloud.com divestiture

Scott Denne

Contact: Scott Denne

Citrix has kicked off a restructuring program by selling its CloudPlatform and CloudPortal businesses to Accelerite, a unit of Persistent Systems. Following the attentions of an activist shareholder and an extended streak of lackluster growth – both top- and bottom-line – Citrix disclosed a strategic reorganization late last year that will see it spin off its GoTo SaaS business as an independent public company and divest or shut down several other product lines.

The assets it’s unloading today are those it obtained in the $200m purchase of Cloud.com back in 2011. Starting with the 2003 reach for Expertcity (now its GoTo division), Citrix was an active acquirer – averaging almost one deal per quarter in the years since. That transaction and the 40 that followed were an attempt to decrease its reliance on its terminal server product. Now that Citrix has narrowed its focus again, there’s plenty of fodder for other divestitures.

The company has also announced that it will stop investing in Bytemobile, which optimizes Internet video delivery and, like CloudPlatform and CloudPortal, is not linked to its newly minted focus on securing the delivery of apps and data. Today’s deal is the first divestiture we’ve recorded from Citrix and though it will likely be a net seller for the next few quarters, it hasn’t completely stopped buying. Citrix also announced today that it has acquired desktop virtualization assets from Comtrade.

We’ll have a more detailed report on Accelerite’s acquisition of Citrix’s assets in tomorrow’s 451 Market Insight.

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

Even after record year, tech bankers say pipeline isn’t a problem for 2016

Brenon Daly

Contact: Brenon Daly

After working through a year that saw tech M&A spending soar to its highest level in a decade and a half, tech investment bankers say their pipelines are still relatively full for 2016. More than seven out of 10 respondents (72%) indicated that the total value of as-yet unclosed transactions is higher now than it was this time last year, according to the annual 451 Research Tech Banking Outlook Survey. This year’s bullish forecast is five times higher than the 14% that said their pipelines are drier than they were a year ago.

Although bankers’ assessment of their pipeline for this year ticked a bit lower from our previous survey, it is still the third-strongest response we’ve tallied since the recent recession. It is even more noteworthy when we consider that half of the bankers (51%) said in a separate question that we are at or near the end of the current M&A cycle. That was 10 times higher than the 5% who said the cycle is either just beginning or close to the beginning.

On the more important question about valuations (as opposed to activity), bankers are unprecedentedly bearish for this year. Nearly two-thirds of respondents to our survey (64%) indicated that they see deal pricing coming down in 2016, compared with just 14% that anticipate valuations ticking higher. That’s almost a direct reversal of typical valuation outlook over the past half-decade given by M&A advisers.

451 Research subscribers can click here to view the rest of the results of our annual survey of senior tech investment bankers and their forecast on how busy they expect to be – including buyouts and IPOs – and what tech sectors will see the most activity in 2016.

Change in dollar value of tech mandates

Year Increase Stay the same Decrease
December 2015 for 2016 72% 14% 14%
December 2014 for 2015 77% 17% 6%
December 2013 for 2014 65% 19% 16%
December 2012 for 2013 58% 21% 21%
December 2011 for 2012 67% 21% 12%
December 2010 for 2011 83% 10% 7%
December 2009 for 2010 68% 12% 20%
December 2008 for 2009 26% 22% 52%

Source: 451 Research Tech Banking Outlook Survey

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Tech’s corporate acquirers pull back on M&A plans

Brenon Daly

Contact: Brenon Daly

After a record run for tech M&A spending in 2015, an unprecedented number of the main buyers in the market expect to cut back on their shopping in the coming year, according to our annual survey of corporate development executives. Respondents gave their most bearish forecast for acquisition plans in the nine years of the 451 Research Tech Corporate Development Outlook Survey. Fewer than one-third (31%) of respondents said their firms would be increasing activity in the coming year, a full 20 percentage points lower than the average level over the previous eight surveys.

For the first time in survey history, virtually the same number of corporate development executives forecast that their firms would be scaling back their M&A programs (28%) as said they would be increasing acquisition activity (31%) in the coming year. In previous surveys, the percentage of respondents projecting an increase has vastly outweighed those anticipating a decrease, ranging from roughly two to 10 times as many as respondents.

If the bearish sentiment does come through in the activity, 2016 would snap three consecutive years of higher M&A spending, culminating in a record of nearly $600bn worth of announced tech, media and telecom (TMT) acquisitions in 2015, according to 451 Research’s M&A KnowledgeBase.

451 Research subscribers can see our full report on the outlook from corporate development executives regarding M&A valuations, private equity activity and just how many – or rather, how few – startups will go public in 2016.

Projected change in M&A activity

Year Increase Stay the same Decrease
December 2015 for 2016 31% 41% 28%
December 2014 for 2015 58% 36% 6%
December 2013 for 2014 45% 42% 13%
December 2012 for 2013 38% 42% 20%
December 2011 for 2012 56% 30% 14%
December 2010 for 2011 52% 41% 7%
December 2009 for 2010 68% 27% 5%
December 2008 for 2009 44% 33% 23%

Source: 451 Research Tech Corporate Development Outlook Survey

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Nutanix sets stage for IPO

Scott Denne

Contact: Scott Denne

Hyperconvergence pioneer Nutanix preps its Wall Street debut with massive revenue growth and equally outsized spending, which is the typical profile for most of the recent IT infrastructure vendors looking to go public. The company’s revenue rose 90% to $241m in its most recent fiscal year (ending July 2015) off the back of a 4x rise in sales a year earlier. The company, which has been selling converged server and storage hardware and software since 2011, has spent generously to achieve that growth. Nutanix posted a $126m loss in fiscal 2015 – up 50% – driven mainly by $162m spent on sales and marketing in the past fiscal year.

Still, Nutanix can at least partly justify the heavy sales and marketing spending as its attempt to satisfy strong demand that potential customers have clearly indicated in recent surveys by 451 Research’s Voice of the Enterprise. In our most recent survey (Q3 2015), 40% of converged infrastructure buyers anticipated their spending to increase in the next 90 days, compared with the 9% who expected to trim spending. Further, that growth is coming as demand weakens for traditional enterprise hardware. In the same survey, only 17% of buyers of standard servers projected spending to increase, while 31% forecast a decrease.

The planned offering from Nutanix comes after a particularly dismal year for tech IPOs, both in terms of the number of offerings and their aftermarket performance. Last year saw just eight enterprise IT startups debut, and half of them were underwater at year-end. Among the ‘Class of 2015,’ Pure Storage is probably the closest comp to Nutanix. The two infrastructure vendors are roughly the same size but have tradeoffs in their respective financial profiles. Pure is growing dramatically faster, while Nutanix loses less money. Still, Wall Street’s muted enthusiasm for Pure does indicate some challenges for Nutanix in increasing its valuation ahead of the $2bn it garnered as a private company in mid-2014.

On the NYSE, Pure is valued slightly below the $3bn it received in its final round of private funding – even though it has more than quadrupled its quarterly revenue level in the 18 months between those events. Pure currently trades at about 6.7x trailing revenue. If Nutanix were to garner that multiple on the $283m in trailing sales it has posted, it would be valued at roughly $1.9bn. Like Pure, that would represent a slight discount to its earlier market value as a private company.

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

A remarkable record for tech M&A

Brenon Daly

Contact: Brenon Daly

Both the number of tech, media and telecom (TMT) transactions and the spending attached to them in 2015 soared to their highest level in a decade and a half, as an unprecedented wave of consolidation reshaped the tech landscape more dramatically than any single year since the Internet bubble burst in 2000. Two of the three largest TMT deals since then printed in 2015, helping to push the total value of last year’s acquisitions to nearly $600bn, according to 451 Research’s M&A KnowledgeBase. That smashed the previous record tech M&A spending level by more than 40% and only slightly trailed the value of all TMT transactions in the preceding two years combined.

Overall, we tallied a record 83 individual deals in 2015 with an equity value greater than $1bn in the KnowledgeBase. Many of those big-ticket acquisitions saw buyers – flush with cash but starved for growth – snap up rivals, such as Dell’s $63.1bn reach for EMC (the IT industry’s largest-ever transaction) and Avago’s $37bn pickup of Broadcom (the semiconductor industry’s largest-ever deal). Other notable pairings in 2015 came in markets such as Internet access (Charter Communications-Time Warner Cable), storage (Western Digital-SanDisk), telecom infrastructure (Nokia-Alcatel-Lucent), online gaming (Activision Blizzard-King Digital Entertainment), Internet travel (Expedia-HomeAway) and elsewhere.

It wasn’t just big acquisitions that printed in 2015. Last year also saw a record number of transactions, topping 4,300 for the first time in the history of tech M&A. (The level is about 20% higher than the average annual deal volume over the previous half-decade.) One notable example of the busy buyers last year was Microsoft. The tech giant, which is in the process of reinventing itself for the cloud era, announced 20 purchases in 2015, more than twice the number it had averaged per year recently. Similarly, IBM tripled the number of deals in 2015 from 2014, announcing 15 acquisitions last year.

Global tech M&A

Year Deal volume Deal value
2015 4,304 $594bn
2014 3,951 $387bn
2013 3,295 $246bn
2012 3,651 $185bn
2011 3,797 $233bn
2010 3,293 $190bn
2009 3,030 $143bn
2008 3,098 $326bn
2007 3,654 $420bn
2006 4,036 $418bn

Source: 451 Research’s M&A KnowledgeBase

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NetApp nabs SolidFire before all-flash array opportunities burn away

Scott Denne

Contact: Scott Denne Tim Stammers

Making its most aggressive deal to date, NetApp pays $870m in cash for all-flash storage array (AFA) vendor SolidFire. NetApp’s major competitors long ago inked acquisitions to get into the AFA market, while NetApp took the unusual step of trying to develop a product internally – a project that saw only temporary and limited release of a device that was lacking several critical features.

The price tag shows that NetApp feels some urgency to fix that gap. We estimate that the market for AFAs will grow at a 36% CAGR between 2014 and 2019. NetApp typically prints about one transaction per year and has often bought sub-$10m revenue companies for high multiples. On an absolute basis, this is the biggest deal NetApp has done. In 2011, it spent $480m on LSI’s aging RAID storage business – a business that generated $700m in sales. SolidFire, by comparison, likely posted $50-100m in trailing revenue.

It appears that a bit of traction and patience has benefited SolidFire and its investors. Not only is this an unusually large acquisition for NetApp, the price tag is higher than any we’ve seen among AFA providers.

Past all-flash array M&A

Date announced Target Acquirer Deal value
December 21, 2015 SolidFire NetApp $870m
December 15, 2014 Skyera Western Digital Not disclosed
September 10, 2013 Whiptail Technologies Cisco Systems $415m
August 16, 2012 Texas Memory Systems IBM (see 451 estimate)
May 10, 2012 XtremIO EMC (see 451 estimate)

Source: 451 Research’s M&A KnowledgeBase

Look for a full report on this deal in tomorrow’s Market Insight Service.

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One company’s trash is another company’s treasure

Brenon Daly

Contact: Brenon Daly

Corporate divestitures aren’t necessarily the castoffs they used to be. Increasingly, divisions that have outlived their usefulness inside large companies are getting shipped directly to other companies, bypassing the once-obligatory stop in a private equity (PE) portfolio. This trend of ‘strategic to strategic’ divestitures has been driven by dramatic changes in tech companies and their strategies – on both sides of the transactions.

On the ‘supply’ side, there have never been more divestitures by listed US tech companies than in 2015, according to 451 Research’s M&A KnowledgeBase. (See our full report on this year’s record level of activity.) Some tech companies – particularly those of a certain age – have sold off assets as part of a larger corporate reorganization. (For instance, Hewlett-Packard, which cleaved itself into two $50bn-revenue businesses in November, has shed five divisions this year – as many divestitures as it had done, collectively, over the previous half-decade, according to the KnowledgeBase.) In some cases, the push to divest has been sharpened by the ever-increasing agitation by activist hedge funds.

Meanwhile, on the ‘demand’ side, the fact that companies are dealing directly with other vendors on divestitures isn’t all that surprising when we consider how frequently they have been negotiating with each other on outright sales. (Consolidation, which corporate development executives told us in a survey last December would be the second-most-popular type of deal in 2015, is roughly akin to a scaled-out version of a divestiture.) Consolidation has reached an unprecedented level this year, with huge chunks of the IT landscape coming together.

Put that together, and publicly traded tech companies are increasingly finding themselves sitting across the negotiating table from other publicly traded companies. Carbonite, j2, CACI International, Raytheon, Trend Micro, Amdocs, Tangoe and others have all picked up businesses from fellow publicly traded companies in recent months, according to the KnowledgeBase.

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

Global Payments processes $3.8bn Heartland buy

Scott Denne

Contact: Jordan McKee Scott Denne

Global Payments’ $3.8bn pickup of Heartland Payment Systems has far-reaching implications for the payment-processing ecosystem. The combined entity will be firmly situated as a top-five player (by transaction volume) with a strong story to tell around integrated payments in the SMB sector. Market forces including downward margin pressure, technology innovation and heightened competition are guiding the hands of payment processors toward integrated payments, driving deals such as Vantiv’s $1.7bn purchase of Mercury Payment Systems in May 2014.

With an eye to the future, investors and competitors alike should closely monitor the integration process. Mergers in this space have been met with difficulty in the past, and Heartland and Global Payments will be no exception due to disparate distribution models and core processing platforms. A likely outcome could be that both organizations move forward with minimal integration, operating at arm’s length. It will also be important to closely monitor the status of Heartland’s executive team after the transaction closes. Heartland CEO Robert Carr is a thought leader in the payment-processing space and his departure would be a major loss to both organizations.

This is the largest tech acquisition in Global Payments’ history. Prior to today’s deal, the company had printed five purchases since 2012, all for $100-420m, to add online payments, payment software and other tech offerings to its portfolio. In the nine years prior, Global Payments had inked just six transactions, only two of which crested $100m. Global Payments’ reach for Heartland values the business at 19.1x trailing EBITDA – nearly identical to the level the acquirer itself was trading ahead of the announcement.

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