Fortinet gets (practically) free Wi-Fi

Scott Denne

Contact: Scott Denne

Fortinet has always been a bargain shopper, picking up IP assets and down-on-their-luck startups. The $44m acquisition of Wi-Fi company Meru Networks is Fortinet’s largest deal (by a factor of seven), and it hasn’t strayed from its M.O. The transaction values the publicly traded target at 0.4x trailing revenue – the lowest multiple on record for a Wi-Fi router vendor, according to 451 Research’s M&A Knowledgebase.

Meru posted a few years of growth leading up to its 2010 IPO, though it’s stalled since then, with annual revenue hovering at $90m-$105m. Meru’s stock is down more than 90% since its debut. Wall Street hasn’t been kind to Wi-Fi providers of late. Ruckus Wireless is down 16% and Aerohive 30% since they began trading in 2012 and 2014, respectively.

An acquisition of Meru was not unexpected (the company had retained Deutsche Bank Securities late last year as an adviser to pursue a sale or merger of the company); however, Fortinet as the acquirer was certainly not expected. Meru’s recent announcement of 802.11ac Wave 2 products as well as its new cloud-managed service for MSPs were targeted as much at potential suitors looking to fill in roadmap gaps as customers. This transaction arrives too late to capitalize on the 2015 E-Rate spending cycle, and it’s still uncertain if the internal networking funding will continue into 2016 and beyond. Regardless, this was an inexpensive pickup of key technologies, IP and talent in a growing market.

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Size matters: Charter acquires Time Warner

Scott Denne

Contact: Kenji Yonemoto Rich Karpinski

Charter Communications’ purchase of Time Warner Cable for $56.7bn and its recent acquisition of Bright House Networks for $10.4bn are both about taking its traditional cable/fixed broadband business to the next level by scaling a national player (and the latest with a cutthroat CEO in cable legend John Malone). The move also cuts off an aggressive competitor at the pass, as France-based Altice last week made an offer for US-based cable operator Suddenlink Communications and floated the idea of going after Time Warner itself.

The key will be finding the right mix of traditional cable service, broadband-fueling OTT and content deals flowing across each and every access medium. In all of these endeavors, scale helps tremendously – as AT&T is pursuing with its $48.5bn DIRECTV buy, Verizon with its aggressive OTT video plans and $4.4bn AOL pickup, and Comcast with… well, Comcast looks like it’s going to need its own second act (with perhaps a landscape-changing mobile merger being just the ticket, though we’ll leave that conjecture for another day).

Will this latest telecom deal get done? The impact will certainly be more ‘pro-competitive.’ With today’s purchase, Charter will grow to 24 million subscribers, compared with Comcast’s 27 million – making this acquisition a much different proposition than the ‘big getting bigger’ via the abandoned Comcast-Time Warner combination.

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With its IT divestiture, Acxiom is all about marketing

Scott Denne

Contact: Scott Denne

Acxiom pulls the trigger on a divestiture that was three years in the making. The marketing data services company has sold its IT services business to a consortium of private equity investors for $140m in cash upfront. Though IT services is no longer a fit for Acxiom’s growth strategy, the length of time and the complexity of the deal speak to some lingering alignments between its current focus and its soon-to-be-former IT services business.

In addition to the upfront cash, Charlesbank Capital Partners and M/C Partners are on the hook for an additional $50m earnout over the next three to five years, based on customer retention and EBITDA milestones. Acxiom will also take a 5% share of the profits of the new company once the paid-in capital has been returned. Acxiom will continue to own three of the datacenters from the IT business, which will pay their former parent for colocation, while Acxiom will pay for managed services from those three facilities, which still house portions of its marketing data division.

The unit generated $215m in trailing revenue and $86m in EBITDA for the previous fiscal year (EBITDA figures for more recent periods haven’t been published yet). That puts it below the multiples we typically see in a managed services acquisition. A perfect comp for this transaction, however, is tough to find. For one, it’s a divestiture, and those usually trade lower – and roughly in line with the revenue multiple on this deal. Also, there’s the fact that Acxiom is holding three of the datacenters, on top of the earnout and profit-sharing agreements. Finally, mainframes are a substantial component of this business, which is, obviously, not typical in today’s managed services transactions.

CEO Scott Howe and his team have spent nearly four years reshaping Acxiom into a digital marketing and data services provider from its roots in offline marketing data. Part of that involved splitting up the back end of the IT services business, as well as making several divestitures. It also inked its largest acquisition, last year’s $310m purchase of LiveRamp, which brought it technology that enables online and offline data matching, bringing new relevancy to its legacy offline marketing data business. With today’s divestiture, Acxiom’s entire revenue now comes from marketing data and services.

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ADAM could be next DAM deal

Scott Denne

Contact: Matt Mullen

We noted back in February that the market for specialist digital asset management (DAM) platforms was beginning to heat up as organizations were starting to reach the limitations of lightweight and embedded alternatives that had been ‘good enough’ for their current needs.

Of the DAM vendors we specifically looked at earlier this year, MediaBeacon has already been scooped up – in March by packaging provider Esko – and there are indications that ADAM Software could be next in line to be acquired, but by whom?

We expect that a purchase of ADAM Software will be concluded in the next year, with the likely buyer being one with existing experience with the platform and its subsequent implementations. ADAM is far from the only show in town – there are numerous small and probably much cheaper firms that could be acquired – but its strong product focus and revenue base (with virtually zero dependence on income from services) make it a very attractive target.

Subscribers to our Market Insight Service can click here to see a detailed report on ADAM, including potential suitors.

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Webinar: 451 Research and Morrison & Foerster M&A Leaders’ Survey

Brenon Daly

Contact: Brenon Daly

Even as tech dealmaking clips along at a post-bubble record rate in 2015, the overwhelming view from the M&A Leaders’ Survey from 451 Research and Morrison & Foerster is that business is expected to get even more brisk as the year progresses. To find out more about the forecast, as well as how the survey sentiment maps to both the current M&A market and current M&A practices, join 451 Research and Morrison & Foerster on Tuesday, May 19 at 1pm EST (10am PST) for an information-packed webinar. Click here to register.

The webinar will cover not only the forecast for acquisition activity for the next six months, but also what buyers expect to have to pay to cover their purchases and what strategies will be driving those deals. Additionally, Morrison & Foerster will provide real-world insight on some of the key findings around recent trends in structuring transactions and other practical M&A considerations. To register for the complimentary webinar, simply click here.

M&A activity forecast for the next six months

Survey date Increase Stay the same Decrease
April 2015 61% 30% 9%
October 2014 48% 36% 16%
April 2014 72% 24% 4%
October 2013 50% 43% 7%
April 2013 54% 27% 19%
October 2012 49% 34% 17%
April 2012 59% 33% 8%

Source: M&A Leaders’ Survey from 451 Research / Morrison & Foerster

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Consumers get smart with home automation tech

Mark Fontecchio2 Comments

A report by ChangeWave Research, a service of 451 Research, finds that the outlook is bright for home automation technology. Similarly, our M&A KnowledgeBase has seen significant acquisition activity in that space as well as the broader Internet of Things (IoT) arena. As a result, we expect increased interest in IoT and connected homes, both for consumers and tech dealmakers.

According to a recent ChangeWave survey of 2,152 consumers, more than half said they plan to use smart thermostats and home monitoring in the future. Other home automation technologies such as smart lighting and locks are also expected to see increased use down the road.

The survey found Nest Labs to be the second-most-popular smart thermostat manufacturer, behind Honeywell. Nest and parent company Google have been the most-active acquirers in home automation – since the start of 2014, Google has spent more than $3.7bn on the connected home, starting with its reach for Nest and then Nest’s purchases of Dropcam and Revolv. Other acquirers in the home automation space have included Silicon Labs and British Gas, which bought connected home devices and monitoring software, respectively.

From a broader perspective, the IoT sector has seen record-breaking M&A activity. Buyers this year have inked 39 IoT acquisitions for $14.8bn, which surpasses the $14.3bn deal value for IoT transactions in all of last year. Semiconductor deals have driven the bulk of spending thus far this year, with ARM, Intel and NXP Semiconductors each announcing two or more IoT-focused purchases.

Home-automation-future-use

Verizon looks to data to dial up AOL

Scott Denne

Contact: Scott Denne

Verizon is reaching for AOL in its latest move to generate new revenue streams beyond its services businesses. The purchase gets Verizon access to a broad suite of advertising technology products that it can now supercharge by injecting its own data for improved audience targeting and advertising attribution. AOL’s advertising properties will likely benefit from Verizon’s data, and the company will also have new opportunities for advertising distribution (through Verizon’s EdgeCast CDN and LTE network), as well as cross-selling opportunities with Verizon’s growing portfolio of content and media infrastructure technologies.

Verizon’s purchase of AOL for $4.4bn marks the highest amount it has ever paid to acquire a company outside its core business of wireless, Internet and TV services. It has made a number of substantial purchases to push beyond its core, including a $1.4bn deal for hosting company Terremark and, more recently, a $395m acquisition of EdgeCast. In those deals it was more generous with valuation than it’s being with AOL.

Terremark fetched 5.8x trailing revenue. EdgeCast got 3.1x. AOL is being valued at 1.6x, making it the second-lowest multiple we’ve tracked on a Verizon acquisition over the last decade. AOL, however, is a multi-faceted business, and not all revenue is created equal. Of its $2.5bn in 2014 revenue, 24% comes from its lingering ISP business and 40% from its Internet publications and portals – two businesses that hold limited appeal for Verizon. AOL’s advertising technology business, which generated $856m in 2014 and grew more than 20%, is what Verizon is really after. Shifting most of the $4.4bn in value to that unit makes the deal look a bit more generous, and puts the valuation on par with the 3.7x that Alliance Data Systems paid for Conversant – the closest recent comparison in terms of size and product offering to today’s announcement.

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Exclusive: An IPO in the works for Dell SecureWorks?

Brenon Daly

Contact: Brenon Daly

When Michael Dell pulled his company off the Nasdaq two years ago, he had very few good things to say about being a public business. Dell first listed his company back in 1988, but as its PC-dominated business fell out of favor among investors, he blasted the ‘short-term thinking’ of most money managers and engineered a $24bn take-private of his company. Now, it seems he’s looking to make a return trip to Wall Street, at least with a portion of his business.

Rumors are now swirling that Dell is planning to sell a minority stake in SecureWorks, a managed security service provider (MSSP) that Dell acquired in January 2011 for $612m. As we understand it, the plan is to sell about one-third of the SecureWorks division in an IPO later this year. We estimate revenue at SecureWorks at just under $300m, with the business running right about breakeven. Assuming it gets a valuation comparable to what has been handed out in recent MSSP transactions, SecureWorks could be valued at roughly $1bn.

Dell was rumored to be a bidder for Trustwave, an MSSP that sold to Singtel for $810m in April. (SecureWorks is roughly one-third larger than Trustwave.) Market sources have also suggested that Dell has looked at smaller regional MSSPs. Raising money through selling a minority stake to the public would give SecureWorks additional currency to pursue acquisitions.

MSSPs have been around in various forms since the late 1990s, but have recently come into favor amid a shortage of skilled infosec workers and IT security technology that hasn’t kept pace with threats. The market appears to have a fair amount of growth in front of it. In a recent study by The InfoPro, a service of 451 Research, slightly fewer than four out of 10 respondents indicated that they were currently using an MSSP.

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Gravity4’s Rocket Fuel bid lacks grounding

Scott Denne

Contact: Scott Denne

A startup with less than a year of operations has made a $350m cash offer to buy Rocket Fuel. While Rocket Fuel’s board has an obligation to take this offer seriously, we’re under no such obligation. This bid is ridiculous. Aside from the fact that it barely offers a premium to Rocket Fuel’s recently depressed stock price, Gravity4 doesn’t look well positioned to make such a purchase.

Rocket Fuel has struggled as a public company. Its stock is down almost 70% in the past year as the company hasn’t maintained its earlier growth rates. It is, however, still a business that generates more than $400m in annual revenue. Even with a deceleration of its growth rate, Rocket Fuel still put up 40% year-over-year growth when it posted its first-quarter totals on Thursday.

Gravity4, by comparison, has been operating for less than a year and there is no reason to think it has the kind of cash that it’s offering to pay. Even if it’s working with a financial sponsor, that begs the question, why would a sponsor need Gravity4 to make a play for Rocket Fuel? There’s nothing compelling about the tie-up from a product perspective. In fact, Gravity4’s core offering – a data management platform – is largely duplicative of what Rocket Fuel obtained in its purchase of [x+1]. Also, Gravity4’s founder and CEO, Gurbaksh Chahal, has never managed a company of that size and his legal trouble would be a distraction for a business trying to turn itself around – he was fired from his last CEO post after pleading guilty to battery and currently faces a gender discrimination lawsuit from a former Gravity4 employee.

There’s also no precedent for a deal like this. According to 451 Research’s M&A KnowledgeBase, since 2002 only 14 businesses have been taken off the Nasdaq or NYSE exchanges in a cash acquisition of more than $200m by a private company in a deal that didn’t involve a private equity firm. The median age of the acquirer in those deals: 18 years. The youngest was Novafora, which bought chip maker Transmeta for $255m in 2008 and went out of business itself the next year.

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App Annie buys Mobidia to improve mobile app usage intelligence

Mark Fontecchio

Contact: Mark Fontecchio

App Annie makes its second acquisition in the past year with the pickup of Mobidia. The target, with 30 employees, provides mobile app usage data for mobile carriers and application providers. Its technology will augment App Annie’s existing analytics for app stores and downloads.

The deal comes just a few months after App Annie, founded in 2010, secured a new $55m round of funding, bringing its total financing close to $100m. It has been about a year since App Annie’s last acquisition, when it bought its main competitor Distimo.

The purchase of Mobidia will give App Annie added momentum in the industry, expanding its app usage dataset and solidifying the company’s positioning beyond app store analytics as a provider of market intelligence for the global app economy. The global number of active mobile application users is projected to increase 20% this year to 2.17 billion, while mobile apps downloads will jump 35% to 185.94 billion, according to 451 Research. As more companies rely on mobile application revenue, demand for market intelligence on mobile apps will continue to rise.

tracking-mobile-apps-users

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