PTC heats up IoT business, buys ColdLight

Mark Fontecchio

Contact: Mark Fontecchio

PTC continues to build its Internet of Things platform, paying $100m for data analytics provider ColdLight Solutions. Traditionally known for CAD and PLM software, PTC has now spent nearly $400m since late 2013 on three deals to jumpstart and grow its IoT business, according to 451 Research’s M&A KnowledgeBase.

The play here will be for PTC to position the flagship ColdLight data and analytics platform (currently branded Neuron) capabilities across the majority of its current technology stack, including SLM and PLM, but most importantly within its IoT business unit. IoT investments only pay off if the data generated by these systems can be translated into valuable business insights. ColdLight will bring those capabilities to the entire PTC stack, which will further strengthen the amount of value it can create for its customers.

PTC’s IoT business went from zero to $19m in the past six months, compared with the same period last year. That contrasts to the rest of PTC’s segments – CAD, PLM and SLM – which dropped 5% to $620m in that same period. Still, IoT generates just 3% of the company’s revenue, so incorporating its growth into PTC’s core portfolio is crucial to its total topline.

ColdLight posts about $2m in revenue per quarter, so the $100m deal values the business well beyond 10x trailing revenue – a much higher multiple than the 1.8x median multiple on IoT transactions, according to the KnowledgeBase. That’s probably an unfair comparison seeing as many IoT deals are in the semiconductor and hardware space, where multiples tend to be lower. A better comp would be Hitachi’s reach for Pentaho in February. While that purchase was considerably bigger (see our estimate here), the TTM revenue multiple was about the same, and the rationale was similar – buying a data analytics software firm to provide IoT capabilities for the acquirer’s core business.

PTC’s IoT deals

Date announced Target Deal value
December 30, 2013 ThingWorx $112m
July 23, 2014 Axeda $170m
May 5, 2015 ColdLight Solutions $100m

Source: 451 Research’s M&A KnowledgeBase

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Ciena expands SDN palette with $400m Cyan acquisition

Brenon Daly

Contact: Brenon Daly Jennifer Clark

After being out of the M&A market for more than a half-decade, Ciena has stepped back in with the equity-heavy $400m purchase of Cyan. Under terms, Ciena will hand over roughly $365m of its stock along with $44m in cash for fellow networking equipment and software vendor Cyan. (The purchase price includes $50m in convertible notes that Cyan sold last December.)

Cyan focuses on packet optical products, and its Blue Planet software is an SDN/NFV platform built to provide service orchestration, automation and SDN control in a multivendor network and to manage the lifecycle of virtualized services across datacenters and the WAN. Blue Planet contributed less than 10% to Cyan’s revenue in fiscal 2014, yet Ciena was attracted to the deal by the offering, which it thinks represents the next stage of multivendor management software.

Ciena’s bid values Cyan at $4.75 per share, which represents a 30% premium to the target’s previous closing price but is less than half the level of the company’s IPO just two years ago. Still, Cyan is getting a decent valuation, certainly compared with other recent networking transactions. Ciena indicated that its net cost for Cyan would be $335m, meaning it is effectively paying 3.3x the target’s 2014 revenue and roughly 2.4x projected 2015 revenue. In the sector’s recent blockbuster deal, Nokia has agreed to buy Alcatel-Lucent for $16.5bn in an all-stock transaction, valuing its French rival at basically 1x sales. (Of course, comparing that consolidation with the Ciena-Cyan pairing is a bit flawed, given that Cyan, while growing quickly, generates less revenue in a year than Alcatel-Lucent posts in two business days, on average.) Similarly, Ciena currently trades at essentially 1x sales.

Ciena expects the transaction to close before the end of its current fiscal year, which wraps in October. Morgan Stanley advised Ciena, while Jefferies banked Cyan. We’ll have a full report on this acquisition in tomorrow’s 451 Market Insight.

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April activity keeps 2015 on pace for record tech M&A

Brenon Daly

Contact: Brenon Daly

Tech acquirers stayed busy in April, keeping 2015 on track for post-bubble records for both the number of transactions as well as the spending on them. The just-completed month saw 341 tech, media and telco (TMT) deals valued at $42.1bn announced around the globe, exactly matching the totals from April 2014, according to 451 Research’s M&A KnowledgeBase. However, adding a little bit more perspective on the recent flurry of activity, we would note that the spending of some $42bn in both April 2015 and April 2014 is twice as high as the same month in 2013 and 2012 combined.

While M&A activity was strong across a number of sectors, the top end of the market was particularly active. Last month, 451 Research’s M&A KnowledgeBase tallied nine transactions with an equity value of more than $1bn. Notable big prints included Nokia’s $16.5bn consolidation of telecom equipment rival Alcatel-Lucent; Informatica’s $5.3bn take-private, the largest leveraged buyout in nearly two years; and LinkedIn’s $1.5bn purchase of lynda.com, which is almost 10 times larger than any other deal the employment networking site has done.

With four months of 2015 already in the books, tech acquirers have spent $162bn on transactions. That’s more than they dropped on deals for all of 2009. More significantly, if we annualize activity so far this year, 2015 is on track for just shy of a half-trillion dollars of M&A consideration. That would handily top the previous record of roughly $420bn reached in both 2006 and 2007.

And, we would note that tech acquirers are telling us they plan to be active. In the just-completed M&A Leaders’ Survey from 451 Research and Morrison & Foerster, slightly more than six out of 10 tech dealmakers and investment bankers expect their pace of acquisitions to accelerate over the next half-year, the second-most-bullish response we’ve received in the seven editions of the survey. See our full report on the M&A Leaders’ Survey from 451 Research and Morrison & Foerster.

2015 monthly deal flow

Period Deal volume Deal value
January 2015 357 $11bn
February 2015 332 $48bn
March 2015 332 $61bn
April 2015 337 $42bn

Source: 451 Research’s M&A KnowledgeBase

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Survey: Already busy tech acquirers expect to be even busier

Brenon Daly

Contact: Brenon Daly

Even as tech M&A activity clips along at a post-bubble record rate in 2015, business is expected to get even more brisk as the year progresses. Slightly more than six out of 10 tech dealmakers and investment bankers expect their pace of acquisitions to accelerate over the next half-year, the second-most-bullish response in the seven editions of the M&A Leaders’ Survey from 451 Research and Morrison & Foerster. The 61% of respondents forecasting a pickup in activity over the next six months is almost seven times the number (9%) anticipating a slowdown.

The solidly bullish outlook for 2015 – with nine out of 10 respondents forecasting that their M&A activity will either hold steady or pick up through October – comes as the year has started busier than any year since the Internet bubble burst. In just the first four months of 2015, tech acquirers have announced some $160bn worth of global TMT transactions, according to 451 Research’s M&A KnowledgeBase. The year-to-date spending, which is already higher than the full-year total for recession-wracked 2009, puts 2015 on track for just shy of a half-trillion dollars of M&A consideration.

We would also note that the last time respondents to the M&A Leaders’ Survey from 451 Research and Morrison & Foerster clearly signaled their intent to acquire, the projection did indeed come through in prints. In the survey from April 2014, a record seven out of 10 respondents (72%) indicated that they planned to accelerate their M&A in the year. Last year’s total value of deals hit an astonishing $390bn – a post-recession record that came in at basically twice the average annual spending from 2009-2013, according to the KnowledgeBase.

Look for a full report on the M&A Leaders’ Survey from 451 Research and Morrison & Foerster – including what will be driving deals in the coming years, as well as what buyers expect to have to pay for those transactions – on the 451 Research website later today and in tomorrow’s 451 Market Insight.

M&A spending outlook 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

CyrusOne set to serve New York/New Jersey datacenter market

Mark Fontecchio

Contact: Mark Fontecchio

CyrusOne enters one of the top North American datacenter markets with the $400m purchase of Cervalis. The target has four enterprise-quality, multi-tenant datacenters (MTDCs) in the New York/New Jersey region that total a half-million gross square feet of space. As we reported in a recent in-depth analysis of the metro New York MTDC market, the region has been driven by financial services firms and connectivity. This deal hits both bullet points – about two-thirds of Cervalis’ 220 customers are in financial services, and it provides interconnected datacenters in one of the largest Internet hubs of New York City.

At 5.7x trailing revenue, the price tag is two turns higher than the median on North American hosting transactions since 2014. Why? Location, location, location – the NY/NJ market is one of the most highly sought. The acquisition is also a shot across the bow to anyone who thought that North American datacenter consolidation was nearing completion. According to 451 Research’s M&A KnowledgeBase, datacenter consolidation in the region has shot back up this year: deal volume is up 36% and is on pace to match 2013’s totals. Deal value is also set to jump 2.5x and hasn’t been skewed by any oversized transactions like 2013 was with IBM’s $2bn reach for SoftLayer.

Morgan Stanley and Allen & Company advised CyrusOne, while DH Capital banked Cervalis. We’ll have a full report on this acquisition in tomorrow’s 451 Market Insight.

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Capgemini’s IGATE is no copy of Xerox

Scott Denne

Contact: Scott Denne

Not content to be France’s second-largest outsourcing company, Capgemini answers Atos’ Xerox buy with the $4bn purchase of IGATE Global Solutions. From a strategic perspective, Capgemini’s deal and the recent acquisition of Xerox’s ITO business by local rival Atos are quite similar. But from a valuation perspective, they couldn’t be more different.

Both transactions aim to shore up the North American businesses of the two France-based outsourcing companies. Following today’s deal, North America will account for 30% of Capgemini’s $13.6bn anticipated pro forma revenue this year, while Atos’s acquisition (announced in December) boosts its own revenue in that region to 17%, from 6%, of its total.

The similarities end there. Capgemini’s purchase values IGATE at 3.5x trailing revenue, making it the highest multiple we’ve tracked on a $500m-plus pickup of a North American outsourcer in seven years. Atos, on the other hand, paid 0.7x trailing revenue for an asset with about the same revenue. IGATE posted a percentage point or two of additional revenue growth in each of the past few years.

Profitability is the difference in the two assets. IGATE had a $79m gain on its bottom line last year – right at the midpoint of the previous two years’ profits – and operating margins of 23%. Compare that with Xerox ITO’s 8% on a $112m loss – though it did post $46m and $31m in profits in the two previous years.

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451 Research’s M&A KnowledgeBase tutorial: Taxonomy and summary

Mark Fontecchio

Contact: Adam Phipps, Kenji Yonemoto

Earlier this week, we noted a record rate of infosec M&A. In 451 Research’s M&A KnowledgeBase, users can run a security M&A screen and a statistical summary of that screen. Year-to-date, the premises network security subsector leads in spending, and physical security is the most active subsector. Learn more about running statistical summary reports by watching this video.

Security_Sub-Sector_Chart_-_JPEG_copy[1]

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Francisco dives into network monitoring with Procera take-private

Scott Denne

Contact: Mark Fontecchio, Scott Denne

Emerging opportunities in the network monitoring space lead Francisco Partners to make its first foray into networking and its largest solo purchase in eight years as the investment firm swoops in to buy Procera Networks, a deep-packet inspection vendor that was being hounded by activist investors.

Network monitoring and visibility was a significant driver of M&A activity in 2014, including Ixia’s $190m reach for Net Optics (with a similar multiple to today’s deal) and multibillion-dollar acquisitions of Riverbed and Danaher’s networking performance business. The sale of Procera is the largest in this category so far this year, but not the only one. Last month, Lookingglass Cyber Solutions picked up Procera competitor CloudShield.

As we highlighted in our 2015 M&A Outlook, we anticipate that smaller players in this space will continue to consolidate amid the convergence of application performance management, network performance management and network visibility. Though consolidation is coming, that’s not to say the market has matured. In the latest networking survey by TheInfoPro, a service of 451 Research, network monitoring was cited as a top pain point by 19% of network admins, up from 13% a year earlier.

procera-1_copy_2[1]

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As RSA kicks-off, IT security M&A hits record rate

Brenon Daly

Contact: Brenon Daly

Opening on Tuesday, the RSA Conference runs its weeklong shindig under the tagline, “Where the world talks security.” When it comes to M&A, however, infosec acquirers are doing more than talking – they’re putting their money where their mouths are and shopping at a record rate.

Already this year, buyers representing a broad swath of the tech M&A community have announced 59 transactions valued at $8.1bn, according to 451 Research’s M&A KnowledgeBase. Annualized, that would put the total number of infosec deals announced this year at right around 200, significantly ahead of last year’s record number of 136.

Keep in mind, too, that infosec M&A activity in 2014 was about 30% higher than any year we’ve seen. (We consider the number of transactions – rather than spending attached to them – as the most accurate gauge of the overall vitality of M&A in what’s a relatively narrow market such as infosec, where a large print or two can dramatically swing aggregate spending. For context, infosec currently accounts for roughly 2% of the overall TMT M&A market, both in terms of annual deal volume and annual deal value.)

The boom in buying shouldn’t really surprise anyone, given the steady increases in infosec budgets coupled with the steady increases in security breaches (Sony and Anthem Inc, among others). Bankers we surveyed last December told us they expected infosec to the be the second-busiest sector for M&A in 2015, trailing only slightly behind mobility.

That bullish forecast is certainly coming through in the prints so far this year, which are running 40% higher than the same period in 2014. Maybe more noteworthy than the number of infosec transactions in 2015 is the breadth of infosec buyers. This year’s record acceleration has been driven by the usual suspects being active (Proofpoint has put up a print, while Checkpoint has inked two deals); PE shops getting busy (Bain Capital acquiring Blue Coat, Marlin Equity Partners purchasing the divested Fidelis business); as well as new buyers stepping into the market, such as Internet vendors (salesforce.com reaching for Toopher, PayPal snagging CyActive).

Information security M&A activity

Period Deal volume Deal value
YTD 2015 59 $8.1bn
2014 136 $8.6bn
2013 99 $8.4bn
2012 88 $1.8bn
2011 101 $3.2bn
2010 107 $19.82bn

Source: 451 Research’s M&A KnowledgeBase

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451 Research’s M&A KnowledgeBase tutorial: Search themes

Scott Denne

Contact: Adam Phipps

We have posted a tutorial detailing the ability to search 451 Research’s M&A KnowledgeBase by technology themes, in addition to sector, to locate emerging or disruptive technologies that may be spread across multiple 451 categories. For example, Singtel’s pickup of Trustwave has a target theme of cybersecurity, Cisco’s Embrane acquisition has the seller tagged with SDN/NFV, and Neilsen’s eXelate buy is categorized as big data. Meanwhile, search cloud computing deals to find SolarWinds’ Librato purchase, and find Microsemi’s reach for Vitesse in the Internet of Things category.

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