Bain reaches into Thoma Bravo’s closet for a Blue Coat

Brenon Daly

Contact: Brenon Daly

More than three years after going private, Blue Coat Systems has been flipped to another private equity firm at nearly twice the price of the initial leveraged buyout (LBO) by a Thoma Bravo-led consortium. Bain Capital said Tuesday that it will pay $2.4bn in cash for the old-line networking and security vendor. (Subscribers to The 451 M&A KnowledgeBase can click here to see our estimates for both the trailing revenue and cash flow at Blue Coat.) Thoma Bravo took Blue Coat private for $1.3bn in late 2011, after HP was rumored to have dropped out of the bidding.

Under Thoma’s ownership, we understand that Blue Coat returned to mid-teens percentage growth as it expanded beyond its core offering of network security and WAN optimization, both of which are rather mature markets. (For instance, a mid-2014 survey of more than 200 information security professional by TheInfoPro, a service of 451 Research, showed that almost nine out of 10 respondents (86%) have already deployed some form of Web content filtering, a long-standing offering from Blue Coat.)

Blue Coat made three acquisitions while in Thoma Bravo’s portfolio, including paying a rather ‘un-PE’ multiple for network analytics startup Solera Networks. (Click here to see our proprietary estimate of terms of that transaction.) Of course, being a PE-owned company, Blue Coat also fattened up its cash flow in recent years. According to our understanding, Thoma Bravo has more than tripled Blue Coat’s EBITDA since the LBO.

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Telecity scoops up European colo peer Interxion

Scott Denne

Contact: Scott Denne Penny Jones Mark Fontecchio

TelecityGroup dishes out 45% of its stock to nab fellow European colocation player Interxion in a $2.2bn deal. The acquisition is the largest European multi-tenant datacenter transaction that we’ve tracked (nearly twice the size of Digital Realty’s purchase of Sentrum’s datacenter portfolio in 2012). The combined company will be better positioned to deflect some of the regional pricing pressure resulting from increased investment in the European datacenter market.

The deal values Interxion at 6.3x trailing revenue, or 15.3x EBITDA. Interxion shareholders are getting 45% of the combined company, but Interxion’s revenue and EBITDA contributions are slightly less than that percentage. We’d attribute the valuation bump to Interxion’s higher growth rate – 11%, compared with 7% for Telecity last year. Though this move is all about building a larger regional player, it’s worth noting that Interxion, through last year’s pickup of undersea cable hub SFR Netcenter, gets Telecity an outlet into other markets.

Subscribers to 451’s Market Insight Service can access a detailed report about this transaction here, as well as a strategic update on Telecity’s fourth-quarter results.

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Nielsen nabs data exchange eXelate

Scott Denne

Contact: Scott Denne

Nielsen becomes the latest company to pay a striking multiple to acquire an audience data manager with the purchase of eXelate. Though lower in price, the transaction values the company on par with BlueKai, an eXelate rival that Oracle bought last year.

Like eXelate, several other data management platforms have landed significant premiums. BlueKai, eXelate, Aggregate Knowledge and RUN were all valued above 5x trailing revenue, multiples that were driven by a wide pool of potential acquirers from ad agencies, enterprise software vendors and marketing data services firms – all categories of businesses that are eager for software that can manage audience-targeting data across multiple marketing and advertising channels.

With eXelate, Nielsen adds a service that amalgamates data from a variety of marketing data services providers, publishers and other sources to better target digital advertising. The target also offers software for advertisers to mix in their own customer data to inform advertising and marketing decisions. Bringing that in-house provides Nielsen with an opportunity to better leverage its audience segmentation, offline media measurement and consumer purchase data into the digital realm.

GCA Savvian advised eXelate on its sale.

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Telcos get busy again with M&A in February

Brenon Daly

Contact: Brenon Daly

Massive acquisitions by telcos, which pushed M&A spending to a recent record in 2014, once again helped to inflate the value of deals announced in the just-completed month of February. Overall, tech and telco acquirers spent $48bn on transactions across the globe, according to The 451 M&A KnowledgeBase. However, the three largest deals, which were all telco-related purchases, accounted for $30bn, or 60%, of the total spending in February.

Last month’s big-ticket acquisitions by BT Global Services, Frontier Communications and American Tower revived the telco shopping spree from 2014. Last year, telco and media purchases accounted for roughly half of the $439bn we tallied in M&A spending – the highest level in 14 years. (See our full report on M&A last year, as well as the outlook for this this year.) There were no significant telco transactions in January, which is one of the main reasons why M&A spending for the first month of 2015 was just one-fifth the amount spent in the second month of 2015.

Beyond the telco consolidation, there are clear indications that the broader tech M&A market is picking up the pace after the slow start. Expedia did its largest-ever deal last month, announcing the $1.4bn pickup of Orbitz Worldwide. And Canon, an infrequent acquirer, inked a $2.8bn buy. Even excluding the trio of telco deals, there were four transactions in February valued at more than $1bn – twice as many 10-digit acquisitions announced in January.

Additionally, the overall volume of M&A remained high in February. We tallied 331 transactions announced last month. That’s nearly one-third more than February 2014 or February 2013. Shoppers included Check Point Software, which announced its first acquisition in more than three years; four purchases by the insatiable acquirer Google; and a double-barrel set of deals by Under Armour.

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Digital commerce software’s second coming

Scott Denne

Contact: Matt Mullen

Nearly 20 years ago, there was a burst of exuberance for digital commerce software companies, with commerce and Web vendors gaining attention and massive valuations. However, the sheer complexity and lack of market readiness meant that many ambitions remained unfulfilled.

Today the market is ready and though the complexity is still there, the urgency and potential rewards are now greater. Commerce technology is tricky stuff and those that want to add it are unlikely to want to build their own, making the remaining independent players ideal acquisition targets.

Many of the largest social business application providers (IBM, Oracle, SAP, etc.) have already put a stake in the ground in this market. And many will look for tuck-ins. Though a number of players are aging, the necessary partnerships and technologies they’ve built over the years are not easily replicated. There’s also an influx of venture capital into this market, particularly among SMB-focused companies that could make for compelling acquisition targets.

Look for a forthcoming report detailing the potential acquirers and targets in the digital commerce software space.

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A change in command at Courion?

Brenon Daly

Contact: Brenon Daly

After a fitful and protracted M&A process, Courion has been sold to a private equity (PE) firm, according to several market sources. The deal, which we understand is closed, but has not been announced, would be the third acquisition by a buyout shop of an identity-related security vendor in the past half-year. However, our understanding is that Courion got about half the valuation of the other two larger identity and access management (IAM) vendors that were recently acquired.

Several sources indicated Courion traded at around $70m, which works out to roughly 2x sales. Rivals BeyondTrust and SailPoint sold for closer to 3x sales and 5x, respectively. (Subscribers to 451 Research M&A KnowledgeBase can see our estimated terms for BeyondTrust and SailPoint.)

In addition to those financial acquirers, many of the largest strategic shoppers – including Microsoft, IBM and CA – have been snapping up IAM technology, in part to help secure cloud offerings. The reason? Security remains the top-ranked inhibitor of cloud technology adoption, according to ChangeWave Research, a service of 451 Research. In the cloud – with its centralized IT resources and pooled data – knowing who is who and who has access to what is fundamental. Further, when users are accessing corporate resources that live outside the firewall, often from devices no longer under enterprise control, perimeter-based access controls are no longer effective.

That has certainly resonated with customers. In a survey of more than 200 IT security professionals in 2014, 451 Research’s TheInfoPro found that one-quarter (24%) of respondents forecast that they would be spending more in 2015 on identity-related security technology than they did in 2014. Not a single respondent indicated they would be trimming their budget for this crucial technology. (Identity was the only specific sector – among the dozen that we asked about – that didn’t have a single response indicating lower year-on-year spending.)

As is often the case in emerging markets, however, the strong demand for IAM hasn’t been evenly distributed across the vendors. Symplified, an early entrant in the IAM market that raised nearly $50m in venture funding, wound down last summer and sold its assets to EMC for pennies on the dollar. And while Courion is a far cry from the scrap-sale of Symplified, the company had struggled to put up growth in recent years. That blunted VC’s interest in putting new money into Courion, which hadn’t raised in about a decade, and ultimately put pressure on its valuation.

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Ericsson makes another OSS play

Scott Denne

Contact: Scott Denne

Ericsson takes another nip at the OSS/BSS market with its purchase of TimelessMIND. The acquisition of the Canadian provider of operations and billing support systems follows a record year for M&A at Ericsson as the networking equipment vendor battles the maturation of its core business. This is the fifth OSS/BSS supplier that Ericsson has picked up since its $1.2bn reach for Telcordia in mid-2011.

The Swedish carrier equipment vendor inked two such deals last year (MetraTech and GEOSS) on its way to seven acquisitions in the year, tying its personal best. With just 30 employees, though, TimelessMIND is among its smaller transactions. OSS/BSS is one of the categories Ericsson has focused on to extend its offering beyond carrier equipment. The company has stated goals of expanding into media infrastructure and cloud infrastructure. It also made a pair of energy management purchases last year.

Despite the dealmaking (13 announced transactions in the past 24 months), Ericsson isn’t returning to growth. Revenue was flat (in constant currency) at $29bn in 2014 and has been flat for several years. Its North American business declined 8% in the year, led by a slowdown in mobile broadband products. That decline was mitigated by growth in emerging markets and services. As the North American market is a leading indicator for its telecom business, Ericsson has a few more years to eek growth out of those new initiatives.

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Syncsort boosts its mainframe-to-Splunk links with William Data buy

Scott Denne

Contact: John Abbott

Syncsort acquires mainframe networking monitoring and security tools provider William Data Systems in an effort to recast the mainframe for modern workloads and applications. Syncsort was formed in the mid-1960s to improve the native sort utility that came with early-generation IBM mainframes. But these days, Syncsort is more likely to be talking about modern apps like Hadoop and Splunk.

Syncsort says the networking and security data collected by WDS’s Zen product suite will complement its ‘Big Iron to Big Data’ strategy by linking high-volume transactional data from the mainframe to big data analytical platforms, including Splunk Enterprise and Splunk Cloud. The Zen tools, which span monitoring, alerting, tracing, vulnerability tracking, encryption and authentication, will be integrated into the recently launched Syncsort Ironstream product, which provides real-time mainframe operational intelligence from within Splunk Enterprise. It will also be used in conjunction with Syncsort’s Hadoop-based data-integration tools that connect the mainframe to Apache Spark, Tableau, Amazon Redshift, QlikView and other modern analytical platforms.

Syncsort hired a new management team in 2013, led by CEO Lonne Jaffe, who in previous corporate strategy roles at CA Technologies and IBM had been heavily involved in M&A. The company’s first buy was Circle Computer Group in September 2013, adding technology for moving large amounts of data between mainframe databases and more modern platforms, without changes to the applications.

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Infosys makes first move into software, automation with Panaya buy

Scott Denne

Contact: Scott Denne Katy Ring

Infosys ushers in its new acquisition strategy with the $200m pickup of Panaya. Never a habitual dealmaker – the IT outsourcer has averaged less than one transaction a year, rarely spending more than $50m – its past M&A efforts have focused on IT and BPO vendors. With the purchase of Panaya, Infosys is taking a different track.

Since taking the helm last fall following a series of management departures amid shrinking market share, CEO Vishal Sikka has announced that ‘big data,’ artificial intelligence and, of course, ‘innovation’ would be the hallmarks of Infosys’ growth strategy. The Panaya buy shows that he meant it. Panaya sells software for managing and automating updates to ERP systems. That has clear cost synergies with Infosys’ core business, and also presents opportunities to expand new lines of revenue.

Not only is this Infosys’ first software acquisition, the valuation is well beyond what it’s accustomed to paying. Infosys’ management says the price tag values Panaya at 6x revenue. While they wouldn’t specify if that’s forward or trailing revenue, either of those is well past the 1-2x TTM revenue that Infosys paid in most of its prior deals (entirely services businesses).

We’ll have a more detailed report on this transaction in tomorrow’s 451 Market Insight.

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Strategy games

Scott Denne

Contact: Scott Denne

Mobile game developers are playing with different M&A strategies. So far, none are winning. Mobile gaming is a high-growth but hits-driven business, making it tough for one company to grab and maintain market share. That doesn’t mean they’re not trying.

King Digital Entertainment, maker of the ‘Candy Crush’ series, thinks it can predict where lightning will strike. The company is making its second purchase post-IPO with its $45m reach for Z2. In acknowledgement of the uncertainties of this particular market, there’s also a $105m earnout attached to the deal. That’s similar to King’s pickup of game studio Nonstop Games last year – $16m upfront with an $84m earnout.

Zynga has taken a different approach that has yet to pay dividends. The company has bought businesses that have already produced a hit. It has, we hope, learned that predicting what will be a hit is as difficult as predicting how long a hit will last. Zynga’s M&A strategy is more expensive than King’s in that it pays more upfront, with a small or no earnout. The company spent $180m in 2012 to buy OMGPOP right at the zenith of its ‘Words with Friends’ game. Last year, it snagged NaturalMotion for $487m. In addition to a game studio, that transaction got it some unique technology to apply across its portfolio, but it hasn’t been enough to slow its fall. Despite the addition of NaturalMotion’s revenue to 11 months of last year’s top line, Zynga’s sales dropped 21% to $690m in 2014.

Glu Mobile is among the few employing a winning strategy. The company has been scooping up inexpensive, well-known brands that it can revamp for mobile games. This has led to a portfolio of modest hits. Nothing that would move the needle for Zynga or King. Even with Glu’s success (revenue doubled year over year in the most recent quarter), Wall Street values the company at 2x trailing revenue (slightly below Zynga’s multiple and just above King’s).

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