Google ups premium video play with mDialog buy

Scott Denne

Contact: Scott Denne

ABC, CBS and their peers can’t be expected to dump their primetime lineups onto YouTube alongside cat videos and ukulele covers of ‘Stairway to Heaven.’ That’s why Google’s premium video efforts are built around DoubleClick, including the just-announced acquisition of mDialog, a maker of ad-insertion technology for long-form and live-streaming video, which will support DoubleClick’s efforts to build an ad exchange for premium video.

Through owning YouTube, Google led the first phase of online video: short clips, occasionally pirated and often user-generated. Owning the second phase, as traditional television (not to mention traditional television advertising dollars) goes digital, will take a new technology stack as well as relationships with a new set of advertisers and content creators.

Google is not the only company to recognize the need for new teams and technologies to accompany this latest phase. For example, Comcast picked up FreeWheel Media in March to provide traditional media companies with services and software to monetize and manage their digital video. And last month, Kaltura, a maker of video editing, streaming and management software, bought over-the-top video specialist Tvinci in a deal that was as much about the target’s relationships with broadcasters as it was about its technology.

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BlackBerry’s software sweetens

Scott Denne

Contact:  Scott Denne

While BlackBerry continues to decline, enterprise software provided a bright spot in the struggling phone maker’s earnings announcement. Though only 7% of BlackBerry’s overall revenue, software – mostly licenses of email server and mobile management software – moved up to $67m, a 15% increase on a sequential basis. Software declined on a year-over-year basis, as did every other part of the business, but the falloff was slower when compared with other divisions.

The uptick in software suggests that BlackBerry is holding on to enterprise clients far better than individual customers. That’s born out in surveys by ChangeWave Research, a service of 451 Research, where 20% of corporate IT buyers in May reported plans to buy BlackBerry phones in the coming quarter. Though that’s down by two percentage points from a quarter earlier, the results are exponentially better than the consumer market, where only 2% of smartphone buyers plan to pick up a BlackBerry.

With its decision earlier this year to provide customers of AirWatch, Good Technology and MobileIron with free licenses of its own mobility management software, BlackBerry doesn’t look ready to concede the enterprise just yet.

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ECM consolidators clash

Brenon Daly

Contact: Brenon Daly

The gloves are coming off in the latest consolidation in the enterprise content management (ECM) market. Just a month after accepting a $195m offer from the ever-acquisitive Lexmark, old-line Swedish ECM vendor ReadSoft has found itself in the center of an unusual public bidding war. On Wednesday, PE-backed Hyland Software topped the bid by a few million dollars.

The brawl over ReadSoft pits two able acquirers – one strategic, one financial – against each other. Collectively, Lexmark and Hyland have done 16 deals over the past half-decade alone. But looking inside those transactions, we can see differences between the buyers, which may help indicate how the fight for ReadSoft will play out. On paper, it would appear that Lexmark needs ReadSoft more than Hyland does.

For starters, Lexmark has been a more active acquirer than Hyland. Since the printer company established its ECM unit in mid-2010 with the $280m purchase of Perceptive Software, it has shelled out an additional $600m on another nine targets, according to The 451 M&A KnowledgeBase . In comparison, Hyland has announced just six deals since PE shop Thoma Bravo acquired a majority stake in July 2007.

Further, Lexmark has been more deliberate in buying larger companies, while Hyland has targeted smaller bolt-on acquisitions that typically bring either technology (document capture, for example) or vertical market specialization (e.g., healthcare) to its flagship OnBase product. In short, Hyland’s M&A approach – including playing the spoiler against Lexmark – appears more opportunistic than the systematic drive for scale at Lexmark.

In our initial analysis of Lexmark’s reach for ReadSoft, my colleague Alan Pelz-Sharpe noted that while the transaction would bring a new customer base and about $120m in revenue to Lexmark, there was a fair amount of technology overlap. (451 Research subscribers can click here for the full report.) But for Lexmark, it has little choice but to buy in bulk.

Because of the declines in its legacy core printer and ink business, overall revenue at Lexmark will drop again this year. While its software business is the fastest-growing division at the company, it can’t make up for the drop-off in printers. Lexmark has set the goal for its software unit hitting about $500m in revenue in 2016, which would be about twice the revenue it generated in 2013. To get there, Lexmark will have to continue to rely on M&A, which just may include countering for ReadSoft.

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Cisco’s first big buy of 2014

Scott Denne

Contact: Scott Denne

Cisco ends a brief respite from substantial acquisitions by purchasing Tail-f Systems for $175m. The networking giant hasn’t paid more than $100m for a business in almost 10 months, marking its longest break between $100m deals since 2010-11, when no purchases crossed that mark.

The recent slowdown in Cisco’s dealmaking (this is only its second acquisition of the year) comes amid declining sales. After three years of growth, the company’s revenue dropped below year-ago levels in each of the last two quarters.

With the pickup of network orchestration vendor Tail-f, Cisco aims to bolster its service-provider business, a segment where orders declined 13% in the first quarter of its current fiscal year, 12% in the second, and 5% in the most recent quarter. Cisco expects it will take multiple quarters to return to growth in that segment.

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Amobee moves past mobile

Scott Denne

Contact: Scott Denne

Amobee’s pair of acquisitions today shows a dramatic increase in the mobile ad network’s ambitions since becoming a subsidiary of SingTel in late 2012. The purchases of Adconion and Kontera for a combined $359m take Amobee beyond offering mobile advertising products and into selling advertisers the capability to reach their intended audience across digital mediums.

The pickup of Adconion brings Amobee the ability to send targeted ads to individuals across different ad channels (mobile, video, display, social, etc.) It also didn’t hurt that most of the target’s $185m in 2013 revenue came from North America, giving Amobee an instantly larger footprint in that market (about 40% of Amobee’s revenue comes from Asia). With Kontera, Amobee obtains technology that improves contextual understanding of where and how ads are placed on the Web and mobile devices.

These deals stand in contrast to Amobee’s only two previous acquisitions, which were mobile-focused technology tuck-ins (Gradient X and Adjitsu.com). The increasing importance of audience-specific, rather than channel-specific, digital media is a trend that’s playing out across the ad-tech industry as advertisers seek to optimize interactions with target audiences, rather than experiment with individual ad channels.

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Analog tunes to a growth frequency

Scott Denne

Contact: Scott Denne

Analog Devices looks to the cellular infrastructure market to burst out of its growth funk, paying $2.4bn to acquire Hittite Microwave. Not only is the purchase Analog’s largest by a factor of 20, it also has an unusually high multiple.

In the company’s most recent quarter, sales of chips for the communications infrastructure market jumped 25% year over year, surpassing management’s expectations for the sector. (Communications accounted for 20% of its 2013 revenue.) That level of growth – beyond anything Analog typically sees in its various segments – points to a way out of the company’s growth slump. The signal-processing vendor’s annual revenue skidded down 12% between 2011 and 2013.

Hittite specializes in communications chips that utilize high frequencies, compared with Analog’s communications portfolio, which was built around the lower frequencies typically used in cellular communications. As frequencies become increasingly crowded, cellular signals are drifting into higher frequencies, and Hittite has benefitted, as its portfolio, which was initially geared toward government and military applications, has seen growth in the broadband and cellular markets.

While Analog expects there will be opportunities to cut costs when the deal closes, the chance to grow by cross-selling the higher- and lower-frequency products drove this acquisition – and pushed up the price to 7.1x Hittite’s trailing 12-month revenue. Since cost synergies, not new sales, drive most chip transactions these days, the multiple for Hittite is substantially larger than most. In fact, it is three times larger than the median for chip deals of more than $500m in the past 12 months and is the highest multiple paid in such a transaction since Broadcom’s reach for NetLogic Microsystems in September 2011.

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Dropbox syncs collaboration strategy

Scott Denne

Contact: Erin Zion Scott Denne

Dropbox nabs another collaboration startup as the file sync and sharing vendor expands its communications and collaboration products to shore up sales to businesses. The announcement that Dropbox has picked up Droptalk, which makes a messaging app focused on sharing files and Web content, marks its third collaboration acquisition in as many months.

This strategy stands in contrast to Dropbox’s competitors, most notably Box and Hightail, which have recently reached for security firms to make their offerings business-compatible. However, it’s worth noting that Dropbox’s business ambitions are mostly in the SMB space, and it doesn’t have much traction among enterprise customers, where the bar for security would be higher.

Though Dropbox is a marquee name in file sharing, the sector is commoditizing rapidly (as we pointed out here and here) and is crowded with dozens of startups and some of the biggest names in tech. Layering on collaboration capabilities can help Dropbox alter the terms of its competition and is certainly a more attractive option than vying on price alone – an option that would quickly become onerously expensive, even for a heavily funded company like Dropbox.

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Twitter stays mobile with Namo

Scott Denne

Contact:  Scott Denne

Twitter continues to focus on mobile advertising with the purchase of Namo Media, a native advertising specialist that brings better-quality ad formats to the social network and its mobile ad exchange, MoPub.

Maintaining a strict focus on mobile is Twitter’s best strategy today. Doing so keeps it mostly out of the crosshairs of Google’s ad business. It also plays to Twitter’s strengths – as most Tweeters log on with mobile devices, the social network can send those same users ads when they’re on other apps.

Marketers currently consider mobile a distinct advertising channel (with a distinct budget), and that’s good for Twitter. But they are increasingly thinking about the audience as a whole and the most effective way to reach it, regardless of where users are. That’s the logic behind several recent ad-tech transactions, including Oracle’s acquisition of BlueKai, Acxiom’s $310m LiveRamp buy, and Google and AOL’s respective purchases of advertising attribution vendors Adometry and Convertro.

If Twitter wants to benefit from that unified worldview, it can’t stick to mobile forever and will eventually need to make a strategic acquisition – such as the pickup of a broader ad exchange or major demand-side platform – to help advertisers reach its captive audience beyond mobile apps.

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Sync and share startups get Boxed in

Scott Denne

Contact: Scott Denne Alan Pelz-Sharpe

Dozens of enterprise file sync and share (EFSS) startups were looking toward the Box IPO to set a high bar for valuations in this crowded space. Instead, Box delayed going public and, by filing an S1, exposed the extensive costs involved in building out a viable EFSS business.

There have been few EFSS exits – a worrisome development for many startups as sync and file sharing are rapidly becoming a commodity. Unlike other commoditized tech sectors, there hasn’t been a single marquee exit from EFSS. Contrast that with markets like mobile device management, which has more than 60 vendors but already has a $1.5bn exit (AirWatch) and at least $600m in market cap coming (MobileIron), as well as several $100m-plus acquisitions.

Had Box gone public at the expected time and multibillion-dollar valuation, the IPO would have likely triggered a fast-tracking of M&A activity and maybe even a number of smaller offerings in its wake. Although Box itself will likely find its way to a strategic acquirer or an eventual IPO and billion-dollar exit, many of the 30-40 startups in this space will face pressure to stem losses and find profits or potential buyers.

We’ll have a report in tomorrow’s 451 Market Insight detailing our outlook for the EFSS sector.

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Record run for tech M&A continues in May

Brenon Daly

Contact: Brenon Daly

Spending on tech, media and telecom (TMT) deals in May quadrupled from the same month in the past two years, continuing the record pace of M&A activity in 2014. Dealmakers around the globe spent $61bn on 308 acquisitions in the just-completed month, according to The 451 M&A KnowledgeBase. That pushes the total value of TMT transactions announced so far in 2014 above an astonishing quarter-trillion dollars.

Altogether, worldwide spending on M&A in 2014 has surged to $237bn – exactly matching the amount spent in the first five months of the previous high-water mark set back in 2007. Another way to look at the spending total so far in 2014: the amount is only slightly lower than spending in the same January-May period of the past three years combined.

As has been the case throughout 2014, deals in May came from across the tech lifecycle, with old-line industries consolidating as well as flashy young startups getting picked up at big prices. AT&T’s $48.5bn cash-and-stock purchase of DirecTV stands as the second-largest TMT transaction of the past 12 years. On the other side, Apple announced its largest-ever acquisition, paying $3bn for Beats Electronics, an eight-year-old provider of headphones and a streaming music service.

With five months of M&A now in the books, the annualized pace for M&A spending is running at about $560bn for full-year 2014. That is a full $100bn higher than the previous annual record for TMT deals, set back in 2006, according to the KnowledgeBase.

M&A activity

Period Deal volume Deal value
Jan. 1 – May 31, 2014 1,447 $237bn
Jan. 1 – May 31, 2013 1,348 $90bn
Jan. 1 – May 31, 2012 1,534 $65bn
Jan. 1 – May 31, 2011 1,565 $102bn
Jan. 1 – May 31, 2010 1,406 $74bn
Jan. 1 – May 31, 2009 1,188 $42bn

Source: The 451 M&A KnowledgeBase

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