GI Partners’ datacenter strategy hits a new Peak (10)

Scott Denne

Contact: Scott Denne Kelly Morgan

Private equity firm GI Partners picks up Peak 10 for a purchase price that’s likely $750-850m. The final price is below where we heard it was initially being shopped, but is about two times what Welsh Carson Anderson & Stowe paid for the datacenter business in 2010.

The acquisition is GI Partners’ largest takeout of a datacenter business. The firm’s wagers in the space have ticked up since its acquisition in 2006 of Telx, which it sold five years later to ABRY Partners. The purchase of Peak 10 comes on the eve of the anniversary of IBM’s acquisition of GI Partners’ portfolio company SoftLayer for $2bn in 2013. GI bought SoftLayer in 2010 for about one-quarter of that price.

Now, all eyes will be on GI to see if it combines Peak 10 with ViaWest, which it has a minority interest in. Geographically, the two would fit together nicely and both target SMB customers with colocation plus cloud and managed services. Peak 10 is based in the southeastern US and has been steadily expanding its datacenter footprint while also adding to its services. ViaWest provides similar services from its locations in Colorado, Minnesota, Nevada, Oregon, Texas and Utah.

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With or without Dre, Apple’s M&A has a new beat

Scott Denne

Contact: Scott Denne

Though the rumored acquisition of Beats Electronics would signal a major change in Apple’s M&A practice (aside from being more defensive than a typical Apple purchase, at $3.2bn it would be the company’s largest deal by a factor of 10), a subtle change in its strategy has been underway since Tim Cook took the helm following the retirement of Steve Jobs two and a half years ago.

Under Cook’s leadership, we’ve seen Apple acquire 21 companies – 14 have come in the past 12 months alone, according to The 451 M&A KnowledgeBase. In the eight years preceding Cook’s tenure, Apple purchased just 16 businesses and only twice paid more than $100m, while Cook has done so on at least three occasions (AuthenTec, C3 Technologies and Topsy Labs).

It’s not just a change in leadership style that has spawned the change in acquisitions. Apple’s cash, while substantial under Jobs, has only increased – as has the pressure to spend it. Today Apple has about $150bn in cash and marketable securities; three years ago, it held $65bn. The competitive environment was different then: Spotify, having just launched in the US, hadn’t started to eat into iTunes’ revenue. Also, Samsung was still a distant fourth place in the smartphone market, compared with its position today as a close second to Apple, according to surveys by ChangeWave Research, a service of 451 Research.

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Panduit’s hot for cooling vendor SynapSense

Scott Denne

Contact: Rhonda Ascierto Scott Denne

Panduit, primarily a datacenter cabling vendor, has acquired SynapSense, a datacenter infrastructure management (DCIM) software company. This is Panduit’s second acquisition in the DCIM market, which hasn’t seen much M&A overall. The company is working on providing a unified offering of datacenter technologies, with software at the center.

We forecast more than 40% CAGR for the DCIM market. Despite that growth, it is a challenging environment for small pure-play firms like SynapSense. The market is plagued by protracted sales cycles and crowded with more than 55 vendors, including several large datacenter equipment makers and enterprise IT software providers.

SynapSense brings dynamic cooling optimization software to Panduit’s asset management and monitoring offerings, which it shored up with the acquisition of Unite Technologies almost two years ago. SynapSense’s software is sophisticated and relatively mature – yet perhaps too advanced for much of the slow-to-change datacenter space.

We would expect Panduit to continue to grow its software reach via future M&A as software and services are becoming an important competitive differentiator for all datacenter equipment suppliers.

We’ll have a more detailed analysis of this deal in tomorrow’s 451 Market Insight.

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FireEye likes the look of nPulse

Scott Denne

Contact: Javvad Malik Scott Denne

FireEye follows up its $1bn Mandiant purchase with a smaller bite: the $60m acquisition of nPulse Technologies. In addition to the $60m in cash, FireEye is on the hook for $10m in stock for an earnout and another $10m in retention payments for the 30-employee company.

Its latest buy brings FireEye network forensics capabilities to go along with its network threat detection and the endpoint forensics it picked up with Mandiant. FireEye now joins several competitors that have built or bought network forensics, including LogRhythm, which recently announced a forensics product, and Blue Coat, which acquired Solera Networks last year (and subsequently purchased Norman Shark, which competes with FireEye’s core offering).

We would expect FireEye to keep hunting for new acquisitions. While it now has network and endpoint forensics as well as network-based threat detection, it’s missing endpoint threat detection, though it does have a partnership with Verdasys for endpoint detection. CEO Dave Dewalt has been vocal about the need to build FireEye beyond its original network detection products, and the company just raised $446m in a second public offering.

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Google’s recent acquisitions go back to its roots

Scott Denne

Contact: Scott Denne

With Google’s announcement that it has picked up Adometry and its purchase in February of spider.io, the search giant has now made two acquisitions in support of its core business. The deals come after a nearly three-year hiatus from buying advertising companies. Its last announced advertising acquisition was the purchase of online exchange AdMeld in June 2011.

The recent transactions come as Google faces a slowdown in part of its ad business. Advertising revenue on Google’s own websites grew 20% in 2013 to $37.45bn, but sales from its ad networks and exchanges decelerated. That revenue was up only 5% to $13.13bn in 2013, compared with a 20% rise the year earlier, while already thin gross margins tightened during those years.

Adometry sells advertising attribution services that could boost Google’s network revenue by helping advertisers understand which ads help move prospects closer to a purchase, rather than giving all the credit to the last ad a customer clicks. It could also help Google attract more brand advertisers to its properties and networks, in addition to the direct-response advertisers that are drawn to Google’s pay-per-click model.

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EMC makes another flashy bet

Scott Denne

Contact: Scott Denne

EMC makes another bet on an early-stage flash storage technology with the acquisition of stealthy startup DSSD. The deal comes almost two years to the day after EMC bought into the all-flash array market by purchasing XtremIO. That transaction, and another acquisition aimed at bolstering EMC’s position in flash, both got off to questionable starts.

Like DSSD, XtremIO had yet to bring its product to market when it was acquired by EMC for an estimated $430m in May 2012. Eighteen months passed before that technology was widely released, and even today some of its basic functions are still in beta release. Last summer, EMC bought disk-pooling software maker ScaleIO with the intention of focusing the product entirely on flash, but later backtracked on that strategy and said the software would continue to work on disk as well.

A changing storage landscape that includes the emergence of flash, as well as cheaper scale-out and cloud storage, is having an impact on EMC. Last quarter, its storage product revenue dropped 6.9% year over year, with the decline focused on its high-end products, where sales grew 2% in 2013.

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Tech M&A spending rolls along at record rate

Brenon Daly

Contact: Brenon Daly

Tech M&A spending continued its record pace in April, putting 2014 on track to top a half-trillion dollars worth of deals. Assuming the pace holds, this year would mark the highest level of spending on tech transactions since the Internet bubble burst a decade and a half ago.

For the just-completed month of April, tech acquirers around the world announced some 302 deals valued at $48bn, a stunning six-fold increase over the same month last year and more than three times the level of April 2012. Consolidation last month in the old-line telco and cable industries led the parade of blockbuster transactions, which included five acquisitions valued at more than $1bn.

The spending in April actually accelerated what has already been a record start to 2014. (See our full Q1 report.) Through the first four months of this year, tech M&A spending has soared to $178bn. To put that amount into perspective, consider this: January-April spending has already exceeded the full-year totals of every year except one since the recession ended in 2009. More dramatically, year-to-date spending has even eclipsed the previous record of $166bn for the first four months of the go-go year of 2006.

Further, dealmakers don’t really see a slowdown in the frenetic pace. As part of our semiannual Tech M&A Leaders’ Survey , done in part with Morrison & Foerster, we noted that activity is currently running at a record level and asked respondents for their outlook on the overall tech M&A market for the rest of 2014. Nearly one-third (31%) projected an increase in activity, 41% said the pace is likely to hold steady, and 28% predicted a decline.

With more than seven out of 10 respondents forecasting that the broad tech M&A market will hold – or even accelerate – its current unprecedented activity, the outlook for dealmaking is more bullish than it has been in years. 451 Research and Morrison & Forrester will be holding a complimentary webinar to discuss the survey, which also includes a number of key findings around deal structures and valuations. To join the webinar, which will be held next Tuesday, May 6 at 10:00am PST, simply register here.

Monthly deal flow, 2014

Month Deal value Change vs. same month in 2013
January 2014 $30bn 168% increase
February 2014 $73bn 51% increase
March 2014 $27bn 391% increase
April 2014 $48bn 508% increase

Source: The 451 M&A KnowledgeBase

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After ‘Deer Hunter’ success, Glu stalks bigger prey

Scott Denne

Contact: Scott Denne

Glu Mobile has built a business around revitalizing tired gaming brands for play on smartphones. In its latest effort, Glu sets out to turn around PlayFirst, maker of ‘Diner Dash,’ a casual game that was successful on PCs during the past decade but struggled to gain traction on smartphones and tablets.

Glu has shown a talent for transformations: at the time of its 2007 IPO, its business was selling feature-phone games through carriers, a business that was eviscerated by the launch of the iPhone that same year. Two years ago, Glu spent $5m to acquire the trademarks and other IP around the ‘Deer Hunter’ games from Atari and yesterday it topped the high end of its quarterly revenue guidance by 17% due to the strength of that series. ‘Deer Hunter’ accounted for 37% of its $47m revenue in the first quarter.

The purchase of PlayFirst, however, has some key differences from its ‘Deer Hunter’ buy. For one thing, with an enterprise value of $15.3m, the PlayFirst purchase is three times the size of the ‘Deer Hunter’ pickup and starts costing Glu money on day one, as PlayFirst lost $5.2m last year and its revenue is declining. PlayFirst generated $11.4m in revenue last year, but is currently only on a $7m run rate for this year. Also, Glu’s not grabbing IP it can build on – the company is getting an existing set of games that already attempted to crack the mobile market but failed to gain meaningful traction.

PlayFirst adds casual games to Glu’s portfolio, which has seen little success beyond action titles. Glu expanded its catalog of casual games with the $4.5m acquisition of Blammo in 2011, but none of those games have matched the success of its top action franchises. Only one of the brands from Glu’s Blammo buy broke the $1m revenue mark last year.

Despite having been out of the market for nearly two years, Glu indicated that PlayFirst may just be one of several deals to come. In conjunction with the announcement, the company filed to sell an additional $150m of its stock, in a move that Glu’s management says is intended to give it the capacity to pursue similar turnaround opportunities.

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Startups flood into cloud security, M&A will follow

Scott Denne

Contact: Adrian Sanabria Scott Denne

Cloud application control (CAC) has emerged suddenly, spawning 15 startups, by our count, in less than two years, and three acquisitions since last fall. The market was born out of the need for nuanced control of enterprise SaaS applications: a gaping hole in offerings across many security categories, including next-generation firewalls and identity and access management.

Given the abundance of available startups and the relevance of this technology to so many vendors, we expect to see more acquisitions in this sector in the near future. We would be surprised if most CAC providers haven’t fielded some interest in an exit at this point.

Cloud application control acquisitions

Date announced Target Acquirer Employees Deal value
September 26, 2013 SaaSID Intermedia 20 Not disclosed
January 15, 2014 CloudUp Networks CipherCloud Two Not Disclosed
February 6, 2014 Skyfence Networks Imperva 20 (estimated) $60m

Source: The 451 M&A KnowledgeBase

Whether CAC eventually takes shape as a feature of a firewall or a cornerstone of a consolidated identity management and cloud encryption offering, this market is here to stay as all enterprises will require a way to control access and data outside their own perimeter.

We’ll explore this sector in depth in a report in tomorrow’s 451 Market Insight.

Intralinks tracks down docTrackr

Brenon Daly

Contact: Brenon Daly

After opening up its M&A account last April with an opportunistic acquisition, Intralinks has followed that up with the somewhat more strategic $10m purchase of docTrackr. The purchase of the three-year-old digital rights management startup is significant because it shows Intralinks playing both offense and defense with M&A. Neither side used an advisor.

On the defense side, the deal ‘boxes out’ Box. The high-profile file-sharing company – which is likely to go public in the next few weeks and be valued in the billions of dollars – had licensed docTrackr for at least two years. As my colleague Alan Pelz-Sharpe notes in our report , there might not be much impact to Box’s business with docTrackr off the table, but Intralinks will mint some PR around the move, nonetheless.

In terms of building its business, docTrackr will slot into Intralinks’ enterprise business. That division, which generates nearly half the company’s overall revenue, is forecast to be the main growth engine at the company in the coming years. But for now, the enterprise division is basically flat. (All of Intralinks’ growth in 2013 – a year in which it increased total revenue 8% to $234m – came from its M&A-related business.)

Longer term, Intralinks has indicated it expects to grow its enterprise business 25-30% per year. That seems ambitious for a company that has seen sales there flat-line for two straight years. (Some of that performance is simply a function of accounting, with revenue lagging the actual subscriptions that Intralinks sells.) But even adjusting for that and looking at billings, the growth rate for Intralinks’ enterprise business has lagged that of rival collaboration vendors. The addition of DRM technology from docTrackr into the company’s platform hits a key point for customers, particularly those in the regulated industries that Intralinks has targeted.

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