Acquisitions looming in firewall management

Scott Denne

Contact: Scott Denne Javvad Malik

Firewall management companies began to crop up a decade ago to help organizations tackle firewall sprawl, but that corner of the security market has seen few acquisitions, despite its age. Now that all the vendors in that space are expanding beyond pure firewall management, we expect a few of the five vendors here – FireMon, Skybox Security, RedSeal Networks, AlgoSec and Tufin – to take advantage of high valuations among security companies and look for an exit. While the category continues to grow modestly, none of these vendors has emerged as the clear leader, with most hovering around $25m in annual sales.

In trying to stand out from the crowd, they’ve all expanded in recent years beyond firewall management and into adjacent areas such as network risk assessment and network orchestration. As pure firewall management vendors, there was little interest in buying them: their sales came from being positioned as a neutral party with the ability to manage products from different security vendors. Getting picked up by a large security vendor could put that position in jeopardy.

Over the last 12 months, security companies have sold at a median valuation of 8.3x trailing revenue, according to the 451 M&A KnowledgeBase. Many may still be stymied, however, by a perception that they’re still primarily firewall management vendors, thereby affecting their valuation potential.

We explore this sector in depth in a report here.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Birch Communications blossoms with $323m Cbeyond acquisition

Scott Denne

Contact: Scott Denne

Birch Communications has moved out of tuck-in territory with its acquisition of Cbeyond, a network service provider that’s larger than Birch itself. Having existed in some form since 1996, Birch has grown through acquisitions, but most have been small customer or geographic expansions – nothing on the scale of its $323m purchase of Cbeyond.

The acquisition values Cbeyond at 0.7x its last 12 months revenue, and Birch expects the combined company to have about $700m in annual revenue, with Cbeyond contributing more than half the total. Prior to this deal, Birch had completed 21 acquisitions. Most of those were asset purchases, including the three deals it closed in 2013: Ernest Communications’ customers, Lightyear Network Solutions’ network and customer assets, and switching facilities in 10 states from Covista Communications.

In exchange for $323m, Birch gets a business that faces declining revenue in the face of shrinking margins and growing churn for its legacy network connectivity business. It also gets Cbeyond’s core mid-Atlantic network and the potential to expand deeper into cloud services – something Cbeyond had tried to do on its own, but the growth of that business couldn’t keep pace with the decline of its legacy offerings. Cbeyond’s annual revenue dropped 5% in 2013 to $463.4m, and it anticipated further declines, projecting 2014 revenue of $410m-430m.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

GlassHouse unloads US consulting biz

Scott Denne

Contact: Scott Denne

GlassHouse Technologies actively used acquisitions to scale up its storage-turned-cloud services business, but now it’s turning to divestitures as it scales back down. The company is selling its US consulting practice to Signature Technology Group in its fourth divestiture since taking its second shot at an IPO.

Founded in 2001 with the vision of building a vendor-agnostic storage consultancy, GlassHouse picked up 13 businesses between 2003 and 2009 for their expertise and for geographic expansion. The dealmaking helped grow the company’s top line, setting it up for a public offering; however, headwinds from the financial crisis prevented it from completing an IPO in 2009. GlassHouse tried once more in 2011 when growth picked up again and it expanded its scope from storage to cloud, but its balance sheet changed for the worse, prompting its auditor to express concern about the company’s ability to stay in business with $4m in cash and $100m debt. Once more, GlassHouse pulled its prospectus.

Since that time, GlassHouse sold subsidiaries in Israel and Turkey and divested two separate units to Signature Technology: first selling its customer support services division in November 2013, and now the US consulting practice. That leaves GlassHouse with a European consulting business, a systems integration unit and a managed services offering.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Zebra gains a lot of new stripes in $3.45bn acquisition

Scott Denne

Contact: Scott Denne

Zebra Technologies, a maker of asset-tracking technologies, has picked up Motorola Solutions’ enterprise business in a $3.45bn deal; one that’s larger than Zebra’s own market cap. The company will spend about half the cash on its balance sheet and raise $3.25bn in debt (it has none today) to complete the acquisition.

In addition to nearly tripling its sales and headcount, Zebra also gains a range of hardware products, such as mobile computing and RFID products, that will better enable it to transition into the Internet of Things. Zebra is no stranger to machine-to-machine technologies – it has consolidated several RFID assets over the last decade or so, but that category only made up about 5% of its business, which is concentrated on sales of printers and related software for printing items such as barcodes and plastic cards.

Motorola’s enterprise business brings about $2.5bn in trailing revenue to Zebra, which crested $1bn in annual sales for the first time in 2013. While Zebra will triple its revenue at a price of 1.4x trailing revenue, it’s paying a bit more than the 1x we usually see in a hardware divestment. Wall Street is skeptical about the deal so far, and is pushing its stock down 11% today.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Hexagon mining more M&A

Scott Denne

Contact: Scott Denne

Hexagon has shored up its position in the mining sector with the purchase of Mintec, a mine-planning software company. The deal is the fourth mine-focused acquisition in the last year for Hexagon, a maker of measurement, mapping and CAD software that’s picked up its pace of acquisitions lately.

The acquisition of Mintec, which we estimate has roughly $30-40m in annual revenue, comes a month after Hexagon’s reach for SAFEmine, a maker of fleet management sensors and software for the mining industry, and six months after it bought Devex, a Brazil-based maker of 3-D mine-visualization software. Over the last year, Hexagon has acquired six companies that were at least partially focused on the mining industry. Terms of the Mintec acquisition were not disclosed.

Those deals came amid a backdrop of consolidation in mining technology during the last two years. According to the 451 M&A KnowledgeBase, there have been 20 acquisitions of technology companies that serve the mining sector, worth a combined $5.58bn in disclosed value. The entire five-year period before that saw only 19 deals worth $287.7m.

Mintec is a typical deal for Hexagon, which has grown its business across several industrial markets through a combination of technology and geographic tuck-ins over the past decade. Its pace of deals slowed a bit while it digested the $2.1bn purchase of Intergraph in mid-2010. The company didn’t make a single acquisition in the year following that deal, only one in 2011, four in 2012 and then nine in 2013. Mintec is its second so far in 2014.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

IBM finds a bargain in Silverpop purchase

Brenon Daly

Contact: Brenon Daly

Fittingly enough for an acquisition to bolster its Smarter Commerce portfolio, IBM appears to have smartly picked up a bargain in its purchase of marketing automation (MA) vendor Silverpop. Big Blue didn’t release terms of the deal, but reports put the transaction value at roughly $250m-300m. Assuming that’s roughly accurate, it would value Silverpop at only about half the valuation that other significant MA providers have received in recent exits.

According to our understanding, Silverpop put up about $80m in sales last year. However, several industry sources have indicated that the Atlanta-based startup was only growing at about 10-15%. Other similar-sized MA firms are vastly outstripping that rate. For instance, Marketo boosted its top line almost 70% in 2013, and we estimate that HubSpot was right in that neighborhood, too. More broadly, a recent report from 451 Research’s MarketMonitor service forecasted 22% CAGR for the overall MA industry over the next four years.

Silverpop’s sluggish growth would appear to have put pressure on its valuation, with IBM paying 3-4x trailing sales for the company. Meanwhile, rivals such as Oracle, Adobe and salesforce.com have paid multiples ranging from roughly 6-10x trailing sales. Overall, the shopping spree has topped $7bn in spending for MA vendors.

Select marketing automation deals

Date announced Acquirer Target Price to sales ratio Deal value
December 20, 2013 Oracle Responsys 7.7x $1.6bn
June 27, 2013 Adobe Systems Neolane 8.6x* $600m
June 4, 2013 salesforce.com ExactTarget 7.6x $2.5bn
December 20, 2012 Oracle Eloqua 9.7x $956m
April 27, 2012 Intuit Demandforce 11.4x* $423.5m
December 22, 2010 Teradata Aprimo 6.3x $525m
August 13, 2010 IBM Unica 4.4x $523m

Source: The 451 M&A KnowledgeBase *451 Research estimate

Trust-busters push BazaarVoice to unplug PowerReviews

Brenon Daly

Contact: Brenon Daly

As industry consolidation goes, Bazaarvoice’s mid-2012 purchase of rival PowerReviews was definitely a small-scale move. The deal only added a little more than $10m – or a boost of about 10% – to the top line at Bazaarvoice, a consumer reviews site that had just gone public at the start of 2012. And while the two startups regularly beat up on each other, they were arguably facing much more formidable competition from rating-and-review offerings that were often baked into the websites of many of the largest and most-active online retailers.

In other words, there was little to suggest that the proposed $152m cash-and-equity transaction would even register any antitrust attention, much less any trustbusting. And yet, on Tuesday afternoon, Bazaarvoice bowed under the pressure of a lawsuit brought a year ago by the US Department of Justice and essentially unwound that acquisition. Bazaarvoice plans to divest PowerReviews to small Chicago-based vendor Viewpoints Network.

Viewpoints has raised just $5m in funding since its founding in 2006 and told us that it won’t need to raise more to cover the purchase of PowerReviews. That suggests Bazaarvoice is recouping only a fraction of the $152m that it paid for PowerReviews two years ago. Viewpoints currently has 20 employees and, post-acquisition, will have about three times that number. Further, it will substantially boost its revenue when it buys PowerReviews, which we estimate is running at about $10m in revenue.

Of course, that assumes the planned acquisition goes through. (Expectations are that the deal will close before the end of July.) At this point, only a letter of intent has been signed between the parties. It still needs to be finalized, and then regulators have to approve the latest purchase of PowerReviews. As we have seen, regulatory clearance is not always a given.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA

MobileIron forges on toward IPO

Scott Denne

Contact: Scott Denne

Mobile device management (MDM) vendor MobileIron unveiled its S-1 this week, posting strong revenue growth as it inches toward becoming a profitable business. Our surveys indicate that there’s more to come: MobileIron is on the cusp of pulling ahead in a market where spending shows few signs of slowing.

The company finished 2013 with $105.6m in revenue, up from $40.8m in 2012. And it isn’t having a hard time managing that growth. MobileIron’s operational costs are growing at a slower rate than revenue and while it is still far from profitable, its losses shrank to $32.5m last year from $46.5m in 2012. Although its revenue growth is decelerating as it scales, it’s still growing fast: in the most recent quarter, revenue doubled year over year to $28m.

Surveys by TheInfoPro, a service of 451 Research, indicate that there’s plenty of blue sky left for the MDM market and MobileIron. In a survey of IT pros last year, 46% expected to spend more on MDM in 2014 than in 2013, up from 41% a year earlier. In those surveys, MobileIron was the second-most-implemented MDM provider (Good Technology was the first, with AirWatch in third and BlackBerry a distant fourth), and was in more planned deployments and trials than any other vendor.

 

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

GTCR gets into marketing software with Vocus buy

Scott Denne

Contact: Scott Denne

GTCR jumps into the pricey marketing software industry with a value play. The private equity firm will pay $446.5m in a take-private of Vocus, a public relations and marketing software provider. The deal gives Vocus an enterprise value of $413m, or 2.2x its last 12 months revenue, well below where others in this space have traded hands lately.

At 2.2x, the acquisition is the second-lowest multiple we’ve seen for a marketing software company in the past 24 months. According to The 451 M&A KnowledgeBase , the median multiple for marketing software deals in that period is 7.7x, reflecting the double-digit growth and promising prospects of many vendors in the marketing space. Vocus, on the other hand, has had little growth and doesn’t expect that to change this year.

The company has struggled to grow since it launched a suite of marketing products and acquired email marketing vendor iContact in early 2012. The market reacted negatively to that transaction, pushing its stock price below $20 per share, where it has remained as Vocus has been unable to leverage that deal to grow its business. (GTCR will pay $18 per share; Vocus closed at $12.18 before the deal was announced.)

Vocus finished 2013 with $186.9m in revenue, only $6.5m more than the combined revenue of iContact and Vocus for 2012 and well below the $200m it initially projected for the year – projections that were regularly adjusted down to reflect weaker than expected performance for both its PR and marketing software. For 2014, the company anticipates revenue to shrink by about $4m amid declining sales of iContact and some of its other point products, as well as a flatlining of its PR software business.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

A tale of two IPO markets

Brenon Daly

Contact: Brenon Daly

It’s not quite the clichéd ‘best of times, worst of times’ in the tech IPO market right now, but there’s a clear split in fortunes for companies coming to market. Whimsical consumer technology firms are back in favor, while the more serious enterprise-focused tech vendors are struggling to find buyers for their equity. That was shown in sharp relief in the divergent receptions of two tech companies – one from each of the broad sectors – that debuted Friday morning.

Representing enterprise tech vendors, we have Five9. On paper, the call-center software provider would appear to have a bullish profile for Wall Street: a pure SaaS delivery model, solid growth (30%+ in 2013) and a big opportunity in front of it (the company sizes its existing market at some $22bn). And how did that go over with investors? Well, Five9 had to take a sharp discount to even get public. It had planned to sell its shares at $9-11, but instead priced at just $7 and closed Friday at $7.52.

While Five9 was discounting its offering, the IPO from its consumer counterpart, GrubHub, was headed very much in the opposite direction. The online takeout ordering service sold more shares than originally planned at a higher price than originally planned. After pricing its offering at an above-range $26 per share, it closed at $34 on the NYSE.

The discrepancy in valuation between the enterprise and consumer companies is even more startling. Wall Street says Five9, which has roughly 48 million (undiluted) shares outstanding, is worth about $360m. That works out to about 4.3x 2013 revenue of $84m. On the other hand, GrubHub is valued at some $2.7bn, or nearly 20x 2013 revenue.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.