Hop aboard the Nimble spaceship

Scott Denne

Contact: Scott Denne

From basically a standing start just two years ago, Nimble Storage is on track to put up an astonishing $100m in sales this year. That’s a faster growth rate than we’ve seen at any of the other storage companies that have come public in recent years. The hybrid flash storage vendor recorded $50m in revenue in the first half of 2013 – almost as much as it did in all of 2012.

Nimble also claimed the title of fastest-growing storage company in at least a decade, growing faster than even Data Domain did in its early days – as have several of the latest generation of storage startups, such as Pure Storage and Nutanix. Thanks to the filing, we know that the crown belongs to Nimble, at least for now. Revenue for the year ending January 31, 2013, its third year of sales, nearly tripled to $54m, and was ahead of the $46m Data Domain posted during its third year.

Storage companies’ annual revenue leading to IPO

Company Year 1 Year 2 Year 3
Nimble Storage $2m $14m $51m
3PAR $24m $38m $66m
Data Domain $1m $8m $46m
EqualLogic $10m $30m $68m
Isilon $1m $8m $21m

Oracle deal shows hoosiers own marketing software

Scott Denne

Contact: Scott Denne

Oracle’s purchase of Compendium cements Indianapolis’ transformation into the go-to spot for marketing software deals. This makes six acquisitions of marketing tech companies in that city, which have collectively been valued at more than $3bn.

Earlier this year, salesforce.com spent $2.5bn to acquire ExactTarget, and two years ago Teradata paid $525m for Aprimo. Both those companies were founded more than 10 years ago and helped bring – and train – marketing software talent to the area. Given the shift in marketing software from a niche to a strategic pillar at many major software companies – such as Oracle, which has bought five such companies in the last 18 months – there’s room for more local marketing companies to benefit.

ExactTarget birthed many of these businesses. Chris Baggott, one of the founders of ExactTarget, was a founder of Compendium. Other marketing tech startups in the region, such as Right On Interactive, Marketpath and Smarter Remarketer, also have founders that spent time at ExactTarget.

Recent marketing tech deals with Indy targets

Date Target Acquirer Deal Value
October 17, 2013 Compendium Oracle not disclosed
June 04, 2013 ExactTarget salesforce.com $2.5bn
October 11, 2012 iGoDigital ExactTarget $21m
June 07, 2011 Vontoo One Call Now not disclosed
December 22, 2010 Aprimo Teradata $525m

Source: The 451 M&A KnowledgeBase

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In one acquisition, out the other

Scott Denne

Contact: Ben Kolada

The acquisition and reacquisition of MarketTools and its assets continued last week in what has been the most labyrinthine dealmaking we can recall. Since 2008, the survey creation SaaS vendor and its core assets have been through more than a half-dozen acquisitions, and there’s likely one more to go.

Founded in 1997, MarketTools made its first acquisition on record (we’ve been recording M&A since 2002) in 2008, when it bought customer and employee feedback management SaaS provider CustomerSat.

After that, however, the company began a long unwind. In December 2011, MarketTools was acquired by TPG Growth and simultaneously sold its Zoomerang, ZoomPanel and TrueSample assets to SurveyMonkey. Shortly thereafter, TPG unloaded MarketTools in July 2012 to MetrixLab, which then sold MarketTools’ CustomerSat assets to Confirmit. MetrixLab kept MarketTools alive, using the business to purchase RawData in July 2013.

The MarketTools assets sold to SurveyMonkey didn’t stay in one place for too long. Last month, SurveyMonkey sold ZoomPanel to Critical Mix, and last week it sold TrueSample to Five Peaks Capital Management.

Still with us? If you are, you’ll notice there is one legacy MarketTools asset that hasn’t yet found a third home: Zoomerang. If history is any precedent for the future, Zoomerang will likely be sold again soon enough.

Which way did they go?

Date announced Event
October 9, 2013 TrueSample, now owned by SurveyMonkey, is sold to Five Peaks Capital
September 12, 2013 ZoomPanel, now owned by SurveyMonkey, is sold to Critical Mix
July 25, 2013 MarketTools, now owned by MetrixLab, acquires RawData
August 22, 2012 MarketTools, now owned by MetrixLab, sells CustomerSat to Confirmit
July 9, 2012 TPG Growth sells MarketTools to MetrixLab
December 14, 2011 MarketTools acquired by TPG Growth, simultaneously sells Zoomerang, ZoomPanel and TrueSample assets to SurveyMonkey
April 3, 2008 MarketTools acquires CustomerSat

Source: The 451 M&A KnowledgeBase

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VMware dials up Desktone

Scott Denne

Contact: Scott Denne

VMware picks up desktops-as-a-service company Desktone as the virtualization pioneer faces a slowdown in its core business. As we noted earlier, VMware’s software licenses grew by only $20m through the first half of the year, well below the $200m pace it set for itself for 2013, and this deal indicates that it’s looking toward services to partially offset that lost growth.

While VMware’s last few deals have been aimed at extending its core infrastructure technologies into related areas such as networking, storage and systems management, the acquisition of Desktone, along with the release of vCloud Hybrid Service earlier this year, show VMware emphasizing its ambitions to be a cloud services vendor, not just a cloud tools provider.

Desktone was funded with $29m in venture capital across two rounds, with the most recent coming it 2010. That same year the company brought in a new CEO, Peter McKay, and changed its business model to offering the virtual desktop service directly to customers – going from a business with almost zero sales to one that now has about 150 direct and service-provider customers and anticipates hitting profitability this year. (We’ll have a more detailed report on this transaction in our next 451 Market Insight.)

Our own estimates of the virtual desktop market put it at $3.8bn this year and growing at 21.9% annually. By our own back-of-the-envelope calculations, Desktone will likely account for roughly $10-$14m of that market this year.

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Perficient doubles down on salesforce.com expertise

Scott Denne

Contact: Scott Denne

Perficient reaches for salesforce.com expertise for the second time in as many deals with the $21.5m purchase of CoreMatrix Systems. In addition to having a similar rationale as its last purchase, the transaction matches the typical profile of Perficient acquisitions.

CoreMatrix provides consulting on and implementation of cloud software, with a focus on software from salesforce.com. This is similar to Clear Task, which Perficient bought in May for $7.9m in a deal that valued the target at roughly 1x trailing 12-month revenue, the median multiple for Perficient’s acquisitions. The acquirer values CoreMatrix, with about $15m in annual sales, slightly above that level. Both transactions came with an earnout that could add about 50% to the deal value – $10m more for CoreMatrix and up to $3.7m more for Clear Task.

As we noted when we covered Perficient’s last salesforce.com-related acquisition , CRM made up only 6% of the company’s revenue in 2012 and because that category of software continues to attract budget, it’s no surprise that Perficient is angling for a bigger piece of that market. In a survey in July, 17% of IT managers were planning to increase their spending on CRM in the coming quarter, making it one of the few categories of IT where more respondents expected spending to go up, according to ChangeWave Research, a service of 451 Research.

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Pegasystems tunes into mobile apps with Antenna buy

Scott Denne

Contact: Scott Denne Carl Lehmann

Pegasystems has scooped up Antenna Software, a mobile application development vendor that has struggled to compete with the plethora of free and cheap tools for building mobile apps. Launched 15 years ago, Antenna provides software for building, running and managing mobile apps. The business model was to sell the development tools and provide runtime services for free. As the mobile app economy exploded, the company found it increasingly difficult to sell proprietary tools to developers. We estimate that Antenna had less than $40m in sales last year, slightly down from a year earlier.

The deal provides Pegasystems with native mobile development capabilities and several new features, including an enterprise app store and device management. That enables Pegasystems to expand its market to mobile-first customers and gives it a better framework to expand its existing customers into mobile. We view this as an opportunistic acquisition by Pegasystems, which has now only done three deals in the past decade even as its core BPM sector has seen a lot of M&A – both for consolidation and into adjacent markets.

Morgan Stanley advised Antenna and Bridge Street Advisors banked Pegasystems. Incidentally, those same banks played the same roles in Pegasystems’ last deal, its $162m acquisition of CRM vendor Chordiant in March 2010. In that purchase, Pegasystems paid slightly more than 2x trailing sales. (That’s based on equity value for Chordiant, which had slightly more than $50m of net cash.) Although Pegasystems didn’t release terms of its Antenna buy, we would estimate the multiple in the same sort of range as Chordiant’s valuation.

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Vonage dials up a discount in $130m purchase of Vocalocity

Scott Denne

Contact: Scott Denne

Vonage picks up Vocalocity for $130m in a sizeable and relatively safe bet to turn around a declining business. It’s a big bite for Vonage, which will be borrowing heavily to fund the deal. But at least Vonage is getting a discount on its purchase of the business VoIP provider: Vocalocity is valued at less than half the level of its competitors on the public markets.

Vocalocity posted $28m in revenue for the first half of the year, up 39% from the same period a year ago. While that growth is faster (due partially to starting at a smaller base) than its larger public rivals 8×8 and RingCentral, its valuation is lower. According to our quick math, Vonage is valuing Vocalocity at just about 2.5x trailing 12-month sales. Meanwhile, RingCentral currently boasts a 7.7x trailing sales valuation, while 8×8 pencils in at 6.7x.

To cover its largest acquisition, Vonage is paying $105m in cash ($30m from its treasury and drawing $75m from its revolver), along with $25m in stock. Even though the new paper dilutes existing shareholders, Wall Street backed the purchase. Vonage’s long-suffering shares jumped 15% on the deal, hitting their highest level in more than two years.

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Amid federal shutdown, CACI spends $820m on defense consulting firm Six3

Scott Denne

Contact: Scott Denne

The federal shutdown and looming debt-ceiling battle isn’t slowing down CACI International’s appetite for M&A. The government contractor and frequent acquirer is paying $820m, its largest purchase, for tech-enabled security and signal intelligence services vendor Six3 Systems.

A major selling point for Six3 was its expertise in cybersecurity, which currently accounts for about one-fifth of its $437m trailing sales. Its top-line growth certainly helped as well. The company, which was backed by private equity firm GTCR, experienced a 19% compound annual growth rate over the past five years.

The transaction brings CACI new technology capabilities that significantly expand its addressable market. That, and the fact that Six3 will tack on at least 5% to its earnings next year, made CACI willing to dig deep for this one. The deal value is almost twice the $415m that CACI paid for its second-largest acquisition, the purchase of American Management Systems’ defense group in 2004, and nearly 20x the size of its median acquisition price over the past decade-plus.

Further emphasizing Six3’s value, CACI is paying more than double the valuation that the typical IT services shop receives. The deal values Six3 at 1.9x trailing sales. CACI itself currently sports an enterprise valuation of just under half-times sales. Bank of America Merrill Lynch advised CACI, while Goldman Sachs and J.P. Morgan Securities teamed up on the sell side.

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Wall Street skeptical of SolarWinds’ hot air

Scott Denne

Contact: Scott Denne Ben Kolada

A few rocky quarters aren’t going to get in the way of SolarWinds’ dealmaking as the network monitoring company pays $103m in cash for Confio in its second-largest deal to date. The timing is particularly noteworthy, given that SolarWinds issued revenue guidance below analysts’ expectations in each of the last two quarters and experienced blowback following its last acquisition.

SolarWinds’ stock is down 41% since the first of those two guidance announcements. Yesterday’s deal announcement sent it down another 3% as of midday. That’s better than the reaction it got from its last deal – the $120m purchase of N-able in May that chopped 12%, some $400m, from the company’s market value. (To be fair, the reception for N-able was due in part to the target operating a different business model in a different market than SolarWinds.)

However, analysts were comforted somewhat yesterday, as SolarWinds’ management hinted at a return to smaller tuck-ins rather than big ticket M&A. Excluding Confio and N-Able, SolarWinds’ median M&A deal size is $21.5m.

SolarWinds is valuing Confio at 6.9x last year’s booked revenue (we’ll have a longer report on the rationale for this deal in our next Daily 451). However, the valuation for its actual trailing revenue is a smidgen higher. (Click here to see our estimate of Confio’s trailing sales.) ArchPoint Partners advised SolarWinds on its sale.

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Time Warner and Zayo light up this year’s fiber optics M&A

Scott Denne

Contact: Scott Denne Michael Levy

Two acquisitions announced today – Time Warner Cable’s $600m cash purchase of DukeNet Communications and Zayo Group’s pickup of FiberLink – put 2013 on pace to be the most-active year for fiber-optic network deals by volume. There have been 10 transactions in North America so far this year, which already matches the two highest-volume years on record.

After a lull in fiber optics M&A after the dot-com bubble, each of the last three years have logged at least eight acquisitions in this market. The uptick comes from telcos’ desire for more fiber connections to datacenters, colocation facilities and cellular networks as consumer traffic, such as streaming video, is making up a larger and growing portion of the Internet.

Despite the rise in activity this year, the total amount spent on such deals – $912m so far in 2013 – is down from last year when $2.21bn had been spent by this point, with almost all of it coming from Zayo’s $2.2bn purchase of AboveNet. The difference in price reflects that most of the largest assets in the North American fiber market have already been scooped up, with only regional providers like Cross River Fiber and Fibertech Networks remaining. For that reason, we don’t expect too many more large transactions in this space and anticipate the overall pace of deals to begin ticking downward.

Fiber-optic network acquisitions

Year Deals Total value
2013 (YTD) 10 $912m
2012 10 $4.35bn
2011 8 $353m
2010 10 $199m
2009 2 $96m
2008 7 $141m

Source: The 451 M&A KnowledgeBase

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