Deal Focus: Twitter Acquires Dasient

January 27, 2012

Twitter announced this week that it acquired Dasient, an Internet security start-up focusing on anti-malware for large enterprises in the financial services, media, and online sectors. Dasient’s scanning software helps businesses identify and contain malware on the Web and is touted as an anti-malvertising service, which claims to protect advertising networks and publishers from malware. Deal value was not disclosed.

We wrote last summer about the increased focus on social media security and venture investments in the space. Since then, there have been four acquisitions of social media security vendors (including Dasient): Whisper Systems/Twitter, Unsubscribe.com/TrustedID and Garlik/Experian. These deals represent the first M&A activity Signal Hill has tracked in the area.

Dasient’s acquisition will allow Twitter to provide anti-malware technology to its ever-growing, real-time information network. Dasient’s technology will become part of Twitter’s revenue engineering team, which suggests its will most likely be used to identify malicious ads submitted through the company’s self-serve ad platform, Twitter’s latest attempt at increasing monetization. Three-year-old Dasient, which was founded by ex-Googlers, had raised $2 million in investments from Google Ventures, Floodgate and Radar Partners.

Twitter has had a number of issues over the years with scams and spam, and recently fell victim to a number of high-profile account hacks, including Fox News and Lady Gaga, and has been bulking up on its security offerings. In November, Twitter also acquired Whisper Systems, a provider of enterprise-grade security on Android devices. Its products included WhisperCore, a system which integrates with the underlying Android OS to protect everything on the phone, as well as TextSecure, which allows for secure texting by storing them in an encrypted database on your phone and the ability for encryption during transmission.

With the Dasient acquisition leading the way, we expect social security deal activity will accelerate this year as more social media leaders grow and ultimately decide to go public.

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Signal Hill Publishes IT Services Sector Update: 2011-2012

January 24, 2012

Signal Hill is pleased to announce it has published its IT Services Sector Update: 2011-2012.

The IT services sector finished 2011 with just under 600 M&A transactions — an impressive level of deal activity in light of a softer-than-expected economic recovery and tremendous volatility in the equity markets. Even as market confidence began to waver again in Q2 2011, the IT services sector bucked the trend and delivered a steady increase in deal making on a quarter-over-quarter basis. Both Q2 and Q3 boasted more than 160 announced IT services transactions, more than any other quarter tracked by Signal Hill in the last five years.

This report explores the state of the IT services M&A market, recent M&A trends, the top deals of 2011 and an outlook for 2012. It also takes a deeper dive into IT services sub-sectors including Outsourcing, Consulting, Systems Integration, IT Staffing, Offshore Outsourcing and Government Services.

To access a PDF of the report, please click here. To view all of Signal Hill’s M&A Sector Insight reports, visit www.signalhill.com.

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Signal Hill Publishes Enterprise Application Software & SaaS Overview

January 23, 2012

Signal Hill is pleased to announce it has published its Enterprise Application Software & SaaS Overview for January 2012. In it you will find  information such as sector stock performance, valuations and trading multiples, M&A activity data and subsector breakdowns.

To download a PDF of the Enterprise Application Software & SaaS Overview, please click here.

For access to all of Signal Hill’s M&A Sector Insight publications, please visit www.signalhill.com.

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Israel IT M&A Activity Steadily Rising

January 20, 2012

Israel is increasingly becoming a hot bed of IT M&A activity. Already this year, Apple officially announced it made its first acquisition in the country – flash memory developer Anobit. Acquisitions of Israeli IT companies have increased substantially every year since 2009, with 2011 boasting 23 transactions valued at over $930 million, according to Signal Hill data (not including semiconductor transactions).

The largest acquisitions of Israel-based companies in 2011 included Intel’s acquisition of Telmap for $325 million and 9.8x revenue; Citi Venture Capital’s $341 million acquisition of Ness Technologies; and VMware’s $100 million acquisition of Shavlik Technologies. These transactions are spread across the gamut of IT sectors as well – which means the country provides an opportunity for nearly every company looking to expand.

IT M&A Transactions with Israel-based Targets

israel IT M&A deals

M&A in Israeli IT dates back to the late 1990’s, when AOL paid $407 million to acquire instant messaging computer program ICQ (which was later acquired by DST in 2010 for $187.5 million). AOL came back to the country nearly 10 years later in 2007 to acquire Google AdWords competitor Quigo for $300 million – which at the time was expected to open the door for acquisitions in the country. Since then, M&A in the IT sector has taken off.

Apple’s latest purchase is not only a big deal because it is the company’s first foray into the country – but it highlights venture firm Pitango, which backed Anobit. Pitango is actually one of the few Israeli private equity firms to spread to U.S. – it has an established Silicon Valley office and regularly invests in U.S. companies. Signal Hill has been active with Israel-based companies as well: last year, Signal Hill security client iJet was acquired by 3iMind, which has a significant presence in Israel, while earlier this year, we announced a strategic investment in risk management solutions provider EXZAC by Israel-based Matrix.

Israel, with a population of 7.7 million, has about 60 companies traded on the NASDAQ, the most of any nation outside North America after China, according to Bloomberg. Israel is also home to the largest number of startups per capita in the world. Many big U.S. private equity and venture firms have set up shop in Israel, including Apax Partners, Landmark Ventures and Bessemer Venture, while large IT firms such as Intel, HP and Microsoft all have established operations in the country as well. The Israeli economy is relatively strong with A+ credit rating, which was upgraded in September, making investments in the area an easy choice. The Israeli tech community is also building ties to Europe and India more, not just the U.S. which means robust M&A activity will no doubt continue well over the next several years.

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Deal Focus: Apples Acquires Anobit for $390 million

January 20, 2012

Apple confirmed this week that it acquired flash-memory and storage provider Anobit for a rumored $390 million. Israeli-based Anobit uses proprietary signal-processing algorithms to improve the performance of flash-memory chips. In addition to flash memory, the company also sells enterprise storage solutions. The company had raised $76 million from investors, including Battery Ventures and Pitango Venture Capital.

The acquisition, Apple’s first in Israel, is a prime example of the company vertically integrating. Apple now owns a supplier of a key component for its top-selling devices, as Anobit’s flash memory technology is used in iPhones and iPads. Apple is the largest buyer of flash memory in the world and Anobit will now provide in-house chip procurement for the company, significantly reducing costs going forward. It also throws a wrench into the procurement process of one of Apple’s fastest growing competitors in the smartphone market – Samsung. Anobit has been a main supplier to Samsung and as a result of the acquisition may stop supplying chips to the company, which would strengthen Apple’s position in the smartphone market.

The rumored acquisition price of Anobit makes it Apple’s second largest acquisition to date – behind only its 1996 $404 million acquisition of NeXT, a computer company that developed and manufactured a series of computer workstations intended for the higher education and business markets. More recently, Apple paid big for its acquisition of PA Semi in 2008 ($278 million) and Quattro Wireless in 2010 ($275 million). Anobit is also only Apple’s third hardware acquisition in its history (P.A. Semi in 2008 and Intrinsity in 2010 for $278 million and $121 million, respectively).

Apple’s acquisition of Anobit is not a big surprise to industry analysts, who noted that flash controller acquisitions have been a trend recently. Last year, solid-state-drive-maker OCZ Technology Group agreed to acquire privately-held Indilinx, a maker of popular NAND flash controllers for $32 million, while fabless semiconductor maker LSI Corp. announced it would acquire flash controller maker SandForce. Apple isn’t necessarily one to follow trends, however. With Apple’s new CEO Tim Cook serious about not hoarding cash, and with $8 billion already on the books, we may start to see a number of bigger, trend-setting acquisitions by the company over the next year.

– Jane Santini, Associate

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Investors Soured on Internet IPOs in 2011, But 2012 Shows Promise

January 18, 2012

Global internet IPO activity saw roller-coast style volatility in 2011. The first half of the year seemed to herald a stellar year for public offerings. With 76 total IPOs completed in the U.S. in the first half of 2011, the markets were on track to at least match 2010 (154 IPOs). However, macro fears and the European debt crisis backdrop impacted investor sentiment, sending stocks and the IPO market on a volatile ride through the second half of the year. Ultimately, 2011 ended with 125 U.S. total IPOs that raised $36.3 billion, compared to 154 IPOs in 2010, which raised $38.7 billion. Though not the growth many expected, a roughly flat year dollar-wise despite macro headwinds is encouraging.

LinkedIn (LNKD) was one of a number of promising sector IPOs in 2011. The company went public in May with a $4.3 billion valuation at $45 a share, significantly higher than the estimated $32 to $35 range. The stock spiked to $120 on the first day of trading before settling down to $105 (LNKD is trading at $70.30 as of 1/13/2012). Groupon (GRPN), Pandora (P) and Angie’s List (ANGI) followed. In total, 24 internet stocks went public in 2011.

Selected 2011 U.S. Internet IPOs
Selected 2011 Internet IPOs

So far the equity markets have started 2012 off strongly, with the S&P 500 up nearly 5% year-to-date.  Anticipated IPOs for 2012 include file-sharing site Dropbox, digital-music service Spotify and luxury discounter Gilt Groupe. The most highly anticipated IPO of 2012 will be Facebook, which is targeting a time frame of April to June. The company is looking to raise up to $10 billion at a valuation of close to $100 billion. Facebook is expected to go public with over $4 billion in revenue, which would value the company at close to 25x revenue. With an already full pipeline of 15 web-related companies currently filed, 2012 is slated to be an exciting year for Internet and digital media companies.

-Edward J. Nie, Financial Analyst

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Constant Connectedness Drives M&A of Digital Agencies

January 9, 2012

The instant and constant connectivity offered by our mobile wares enables individuals to consume, interact and engage with the Internet at a moment’s notice. Thanks to high-speed connectivity and accessibility, we can connect to any given website and engage with products and services one-on-one. The ability to connect is a phenomenon the IT world began to witness in the late 90’s as the internet and web companies opened new doors for corporations — and now connectedness is coming into the next new phase. Today’s internet experience is intimate; its one that can’t easily be replicated in any other medium. This is where branding meets enterprise computing – both internally and externally. Corporations, now more than ever, need to interact and engage with their customers in order to remain relevant in a constantly changing, increasingly social world – and many of them need outside help. For this reason, the digital agencies catering to these technologies are being acquired one after another.

M&A activity for digital agency deals witnessed significant increases in 2011, mirroring the growth occurring in overall deal activity for the information technology industry. (Stay tuned for a Signal Hill’s Q4 2011 year-end reports, detailing metrics and other relevant deal information.)

Deal Totals & Enterprise Value Metrics for Digital Agencies, 2010-2011
digital agencies deal totals 2010-2011

As seen above, the total number of digital agency transactions increased to 67 in 2011, representing a 63% jump compared to 2010. Even more remarkable, median revenue multiples for the subsector increased 21% to 1.7x during the same period. This number represents a healthy premium compared to typical Services multiples of 1.0x, and demonstrates the niche value digital agencies bring to the IT Services sector. Enterprise value (EV) totals for 2010/2011 reflect a similar trend: in 2011, digital agency deals totaled approximately $1.2 billion, a 48% increase in total enterprise value year-over-year, while median enterprise value increased to $43 million, a whopping 143% rise.

Over the past year alone, digital consulting firms such as Dentsu, WPP plc, and Publicis Groupe have collectively made 14 acquisitions in the space. Moreover, even traditional services companies, such as Deloitte, are expanding and gaining expertise while diversifying their consulting offerings. Most recently, Deloitte acquired Übermind, a company that designs and develops mobile phone applications, as well as provides mobile strategy consulting services.

This robust digital agency M&A growth can be attributed to a number of things, including the upswing in the global economy and the cash stockpiles companies have been hoarding, not to mention the pace with which cloud deployment is taking off. Last May, Publicis acquired Rosetta Marketing Group for $575 million (2.6x TTM revenue). The deal provided Rosetta, an interactive and digital agency with consulting and strategic services offerings, with not only a new, enviable revenue stream (it expects 35% of revenues from digital sources in the next three years), but a compelling opportunity to transform into an agency for the future, with stronger capabilities in digital, technology, marketing and consulting in digital services. Just last month, ICF International paid $100 million (1.8x TTM revenue) to acquire Ironworks Consulting, a Signal Hill client. Similar to Publicis, Ironworks provided ICF with enhanced breadth and depth of service offerings in implementation, interactive media and portal content management, and social & mobile media and a rapidly growing revenue stream (≈15% growth projected in 2012), ultimately creating a leading, end-to-end digital/interactive firm.

Companies are increasingly looking at the cloud for viable and cost-effective solutions and as such, need experts / consultants to design, develop and build large-scale systems (portals, interactive, mobile, social and marketing technologies) that link into existing enterprise processes and systems. The diverse and differentiated offerings available in the cloud require enterprises to hire experts or utilize consultants to ensure things run smoothly. Digital agencies today need to cater not only to the traditional world of integrating large front-/back-end systems, but also to the growing interconnectedness of social media and mobile platforms. We expect all of these factors will continue to drive M&A in this area, as growth in the cloud, social and mobile show no signs of slowing.

– Ahmed Mirza, Financial Analyst

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Deal Focus: IBM To Acquire Green Hat

January 4, 2012

IBM is back to its usual acquisitive pace, with the announcement it plans to acquire application testing software maker Green Hat. The purchase marks IBM’s first acquisition of 2012 and sixth acquisition since October. Privately-held Green Hat makes technology that allows developers to test their product in the cloud, rather than setting up an actual testing lab of hardware and software. Terms of the acquisition were not disclosed.

We wrote about the shift of application testing to the cloud last summer and noted IDC expects global testing services spend to grow to more than $19 billion by 2015 — so it is no surprise that IBM is taking advantage of the market’s growth opportunities. Green Hat’s software creates a virtual environment for software testing that simulates a wide range of IT infrastructure elements, without the constraints of hardware or software services. Green Hat will join IBM’s Rational Software business, and will offer users greater efficiencies when combined with its Rational Solution for Collaborative Lifecycle Management. It will also be offered through IBM Global Business Services’ Application Management Services (AMS).

The typical benefits of a cloud solution apply here — by using Green Hat’s solutions, a virtual test environment can be set up in a matter of minutes versus the weeks it generally takes for traditional set ups, and for a fraction of the cost. The acquisition extends IBM’s offerings for business agility and software quality, ultimately changing the way enterprises manage software development cost, test cycle time and risk.

While IBM’s acquisition pace petered off at the end of 2010 and beginning of 2011 (ironically, a particularly active period for the M&A market), the company managed to eek out eight acquisitions for all of 2011, totaling approximately $2.4 billion. It paid healthy sums and multiples for a number of these companies including DemandTec ($438.5 million; 5.0x revenue); Q1 Labs ($575.0 million; 8.8x revenue) and i2 Inc. ($500 milion; 5.9x revenue). Chances are IBM will resume its regular appetite for acquisitions in 2012: the company has said it plans to spend $20 billion on acquisitions by 2015.

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Year-End Data Shows Big Increases in 2011 IT M&A

January 3, 2012

Preliminary year-end data for M&A across IT shows significant growth over the last several years. Despite turbulent public equity market conditions, IT M&A deal volume increased more than 30% year-over-year, according to Signal Hill data. The number of announced deals reached a new high again this year, while total announced enterprise value increased to its highest point since 2007.

Growth in the median revenue multiple, which jumped well above 2.0x, truly shows just how far the market has come. The multiple is at its highest point in the past five years and indicates buyer confidence in paying honest sums for healthy, growing companies. Some of the largest multiples of the past several years came from cloud-related acquisitions in 2011: Verizon’s acquisition of CloudSwitch (80.0x) as well as Citrix System’s acquisition of Cloud.com (37.5x).

IT M&A Deal Metrics, 2007-2011
2011 IT M&A metrics

While median deal size is the only metric to have declined during 2011 – dipping to $45.5 million from $55.5 million in 2010 – the four largest transactions since 2009 were announced in 2011, as well as the largest SaaS acquisition ever (SuccessFactor’s $3.3 billion acquisition by SAP). This reflects not a decline in deal size or the quality of deals but the sheer number of transactions that are taking place. Deal volume for 2011 nearly doubled totals announced in 2007 and 2009 and grew more than 120% compared to the 2008 doldrums. The fact that more deals are being done than ever is a sign of the continually strengthening market.

Largest IT M&A Revenue Multiples, 2011

Stay tuned for our upcoming Q4 2011 sector updates for more detailed information on what is happening across Signal Hill’s various domains.

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Deal Focus: SAP acquires SuccessFactors

December 7, 2011

SAP announced this week its American subsidiary will acquire SuccessFactors, a SaaS human capital management provider, in a major play to become relevant in the ever-expanding cloud computing space. SuccessFactors, which will remain an independently run unit, provides software which is used by firms to review employee performance. It has more than 3,500 customers and a total of 15 million paying users and expects its 2011 revenue to jump by about 59%.

SAP is paying an enterprise value of $3.3 billion for the company, a massive 11.4x trailing revenue and 7.9x forward revenue, making it one of the most highly valued enterprise software transactions of the year. It trails only HP’s acquisition of Autonomy for 11.7x revenue (EV $10.9 billion and 8.7x forward revenue), and is the largest SaaS-related acquisition ever tracked by Signal Hill. At $40 per share, SAP is paying a 66.7% premium over the 30-day trading price.

The acquisition is a major move for SAP into web-based software. Forrester estimates the cloud computing market, including SaaS products, will grow from $40.7 billion in 2011 to more than $241 billion in 2020. While SAP has been marketing its own Business ByDesign suite of SaaS products over the past several years, it has struggled to make the product a gamer changer in the SME space. The SuccessFactors acquisition will help propel the company into the midst of the cloud revolution and keeps it in direct competition with rivals such as Oracle, which purchased SaaS CRM provider RightNow Technologies for $1.5 billion EV and 7.1x trailing revenue (5.7x forward revenue) in October.

SuccessFactors is SAP’s fourth acquisition this year and seventh since the beginning of 2010, among transactions spanning security, systems integration, mobile technology and GRC. Most recently, SAP acquired Crossgate AG, a provider of EDI SaaS for use in SCM applications integrating with SAP ERP, in September for an undisclosed price. SuccessFactors announced its own acquisition this week as well; it is paying $110 million for Jobs2web, a recruiting marketing platform, which will complement existing recruiting solutions to create a comprehensive Recruiting Execution Platform as part of the SuccessFactors Business Execution Suite (BizX).

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