PE Buyers in IT Remain Strong Despite Overall Market

March 26, 2012

A WSJ Deal Journal article recently noted that buyouts by PE firms have dipped so far in 2012 they are on pace to make up barely 40% of the deal values witnessed in 2011 and 2010. For the information technology sector, however, Signal Hill’s data shows that private equity buyers have contributed the highest total enterprise value for a Q1 period since before the recession.  And that’s with one week of the quarter left to go.

Year-to-date in 2012, PE buyers closed 15 transactions – flat compared to 2011 and well above the seven deals announced in Q1 2009. These 15 most recent transactions account for nearly $4.4 billion in enterprise value, the highest level since 2007. A handful of large deals this year account for the increase, such as CPA Global’s $1.4 billion acquisition by Cinven; Transunion’s $1 billion acquisition by Advent International and GS Capital Partners; as well as Quest Software’s $1.9 billion acquisition by Insight Venture Partners earlier this month. These stats do not include add-on acquisitions by PE-owned companies, a sector of the market which remains highly active.

The Deal Journal article notes that the slowdown in overall buyouts is a surprise because “private-equity investors have a multitude of reasons to whip out their checkbooks for new purchases.” That is indeed the case within the IT sector. With public equity markets on a tear (the NASDAQ Composite is up over 19% already for the year), PE firms have been more willing to spend heartily to acquire healthy, growing companies. We recently wrote about Quest Software’s acquisition, where Insight offered a 14.4% premium over the 30-day trading price and, according to recent SEC filings, a valuation of 2.2x trailing revenues and 13.1x EBITDA. Cinven noted that its acquisition of CPA Global (a global provider of intellectual property (IP) management services and software) was driven by defensive qualities and attractive growth prospects, not to mention exceptional financial performance and cash flow.

As Q1 winds to a close and the overall markets continue to rebound, we expect to see financial buyers plow even more money into the IT sector. As the Deal Journal says, there usually is a lagging correlation between firming financial markets and Monday morning deal announcements.

IT Transactions with PE Buyers, 2007-2012

IT PE Deals For Q1, 2007-2012

*Q1 2012 as of March 23.

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Signal Hill Publishes Q4 2011 M&A Reviews

February 21, 2012

Signal Hill is has published Q4 2011 M&A Reviews for the following sectors:

Click the links above to access a PDF of the Q4 2011 M&A Review for each sector or view them all in PDF form here.  A list of all published Signal Hill M&A Sector Insights are available here.

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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: VeriFone acquires Point

November 18, 2011

In its third acquisition this year, VeriFone announced plans to purchase European e-payments provider Point from private equity group Nordic Capital. Stockholom-based Point is Northern Europe’s largest provider of payment and gateway services for retailers and merchants, handling 10 million transactions per day with a local presence in Denmark, Estonia, Finland, France, Iceland, Ireland, Latvia, Lithuania, Norway, Sweden and the UK. Its customers include some of the largest retail companies in Europe, as well as small independent stores and online merchants. Point’s offerings include point-of-sale technology and support, gateway services, card encryption services, and multi-channel e-commerce processing.

VeriFone is paying an enterprise value of just over $1 billion for Point, representing a healthy 4.0x revenue multiple. This valuation showcases not only the premium acquirers are willing to pay for strategic acquisitions but in particular, Point’s tremendous growth over the past several years. When Nordic Capital originally acquired the company in 2004, it boasted revenues of approximately $45 million – today its revenues are nearly six times that amount. The acquisition of Point is the largest in the payments sector year-to-date, trailed closely by Western Union’s $973 million acquisition of Travelex Global Business Payments, also valued at 4.0x revenue. There have been 40 payment technology acquisitions tracked by Signal Hill so far in 2011, 15 of which have reported deal values representing more than $4 billion in total enterprise value.

VeriFone plans to expand the Point platform throughout the European region and beyond, to ultimately create the world’s largest infrastructure for rapid deployment of alternative payments. Point provides VeriFone with 475,000 new merchant contracts, not to mention a high-margin recurring services business. Ultimately, the deal allows VeriFone to provide retailers with the ability to easily accept all existing payment types, including next-generation methods, such as those offered by Google and PayPal.

While this is VeriFone’s third acquisition this year — it acquired Global Bay Mobile Technologies earlier this month and Destiny Electronic Commerce in May — it is the company’s eighth acquisition since September 2010. Nearly one year ago Verifone made another big acquisition: it paid $480 million and 1.1x revenue for Hypercom Corporation, a global payment technology provider. These acquisitions have helped give the company a more balanced portfolio of offerings. Recent reports say VeriFone is willing to spend $1 billion a year on acquisitions, specifically for expansion in emerging countries and new markets, such as mobile payments. With a cash war chest and a history of being an active acquirer, we expect to see even more activity from VeriFone, and in the payments space in general, well into 2012.

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Deal Focus: Hellman & Friedman To Acquire OpenLink

September 14, 2011

OpenLink, a provider of cross-asset trading, risk management and portfolio management software solutions, announced this week that it is swapping financial sponsors once again. Private equity firm Hellman & Friedman agreed to purchase the company from current owner The Carlyle Group for an undisclosed price.

The market for financial risk management software and investment and brokerage solutions providers has been particularly active over the past year. There have been 38 acquisitions in the space over the last twelve months, according to Signal Hill data. Acquirers are paying healthy premiums for these companies as well — three transactions over the past year were valued over $1 billion, including private equity firm CVC Capital Partner’s July acquisition of trading software provider ConvergEx Group for $1.9 billion and 2.9x revenue. Private equity firm Warburg Pincus sold its holdings in Wall Street Systems, a treasury and capital market transaction processing vendor, to Ion Trading in July. Although deal size was not disclosed, the company was estimated to be valued at $200 million.

Reports estimate that Hellman & Friedman is paying 10-12x EBITDA for OpenLink, with a price tag of at least $700 million. In November 2009, the Carlyle Group purchase the company, which services the commodity, energy and financial services markets globally, from TA Associates for an estimated $480 million (deal value was not disclosed). TA Associates originally invested in OpenLink in 2006 via a $100 million recapitalization.

It is not surprising PE firms are showing continued interest in OpenLink – the company has witnessed tremendous growth since it was founded in 1992. OpenLink boasts average revenue growth of more than 20% per year since 2006. And since its 2009 acquisition by Carlyle, OpenLink increased R&D and capital investments by over 20% and added more than 250 new employees.

OpenLink has also expanded into new geographies and markets with two of its own acquisitions. In 2010 it acquired Canada-based dbc SMARTsoftware, Inc., a provider of software solutions for the agricultural, biofuel and soft commodity industries; in 2007 it moved overseas with the acquisition of Austria-based IRM, an energy solution provider focused on energy asset optimizing and strategic planning. It is likely that Hellman & Friedman will continue OpenLink’s expansion with more plays in the M&A market over the next few years.

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IPOs Boost M&A Buyers, Targets

August 25, 2011

Four IT companies announced filed for IPOs over the past two days, despite continuing turmoil in the public equity markets. Jive Software, a social networking tool for businesses, filed for a $100 million initial public offering, as did Eloqua, a provider of revenue performance management software. Angie’s List, a website which offers consumers a way to review and rate doctors, contractors and service companies, filed to raise $75 million, while Brightcove, an online video publisher, filed to raise $50 million. [Update: SaaS customer reviews platform provider Bazaarvoice has also filed for an $86 million IPO.]

An open and active IPO market is clearly good for M&A. Higher public market valuations generally mean bullish buyers, which will value acquisition targets with the same enthusiasm. This also creates opportunities for a company which has filed to be picked off by a strategic buyer. There have been five such IT companies acquired already this year, the most prominent of which was the $8.5 billion acquisition of communications provider Skype by Microsoft in May.

Recent Acquisitions of Companies in Registration

(click image to enlarge)

Companies filing for IPO are also making significant plays as buyers. Of the IT companies that filed in 2010, 12 have made at least one acquisition since filing – accounting for 19 acquisitions already in 2011. While some of these companies have gone public since then, others are either still holding off, or decided to withdraw. These include the high-profile social companies such as Zynga and Groupon more recently, but also content company Demand Media, mobile health software provider Epocrates, and marketing firm Affinion Group.

The equity markets are still down significantly year-to-date, but August is witnessing its most active M&A month ever. This week’s aggressive IPO filings are a good sign that confidence remains. The more liquidity available for these companies, the better the M&A landscape will be moving forwards.

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August Sees Biggest IT M&A Deal Tally Ever

August 24, 2011

Whoever says no one does any business in August is living in the past. With a week to go before the end of the month, deal volume for August 2011 is at its highest point ever, with 120 transactions totaling more than $28 billion in enterprise value. In fact, data from Signal Hill shows a pretty consistent climb in the number of deals being announced in August over the past decade

The two multi-billion dollar transactions announced last week helped boost August’s totals: HP’s acquisition of Autonomy for $10.9 billion and Google’s acquisition of Motorola Mobility for $9.3 billion represent 72% of the month’s total enterprise value. However, there were a number of other sizable acquisitions announced that added to the record numbers: Emdeon’s purchase by the Blackstone Group ($3 billion); SunGard Higher Education’s acquisition by Datatel ($1.2 billion); Vangent’s acquisition by General Dynamics ($960 million); and Network Solution’s acquisition by Web.com ($824 million).

Two of the largest acquisitions in 2010 also occurred in August (McAfee/Intel, $6.8 billion; RBS WorldPay/Advent Capital & Bain, $3.2 billion), not to mention, revenue multiples have grown substantially over the past two years, climbing to 2.1x (2010) and 2.6x (2011) during the month of August, from 1.1x in 2009. Signal Hill announced two of its own deals this August as well. The dog days of summer might now have to be called the “deal days” of summer if this trend keeps up.

August Deal Volume, 2002-2011*
august IT M&A deals

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Deal Focus: PayPal Acquires Zong

July 8, 2011

eBay announced this week that it acquired Zong, a mobile payments provider, for $240 million. The acquisition is an attempt to boost eBay-owned PayPal’s dominance in the mobile payments space as competition in the sector grows and the race to remain relevant heats up. Zong, based in Menlo Park, Calif., allows people to charge online purchases to their mobile phone bill. Zong is primarily used to purchase digital goods such as Facebook Credits for online social games. The company, founded in 2008, raised $15 million in venture capital from Matrix Partners.

We’ve written previously that Zong was a likely target for acquisition (given its unique marketshare and fast growth) and that PayPal was one of the more dominant players in electronic payments. So the combination is not a surprise.  Zong will provide PayPal with access to a new user base — people without credit cards, or those uncomfortable sharing their credit-card information online – and will expand its market opportunity in developing countries. Zong’s extensive relationships with mobile carriers (over 250 in 45 countries around the world) will also provide PayPal’s 100 million plus user base with expanded payment options.

PayPal CEO Scott Thompson noted that the digital goods market is worth nearly $20 billion today and still growing. Increasingly advanced smartphones are revolutionizing the retail/e-commerce status quo, allowing shoppers to bring the Internet with them to the store, opening up an entirely new range of buying options. Jupiter Research reports that mobile revenue will reach $670 billion by 2015 — PayPal expects to handle over $3 billion in mobile payments this year alone.

eBay and PayPal have already made five acquisitions this year: local payments and advertising company Where; ecommerce solution Magento; non-profit payment software provider MissionFish; Turkish online-retailer GittiGidiyor; and mobile payment technology FigCard. These acquisitions are no doubt a strategy to fend off increased competition from startups including Square and Google Wallet, as well as companies such as Zong-rival Boku. We expect to see e-commerce and financial services players targeting innovative startups to fill the gaps in their technology that they need to remain relevant to users and consumers. M&A in this space has only just begun.

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Deal Focus: Visa Acquires Fundamo

June 9, 2011

Visa trekked into Africa today when it announced it’s acquisition of Fundamo, an Enterprise Mobile Financial Services platform for mobile network operators and financial institutions in developing economies. The acquisition comes at a time when Visa is attempting to grow its technology-enabled payments business — the company recently announced a new global strategy, aiming to provide the next generation of payments solutions for consumers via card, computer or mobile device. Cape Town, South Africa-based Fundamo, which Visa purchased for approximately $110 million, boosts Visa’s position in the tech-enabled payments area and expands its consumer base abroad. The acquisition also gives Fundamo users, which currently total more than five million, a higher level of security when making mobile payments through Visa’s extensive network.

As the U.S. market for credit and debit cards continues to be heavily saturated, payment processors, including Visa and rival Mastercard, have increasingly been seeking growth in new areas, including mobile and the Internet. Last month, Google and Mastercard announced Google Wallet, a pay-by-phone system designed to work as an app on Android phones using MasterCard’s “PayPass” technology, which lets shoppers tap cards for payment. While mobile payment technology has had considerable success in countries such as Japan, U.S. consumers have been slow to jump on the mobile payment band wagon. In 2010, Forrester research showed that 18% of U.S. online adults expressed interest in mobile payments, but less than 6% had ever actually used any type of mobile payment.

Mass-market adoption of mobile payments in the U.S. is most likely still years away, but we are getting there. The number of merchants accepting mobile payments — and more importantly, the availability of mobile-payment equipped devices — is finally starting to expand, though it’s still in its infancy. Innovation and strategic partnerships from mobile operators, alternative payment providers, and online companies have the potential to disrupt the existing payment systems. Companies such as Boku and Zong (which both raised significant venture funding last year) and other smaller players are leading the drive towards a new standard for payments, and are most likely in the cross-hairs of hungry acquirers. We expect the focus on mobile payments, both domestically and abroad, will only continue to ignite as we head into 2H 2011 and 2012.

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Deal Focus: eBay Enters Charity Market with MissionFish Acquisition

May 5, 2011

eBay recently acquired non-profit fundraising tool MissionFish. The company, which has been powering eBay’s GivingWorks program for the past eight years, has raised more than $250 million for U.S. and U.K. non-profits and eBay plans to create a separate nonprofit organization that will eventually be directly responsible for the collection and distribution of funds, using MissionFish’s technology.

There have been few acquisitions in the non-profit technology market; Renaissance Administration’s acquisition of BlackBaud’s donor-advised fund platform is the only other transaction Signal Hill has tracked over the past year. Yet there are a growing number of competitors emerging in the $300 billion charity space, especially due to the growth of social networks.  These companies span the range of charitable giving and technology, including crowd-sourced fundraising (Crowdrise), micro-lending (Kiva), mobile fundraising (Nadanu), online fundraising software (Fundly) and even provide the ability to donate every time you make a purchase on your credit card (Swipegood.com). Philanthropy-enabling platform give2gether even takes giving one step further, using 10 years of research in its analytic metrics to help improve the probability that non-profits raise more funds.

These companies can be a difficult target for M&A, however, as non-profits provide little up-side for acquirers aside from the “goodness” factor. Still, as social responsibility becomes a major focal point for corporations and consumers, venture firms see opportunity and are investing. Social fundraising platform Fundly recently closed a $2 million seed funding round led by a group of Silicon Valley investors.

Ultimately, we believe these charity-focused companies have the potential to be picked up by larger charitable networks, financial institutions, or even major credit card providers such as Visa or Mastercard. But don’t expect these to be blockbuster deals – chances are any acquisitions would only occur at modest valuations.

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