Signal Hill is pleased to announce it has published its Q1 2012 M&A Reviews for the following sectors:
A list of all published Signal Hill M&A Sector Insights are available here.
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
*Q1 2012 as of March 23.
Signal Hill is pleased to announce it has published its Infrastructure Software Sector Update 2011-2012.
M&A activity in the infrastructure software sector witnessed significant growth over the past two years. In 2011, the number of announced deals grew for the fourth straight year, while median revenue multiple ticked up to the highest point Signal Hill has tracked. This growth has been driven by a number of factors, several of which are directly related to the rapid emergence and adoption of cloud computing.
This report explores the state of the infrastructure software M&A market, as well as sector public equity performance, and reviews the drivers of M&A activity in areas such as Application Performance Monitoring & Management, Infrastructure Management, Storage and Data Access, and Enterprise Mobility.
Insight Venture Partners, a leading New York-based private equity and venture capital firm focused on the software and internet sectors, recently announced plans to take private Quest Software, a California-based provider of database management software, for $23 a share or about $2 billion dollars. Insight’s offer comes at a 14.4% premium over the 30-day trading price and, according to recent SEC filings, values the company at 2.2x trailing revenues and 13.1x EBITDA.
Quest Software’s technology is designed to develop, monitor and protect software applications, databases and servers. The Company’s Tool for Oracle Applications Developers (“TOAD”) solution, provides productivity software for database developers, DBAs, and analysts. TOAD validates code performance, automates SQL optimization, and provides performance management tools to simplify the management of Oracle, SQL Server and DB2 systems. In addition to TOAD, Quest provides a wide range of other solutions for performance management, data protection and virtualization, including ChangeBase, NetVault and ChangeAuditor.
The transaction has been structured as a management buyout and will allow Quest to entertain alternative bids over the next 60 days in a “go-shop” period designed to identify alternative opportunities for shareholders. Upon news of the offer, Quest’s stock price rose 24% to $24.07, and it would not be surprising to see alternative offers come through during the “go-shop” period.
Insight’s offer comes on the heels of an exceedingly acquisitive 2011, in which the Quest closed seven deals, such as its acquisition of Smarsh, Inc. and BiTKOO, LLC in November and December, respectively. Vinny Smith, who was reappointed CEO in February after serving in the position from 1997 to 2008, will be rolling his shares forward with the new ownership. In the near term, Smith has suggested the company will be less aggressive in the M&A market, instead focusing on integrating its numerous recent acquisitions and executing its strategy.
- Andrew Dunfee, Financial Analyst
Signal Hill is has published Q4 2011 M&A Reviews for the following sectors:
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
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.
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.
The enterprise mobility sector is rapidly growing as the demand for preferred personal devices such as tablets and smartphones, specifically Apple and Android platforms, continues to penetrate the enterprise with strong momentum. Moreover, Apple recently stated that the portion of Fortune 500 companies with a combination of testing or deploying of iPads and iPhones is 92% and 93%, respectively. Specific examples of enterprise use cases from a recent New York Times article include: airlines replacing printed flight manuals, navigation charts and other material that pilots are required to bring on board with iPads; and Standard Chartered, a financial services company, is supplying approximately 11,000 iPhones to employees in an effort to move them away from BlackBerrys, which have limited ability to create apps specific for their changing operations. The charts below show significant worldwide commercial tablet shipment growth, as well as increased tablet deployment in the enterprise.
“Consumerization” is driving the IT enterprise adoption of personal devices. There are a number of factors driving this movement, but the most important are employee demand, preference and “anytime, anywhere” access. However, accelerated adoption of these devices into the enterprise is leading to challenges and changes to find solutions that will enable full functionality, security, management and cost savings. As the volume of enterprise file-based content grows exponentially, businesses will continue to aggressively pursue initiatives that enable them to overcome challenges of integrating heterogeneous platforms and devices within existing infrastructure.
Industry leaders, such as VMware and Citrix, as well as a few smaller companies with expertise in the sector, recognize this tremendous opportunity, and are focused on developing enterprise secure solutions. Moreover, these mobile devices enable ideal synergies with SaaS and Cloud services. As such, adoption of enterprise mobility trends is anticipated to continue to drive an already active deal sector.
Overall, transactions within the enterprise mobility sector continue to be executed at a significant rate. Recent transactions of significance within this space include: Citrix’s acquisitions of both ShareFile (valued at 5.8x revenue) and App-DNA (valued at 5.9x revenue). Since the beginning of 2011, The 451 Group reported 342 deals completed in the Enterprise Mobility Sector, with 44 of those deals being done since Q4 (with a median EV / Revenue multiple of 4.0x).
-Frank Cordek, Associate
Citrix Systems announced this week that it acquired ShareFile, a provider of secure, cloud-based data storage, sharing and collaboration. The company provides businesses with the ability to securely store, sync and share documents and files, both inside and outside the enterprise. ShareFile’s centralized cloud storage capability also allows users to share files across multiple devices and access them from any location. The purchase price was not disclosed, but Forbes recently reported that Citrix offered to acquire competing cloud file sharing and storage startup Box.net for nearly $600 million.
The acquisition of ShareFile is highly strategic for Citrix. It will become a part of Citrix’s new Data Sharing Group, which will build upon their “follow-me-data” strategy, giving users the ability to place their information in the cloud but maintain the security and data management capabilities IT departments require. Sharefile will enable Citrix to deliver collaboration, apps and data with increased accessibility and productivity on any device.
This deal is one of the first in what Signal Hill expects to be a series of transactions that will enable large IT vendors to deliver the enterprise equivalent of a DropBox-like solution around cloud collaboration and file sharing capabilities. Dropbox is the cloud storage startup that announced a new $250 million funding round this week. The investment values the company, which boasts 50 million users and $240 million of expected 2011 revenue, at an estimated $4 billion. DropBox is considered by many as a consumer focused offering and lacks many of the security and compliance features typical of enterprise class products. Box.net, which offers a similar service but is more enterprise focused, also announced recently that it closed $81 million in new funding at a $600 million plus valuation, after reportedly turning down Citrix’s offer.
Given the projected growth in cloud-related spending and the fact that this space touches on a multitude of hot trends (such as scale-out storage, collaboration and enterprise mobility), in an otherwise gloomy IT spending environment, we wouldn’t be surprised to continue seeing strategic acquisitions by large companies and even healthier deal values as the year comes to a close.
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.
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.