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 ($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

Deal Focus: HP To Buy Autonomy, Spin Off PC Business

August 23, 2011

In yet another example of cash-rich companies flexing their wallets, HP announced last week that it plans to acquire enterprise information giant Autonomy for $10.9 billion (EV). HP is paying $42 per share for Autonomy, valuing the company at 11.7x LTM revenue, a 43% premium over the 30-day trading price.

HP is no stranger to paying big for its acquisitions – the company has paid above 5.0x revenue five times since 2008: Vertica Systems (5.4x); Arcsight (7.7x), Exstream Software (7.8x) and 3PAR (11.5x). Autonomy’s valuation, however, is one of the highest it has ever paid, not to mention one of the highest in the IT sector this year.

HP also announced that it is seeking to spin off its personal systems group (PC hardware, mobile) assets and will shut down its WebOS mobile platform and Palm mobile device division. This is a similar to what IBM did back in 2004 when it sold off its PC business to Lenovo to focus on data centers instead. The fact is, a number of companies that started out in hardware are moving into the software and services arena. The shift not only provides better margins but also allows companies the ability to navigate more diverse product lines, which is increasingly more important now that the tech landscape is swiftly moving towards more mobile, tablet and cloud-based devices.

Over the last five years, Autonomy has grown its revenues at CAGR 55% and purchased Iron Mountain earlier this year to bolster its digital archiving and online backup business. Founded in 1996, Autonomy’s Intelligent Data Operating Layer (IDOL) platform allows computers to harness the richness of information, forming a conceptual and contextual understanding of any piece of electronic data, including unstructured information, such as text, email, web pages, voice and video.

M&A Market Prepped For Growth Through End of 2010

September 16, 2010

Stock piles of cash, strategic buyer interest and healthy valuations are catalysts ready to ignite the technology M&A market as we approach the fourth quarter of 2010. With the IPO market still slow — no tech companies have priced IPOs over the past month — the door is wide open for companies to turn to M&A instead.

Tech giants are finally starting to spend — and are spending a lot. HP announced this week it would acquire security and compliance provider ArcSight for $1.5 billion, nearly 7.5x revenue. And two weeks ago, HP won an aggressive biding war with Dell for storage architecture provider 3PAR, paying over $2.3 billion, at approximately11.5x trailing revenue and a 250% premium over the 30-day stock price. These multiples are healthy valuations in any market condition, let alone a market coming out of the stranglehold of a recession.

Large-cap technology companies with billion dollar cash-war chests are slowly but surely loosening their purse strings, and in turn, helping push valuations higher. As the economy continues to level out, corporate development executives are finding they finally have the gall to dip into these cash reserves and make a play for companies which, in many cases, are still a bargain buy. We expect many of the big players, including IBM, Oracle, Microsoft, HP and CA, to continue to fill their arsenals with strategic buys throughout the remainder of 2010 as they have more than $42 billion in cash and cash equivalent to spend, as well as huge margins keeping the cash flowing. In addition to this, these companies also have access to cheap debt to finance acquisitions, which is an even bigger enticement for companies to make M&A plays.

Early in the merger cycle, it is typical for there to be more strategic buyers than financial, and that is precisely what we are seeing. Private equity buying in tech has remained somewhat slow over the past several quarters, although when they spend, they spend big. In Q2, PE firms were only the buyers in 5% of all deals tracked by Signal Hill Updata but contributed over 32% of total enterprise value. These firms are also sitting on stock piles of investor money that needs to be put to use. We expect that as financial buyers see the large tech companies making big plays that pay off, M&A activity by PE firms will increase as well.

Signal Hill Updata is very optimistic about the remaining months of 2010. Our own pipeline is full and we expect to close a significant number of IT M&A transactions over the next few months.

Blog Update: Xerox Buys ACS, Top 3 Outsourcers Acquired

September 28, 2009
Recurring revenue, stickiness and pull-through lure in product-focused buyers.

Xerox announced this morning it will acquire Affiliated Computer Services for $6.4 billion — another huge deal for the IT Services space. We commented on the lure of IT Services acquisitions in our blog last week, and specifically named ACS as a likely target for acquisition by a “product-focused” company.

The ACS acquisition marks the third of the top 10 outsourcers to be acquired in the last 16 months (ACS by Xerox today, Perot by Dell last week and EDS by HP in 2008). Recurring revenue continues to be extremely attractive to buyers that want to secure/stabilize their business models, especially in a down market. These buyers are most likely tempted by the stickiness of solutions/services client relationships to hopefully help pull through other products and offerings.

Overall IT Spending Is Dropping Off – But Services Buck The Trend

September 11, 2008

Tech Giants See Clients Lower Costs By Going Green

Independent technology market research firm Forrester Research published a report Tuesday describing the effect the troubled US economy is having on enterprise IT spending. According to Forrester, 43% of large businesses have cut their IT budgets. But despite this trend, Forrester has seen a steady demand for IT services. (They report significant percentages of IT executives actually increasing their spend on certain IT services.) An article featured in Tuesday morning’s Wall Street Journal corroborates Forrester’s findings – at least as they pertain to IT services in green technology. Large IT services providers are looking to the data center as a way to enable their customers to realize what have become front-of-mind cost savings – and make a buck or two themselves while they’re at it. In fact, the WSJ reports that IBM’s Green Data Center Services business signed $300 million in orders in Q4 2007 alone. Also mentioned in the article is Hewlett-Packard’s acquisition of EYP Mission Critical Facilities, a consulting company that specializes in strategic technology planning, design, and operations support for large-scale data centers. (Updata served as the sole financial advisor to EYP in its sale to HP.) Enterprise customers are increasingly asking their IT vendors to help them come up with cost-saving strategies. The data center is a popular starting place. Even something so simple as physically rearranging servers can have energy-saving (and by extension cost-saving) effects. As customers’ demands for energy- and cost-efficient IT solutions continue unabated, tech vendors are meeting those demands with strategic M&A. Look to the tech behemoths and others to make more acquisitions in the green technology space to bolster their energy-efficiency offerings as it is sure to only heat up in the coming months.

Green Technology Gains Traction In The Enterprise

June 26, 2008

John MacDonald

John MacDonald

Enterprise Customers Want A Green Approach And Vendors Are Listening

According to a report published by the US Environmental Protection Agency, data centers alone consumed about 1.5% of the total energy consumption in the United States in 2006. That’s double what it was in 2001 and it’s expected to double again by 2011 costing about $7.4 billion annually.

Realizing that efficiency and sustainability yield profitability, IBM, which has recently been named the #1 green IT vendor by Computerworld, has launched several green initiatives. A year ago IBM announced Project Big Green committing $1 billion per year to develop products and services for IBM and clients to reduce data center energy consumption – to create the “green data center.” In April 2008, IBM announced a new brand of server for cloud computing called the iDataPlex that not only uses 40% less power than a traditional server, but also uses water-cooling technology reducing the need for air conditioning.

Named by Fortune as one of the 10 green giants, HP is another IT powerhouse making significant inroads toward the greening of IT. HP’s Dynamic Smart Cooling technology claims that enterprises can reduce their cooling costs in the data center by 25-40%. And last November, HP acquired EYP, a consultancy with expertise in energy-efficient data center operations, bolstering HP’s ability to deliver data center services to the enterprise with efficiency in mind. HP has also recently announced research initiatives for HP Labs that will focus exclusively on sustainability.

Sun Microsystems is another major infrastructure IT player taking initiative to offer green products and services. Sun invests about $2 billion a year in research and development toward eco-friendly solutions. Sun boasts that the latest in its line of energy-efficient, CoolThreads blade servers outperforms those of its competitors in both memory and I/O capacity. In addition to green products, Sun offers a range of data center consulting services to assess enterprise data center conditions and to outline a plan to optimize energy usage and cooling.

Green concerns are increasingly more important to enterprise customers. According to data from Forrester Research, 50% of users surveyed said that their company takes environmental criteria into consideration during their IT procurement process. This percentage will only grow as energy prices continue to climb, the federal government enacts more stringent federal regulations, and environmental consciousness becomes more mainstream.

BMC Software To Acquire BladeLogic

March 28, 2008

Data Center Automation Emerges As Top Priority Among Big Infrastructure Players

Joel Strauch

Joel Strauch

In what had been a widely predicted response to HP’s acquisition of Opsware last summer and a highly complementary addition to its previous acquisition of RealOps, BMC Software announced last week that it would acquire BladeLogic, a data center automation software provider, for $800 million.  This deal represents another example of a large infrastructure software vendor paying a substantial multiple of trailing revenue (over 11x in this case) to stake a claim in a fast growing sector.  It is also a continuation of the ongoing consolidation that has been occurring among the “Big 4” infrastructure software vendors (IBM, HP, BMC, and CA) over the past several years.  Consolidation activity typically rotates through emerging fast-growth areas and represents a proven technique for bolstering growth, expanding customer “wallet share,” and unifying existing product offerings.

The two most active areas include both BladeLogic’s target of data center automation as well as a closely-related and also fast-growing segment of virtualization.  We expect strong levels of M&A activity to continue in these sectors as BMC, HP, and IBM continue to pursue opportunities and as CA emerges from what has been a relatively quiet year on the M&A front.  In addition, activity in these sectors will be bolstered by other software vendors seeking to carve out a meaningful piece of the Big 4’s target market.  A good example of this is Novell’s acquisition of PlateSpin.


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