Recent Trends in Enterprise Mobility

November 28, 2011

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


Deal Focus: Google Acquires Motorola Mobility

August 16, 2011

Google made a foray into uncharted territory yesterday when it announced it would acquire Motorola Mobility for $12.5 billion. Not only is the mobile hardware space a new area for the company but it’s a new combination (Internet/software megalith plus hardware provider) that could shake up the entire industry. The deal marks a shift for Google from its most recent acquisition strategy of bulking up its Internet search and advertising products with video and social networking acquisitions and investments, to a focus on extracting greater value from its growing and successful Android operating system.

Google’s Android platform, which launched in 2007 and is now used in more than 150 million devices, has become increasingly important as global smartphone adoption accelerates. According to the 451 Group, Android has seen a 10 fold increase in enterprise support in the last 18 months and 27% of companies support Android on corporate handsets (vs 38% iPhone and 61% RIM). Its clear that Google realizes mobile is ultimately where the technology industry is heading and this acquisition puts it once again at the forefront of a changing landscape.

Google basically sees this acquisition as having two main benefits:

Patent protection/acquisition: There is an enormous amount of litigation in the mobile space right now. Google lost out on the auction of Nortel patents earlier this year to Apple and Microsoft. Motorola, the pioneer of mobile devices, helps Google fill that void and regain ground with its 17,000 issued patents worldwide and another 7,500 patents in progress. With that, the acquisition is somewhat of a defense mechanism. As CEO Larry Page said, the acquisition of Motorola “will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies.”

Ability to Better Compete With Apple: The acquisition also take direct aim at Apple in terms of the vertical integration of hardware and software. This has been one of the biggest keys to Apple’s success along with its sleek industrial design. Motorola has had some of the hottest handsets in the mobile market over the years (who didn’t own a Razor?) and teamed with the innovative vision of Google, could prove to come out on top once again. Google will also have the added ability to combine its Android operating system with Motorola-produced tablets – expanding its potential product line even further.

Motorola also gives Android a leg up on Apple’s iOS in the “downmarket” area, i.e. cheaper handsets. While Apple targets the “luxury” market mostly, Google can get Android into the hands of consumers looking for a more reasonable product (such as pre-paid plans), particularly those in developing countries and lower income customers in the US. This ability ultimately plays into Google’s strategy of giving away the software for free, hoping it drives traffic to their web services, and thus boosting ad revenue. By having complete say of how the software works on handsets, Google can sidle right up next to Apple in making the most polished phones possible.

Google has been at the forefront of many of technology’s greatest endeavors (search, email, not to mention self-driving cars) and it is not about to let Apple run away with the mobile prize. Google realizes that mobile is the future and the acquisition of Motorola puts it in a powerful position. But while the market seems to approve of Google moving into handset hardware, excitement and speculation about the future of the industry should be tempered at least somewhat by recent attempts at the fusion of hardware and software. Last year, HP acquired Palm, which gave the company a maker of both mobile hardware and the webOS mobile software. While it is still early in the game, HP has yet to see very much success with the Pre line of smart phones or its TouchPad tablet. Another 2010 deal saw RIM buy mobile software developer QNX, which the erstwhile smart phone king used in the much-vilified Playbook tablet. Tech companies are still in many respects lumbering corporations, and it would be wildly optimistic to assume that integration of teams, cultures and products will be as easy as snapping one’s fingers.


Investors Focus on IT Security as Threats Abound

June 20, 2011

IT Security has witnessed numerous serious cyber attacks over the past few months, and investors are taking notice. Prominent companies and institutions such as Citigroup, Google, RSA, Sony, the International Monetary Fund and the U.S. Senate have been hit by these attacks and reports show that cyber security threats are only growing. Mobile malware threats were up 46% in 2010 compared to 2009, according to research by McAfee, accounting for more than 20 million new pieces of malware – approximately 55,000 new malware threats each day. More worrisome is that these seemingly more high profile attacks are exceedingly more sophisticated — suggesting state-level or organized criminal involvement — and threaten large numbers of online users.  No one is immune, not even security companies themselves, as the recent hack of EMC’s RSA tokens business illustrates.

Partly in response to these threats, venture investments have been increasing in the security sector. More than $147 million in funding was poured into IT Security during Q1 2011, according to data from the NVCA — a pace which if upheld would beat 2010’s total of $432.3 million. Investment valuations are rumored to be rising as well. Advanced threat protection in particular has been an area of focus for investors and corporations over the last several months. Palantir Technologies, a provider of intelligence analysis tools to help government agencies improve public safety and security, recently raised $55 million in funding from The Founders Fund at a purportedly high valuation; in October, Endgame Systems, a cyber security solutions provider, raised $29 million from a consortium of investors.

Other significant venture investments within the security sector include: MobileIron, a creator of mobile device management and security tools for enterprise systems, which brought in $20 million in funding in a D round last month; Bit9, an endpoint protection provider for smartphones, tablets, and computers that connect to enterprise networks, raised $12.5 million in April in a fifth round of funding, and Alertlogic, a provider of on-demand security-as-a-service technology, raised about $12.6 million in Series E funding at the end of March. U.S. investors have also shown an interest in China, buying stakes in companies such as NetQin Mobile, a mobile security company with solutions based on cloud computing. IPO filings are up as well with Imperva, a provider of data security used to protect files in data centers and cloud computing environments, filing last week to raise $75 million, while Trustwave, a provider of on-demand compliance management software, filed for a $100 million IPO in April.

Large non-security technology players stepped up their acquisition activity in the security market recently as well. RIM, EMC, Google, SAP, and VMware all made security acquisitions since the beginning of 2011. While deal values were not disclosed for these transactions, others were not afraid to spend significant amounts for strategic targets — Symantec shelled out $390 million for Clearwell, an eDiscovery platform provider, while Rambus paid $342.5 million for Cryptography Research, a provider of research and system design for tamper resistance, content protection, network security, and financial services. Although deal value was not disclosed, EMC’s acquisition of network security analysis solutions provider NetWitness in April was rumored to be around $450-500 million. Private equity firm General Atlantic also made a big investment in January, when it took a $200 million stake in Moscow-based Kaspersky Lab, a provider of anti-virus software, just a few weeks after Dell paid $612 million for SecureWorks, a provider of Security-as-a-Service solutions. Overall, median announced sector M&A valuations so far this year have risen to 3.78x from 3.19x during the same period last year.

As attacks continue unabated, and computing technology continues its shift away from desktop computers and onto mobile devices and into the cloud, we expect to see a continuation of venture funds flowing into security start-ups, particularly those focusing on the protection of datacenter/virtual environments and mobile endpoints. Eventually, these well-funded startups will be prime targets for bigger security firms and companies looking to stay ahead of the curve — meaning potentially more pay-days for current investors and growing valuations for the security market.


Healthcare IT Market Remains Strong, Poised To Accelerate Further

March 29, 2011

The Healthcare IT (HCIT) market remains active as private equity investors are finding opportunities and strategic M&A continues apace, particularly as mobile and speech recognition technologies drive activity in HCIT. HCIT M&A activity for the first few months of 2011 is on par with 2010, but we expect to see an increase in activity across all aspects of the healthcare market as the year plays out.

The real star of 2011 has been the IPO market: there have been nine healthcare-related IPOs so far during Q1 2011 – the most market share compared to any other sector of the IPO market in Q1. Within HCIT, Epocrates (EPOC), an ad-supported mobile drug reference app for healthcare professionals, raised $86 million when its 5.4 million share offering priced at $16, above the expected range of $13 to $15.

According to data released in a recent report by In-Stat, the healthcare industry in the U.S. will spend more than $4.5 billion on wireless data by 2014. As we noted in our October Healthcare IT M&A Report [PDF], in early 2010, a hospital district in Visalia, California, ordered 100 iPads to provide staff with access to rudimentary applications like e-mail, as well as X-ray images, EKG results and patient monitoring programs around its five sites. With the release of the improved iPad 2, connectivity in the healthcare sector is expected to grow even further, as the new product’s A5 dual-core processor dramatically ramps up the performance and speed while improved graphics stand to benefit medical images. Other technology, such as MobiUS, a mobile ultrasound imaging system that uses a smartphone and Internet cloud services, are pushing the boundaries of where technology in the medical world can go.

The  highly publicized supercomputer “Watson” is also getting its share of attention in the HCIT world as well. In February, Nuance Communications and IBM announced a research agreement to explore, develop and commercialize the advanced analytics capabilities of IBM’s Watson (of Jeopardy fame) in the healthcare industry.  The research and technology initiative will combine IBM’s deep question answering (QA), natural language processing, and machine learning capabilities with Nuance’s speech recognition and clinical language understanding (CLU) solutions for the diagnosis and treatment of patients.

The pace of IT M&A in 2011 is already exceeding that of the last few years and HCIT continues to prove that it has the right combination of innovation and necessity to expand significantly. Healthcare will be an important aspect of IT M&A heading into the future and we expect to see big developments emerge from the sector throughout the next few years.

HCIT M&A Transactions, 2011
HCIT M&A 2011
(click image to enlarge)

HCIT Private Equity Investments, 2011
HCIT Private Equity Investments 2011

(click image to enlarge)


Payment Security M&A Prepped For Growth As E- and Mobile Payments Thrive

November 30, 2010

Traditional payment providers such as credit card companies and transaction terminal providers are increasingly finding that secure e- and mobile payment enablement is a must-have addition to their offerings, as the market for electronic and mobile payments continues expanding. There have been a number of transactions in this area over the past few months, most recently with electronic payments solutions company VeriFone Systems’ announced acquisition of Hypercom, a public company that sells secure electronic payment and digital transaction technologies, for $485 million (Hypercom rejected a bid from VeriFone for $290 million in September saying it significantly undervalued the company).

Meanwhile, earlier this month, American Express jumped on the e-payment security band wagon with its $150 million acquisition of Accertify, a provider of fraud prevention services for online retailers and other merchants. This transaction follows in the wake of other major acquisitions by credit card firms, including Visa and MasterCard, which each paid healthy sums for ecommerce payment and fraud detection firms CyberSource and DataCash earlier this year. What is interesting to note is that these card providers have not traditionally been in the business of selling e-commerce software or services directly to merchants. But as start-ups and other payment technologies sprout, such as near-field communications on mobile phones and payment services such as Square, these companies need M&A to keep current — and with that, secure-payment technology becomes increasingly important.

We noted in earlier posts that global mobile payment transaction volumes are expected to rise to $1.13 trillion in 2014. eBay and PayPal released their Black Friday sales and usage data and saw a 27% increase in e-payment volume compared to the previous year. More broadly, e-payments transactions are rapidly growing — in the U.S. alone, consumer Internet transactions in the U.S. were up 9% to nearly 2.4 billion payments over the past year.

The growing market for business-to-business e-payment opens up another extremely rich area where payment security M&A could thrive in the next few years. B2B electronic payments were recently reported to be increasing, as only 57% of organization made payment by paper check in 2010, down from 74% in 2007. This growth is being spurred by advances in technology, increased focus on business improvement, and the need to make cross-border payments. We expect to see a handful of similar M&A transaction in this sector well through 2011, as the ease of e- and mobile payments continue to bring in new customers, and security concerns remain high.


The Mobile Payment Reality Gains Traction

August 18, 2010

With the advent of increasingly more capable mobile phones, payment tech, and more specifically, mobile payment technology, the stage is increasingly set for the market to take off. Recent research calls for global mobile payment transactions to rise to $1.13 trillion in 2014, a CAGR of 94.8%, with the total number of users increasing to 351.4 million, according to IE Market Research Corp.’s 3Q.2010 North America Mobile Payment Market Forecast, 2010 – 2014.

We’ve written previously that security concerns, among other things, could hinder the adoption rate of payment technology, but venture capital firms are continuing to fuel the fire. Already Q3 investments in the sector include $7.5 million in funds for WePay, a group payment platform; $12.1 million in funding for eWise, a provider of online payments and financial management services; and $8.5 million for Wave Crest Holdings, a provider of e-payment solutions. On the mobile front, Payfone, a mobile payment provider, recently raised $11 million in venture capital investments.

Game-changing mobile payment technology in the U.S. is still a year or two away, however, even with the continuing evolution of super-smartphones and exponential growth in mobile apps. some companies are starting to acknowledge mobile technology as a coming force: Zong and Google’s latest acquisition, Jambool, have begun making waves by monetizing digital currency for mobile and social games, but there is still no real front runner. One exception may be eBay’s old-reliable PayPal, which recently teamed up with Google to let Android phone users pay for apps using PayPal instead of credit cards or Google Checkout.

The sector’s best bet for a break-out hit in payment technology is the advent of near field communication (NFC), which is a short-range high frequency wireless communication technology which enables the exchange of data between devices over a distance of a few inches. NFC accounted for 14.9% of mobile payment transactions in 2009 and is expected to increase to 32.8% by 2014 or 35.6 billion transactions. Traditional credit card companies have attempted to spark this trend through NFC chips placed in cards and contactless payment kiosks, but adoption has been slow (only about 26% of U.S. consumers have contactless credit cards).

The right combination of reliable financial institution and intuitive software provider, however, could put the wheels in motion for a mobile phone innovation. Apple recently brought in Benjamin Vigier, formerly of mCommerce vendor mFoundry Inc., as product manager for mobile commerce. While no one knows the company’s exact plans yet, Apple has quite a few patents under its belt for NFC technology, suggesting mobile payments made through iTunes, mobile marketing campaigns, and even airline ticketing services could just around the corner.

Globally, the number of mobile payment users is expected to rise to over 1 billion in 2014 for a CAGR of 20.5%, however, the adoption curve is not expected to accelerate meaningfully until sometime between 2011 and 2013. Money transfers, mobile payments and NFC services are three of the top ten uses expected by mobile consumers over the next few years. Given this expected growth, we expect to see traditional credit card providers and consumer banks team up with e-payment innovators, such as Visa’s acquisition of CyberSource in April. A pick-up in M&A for payment technology by consumer banking institutions is likely, or at the very least, we will see them begin to forge partnerships with the strongest payment technology start-ups. One thing is for sure: now is the time for combinations to start happening if these firms want to be at the forefront of the impending payment revolution.


In Hot Ad Market, Traditional Firms Make Buys

June 28, 2010

The Internet and mobile advertising analytics markets are on fire lately with one acquisition after another and venture capital funds continuing to pour in. We wrote in January that this sector of the market was ripe for growth. As the sector continues to blossom, many strategic combinations are beginning to occur — initially we witnessed these acquisitions and mergers between competing ad and analytic firms. However, over the past month, companies outside the traditional ad market, such as IBM and GSI Commerce, began buying up advertising and analytic properties to take advantage of the explosive growth and must-have technology.

On the M&A front, IBM agreed to acquire Coremetrics, a provider of web analytics software, while blogging software and services provider Six Apart acquired NaturalPath Media, an online advertising and media network. Earlier in June, Hearst agreed to pay $325 million for iCrossing, a search engine marketing firm, and GSI Commerce paid an estimated $40 million for FetchBack, an advertising startup specializing in retargeting.

There is no slow down of advertising and analytical start-ups bringing in venture capital cash either. Over the past few weeks VCs have poured more than $70 million into these companies including Marin Software, a provider of paid search management applications for advertisers and agencies; Brand.net, an online display and video advertising platform; and Apptera, a voice and visual mobile advertising network.

Recent statistics on the growth of Internet and mobile advertising are no doubt fueling the fire. Mobile marketing and advertising combined is expected to grow at 40% CAGR over the next five years. Although total online advertising is expected to reach $25 billion for the U.S. in 2010, estimates show only $3.8 billion will be spent on the U.S. mobile web (up from $2.6 billion in 2009). The growth year over year, as well as the large disparity between mobile spending and traditional online ad spend, provides plenty of hope for the sector that funds will be begin to be funneled more and more into the mobile space. The growth on the hardware end of the sector, with the advent of the iPad and increasingly computer-like smart phones, make this is a pretty wise bet. The adoption rate has been truly rapid, which is surprising even optimistic analyst outlooks from a year or two ago.

The explosive growth of the Internet and mobile advertising and analytics space shows no sign of slowing and we expect growth to continue in the space well into 2011. As the economy slowly continues to climb back in recovery, companies will again begin investing in advertising and these start-ups and ad firms will be well positioned to take advantage of what could be hearty revenue streams.


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