tech m&a update – the growing influence of cross-border ...€¦ · apr 2015 mastercard...
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November 2015
I N DEPEN DENT I NVESTMENT BAN KI NG FOR GLOBAL TECHNOLOGY, MEDIA, MARKETING & INFORMATION
since 1987
Tech M&A Update – The Growing Influence of Cross-Border Deals and Non-Tech Buyers This month’s letter is written by Paul Cooper, Partner, Clarity (JEGI’s UK Partner), [email protected]
The rapid and broad adoption of technology enabled applications and services is reflected in the growth of cross-border tech M&A.
an international f lavor
We expect global cross-border tech M&A activity to hit a new high in 2015 and forecast 2016 deal volume to be larger still. The worldwide activity levels are reflective of what’s happening in the EU, where the volume of M&A is being driven by the three C’s:
1) Confidence – in broader EU stability and US economic outlook
2) Currency – favorable trend in US to EU exchange rate
3) Cash – corporate and PE surplus
Confidence: US economic momentum, buoyed by anticipation of the forthcoming presidential election, provides a posi-tive backdrop. European GDP growth rates, both in and out of the Eurozone, are anticipated to continue their positive trajectory (forecast to be 1.9% and 2.1%, respectively, for FY2016). With the remaining pockets of deflation expected to reverse in 2016, Europe is increasingly viewed as at least ‘out of the woods’.
Currency: The strengthening of the dollar renders international targets comparatively cheaper – this is especially true for US corporate buyers looking at Euro Zone targets, where the dollar has strengthened approximately 18% against the Euro over the past three years.
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Cash: US and EU corporates are benefitting from a prevalence of accessible capital and strengthening balance sheets. Further, the increasing reserves of US corporate foreign-trapped cash serve to increase the appeal of non-domestic tar-gets, at least for the moment.
growth in transatlantic tech activity
Since 2012, the number of cross border M&A transactions led by European acquirers has grown by approximately 27%, as compared to 32% for North American acquirers buying assets in Europe. The volume of international M&A emanat-ing from North American corporates is about double those of the Eurozone acquirers.
While growth in European-led activity is more balanced between North American targets and those from the rest of the world (R.O.W.), growth in North American international tech activity has been focused primarily on European targets, reflecting the value seen by North American acquirers in the European market.
We expect this trend of North American buyers focusing on Europe to continue, driving a further increase in transatlan-tic M&A. In addition to the “three C’s”, 2016 gets the added boost of being an election year in the US.
valuations
Emerging growth technology companies are gaining scale at earlier stages and growing more rapidly. Increasingly, more of a company’s value is occurring earlier, driving private valuations and activity, as investors seek to ‘get in early’ so as not to miss the ‘growth boat’. Let’s not forget this is ‘perceived value’ and the lack of financial maturity means there is little floor, if you pick the wrong company in which to invest. We have been here before, where late in the cycle, KPIs such as users, visitors and eyeballs (!) are being cited to justify higher valuations rather than relying on financial indicators (financial metrics such as revenue, profit, cash). As in the past, it will end with winners and losers, not with winners and winners!
The increasing appetite for tech assets is reflected both in terms of performance of tech indices and revenue multiple evolution. The “bubble” of 2000 saw TEV/ Revenue multiples climb from approximately 1.0x to over 5.0x by mid-March 2000, according to S&P Capital IQ and the FTSE World Tech Index. Currently, the EV/revenue multiple of 2.2x is not re-ally comparable to these previous cycles. That’s because, over time, the technology index constituents have changed significantly – i.e., the breadth in maturity has increased, ranging from start-ups to established tech firms, and the mul-tiples of the latter are muting the larger multiples of high growth, earlier stage tech companies. In previous technology booms, established companies formed a much smaller number of the sector constituents.
As such, earlier stage, higher growth tech companies, especially with an enterprise client base and strong recurring revenue/SaaS model, are demanding valuations well in excess of 2.2x revenue in the current M&A environment. Some recent examples include (date order):
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Date Buyer Seller Brief Description Deal Size ($mil) Rev Mult
Sept 2015 comScore Rentrak Media measurement $850 7.9xAug 2015 Advance Communications 1010data Big data discovery $500 10.0xAug 2015 IBM Merge Healthcare Healthcare technology $1,000 4.4xJuly 2015 HGGC Selligent Marketing technology Confidential ConfidentialJune 2015 Vista Equity Partners Mediaocean Cross-media platform $720 ConfidentialApr 2015 MasterCard Applied Predictive Tech Predictive analytics $600 6.0xApr 2015 Net Suite Bronto Cloud-based marketing $200 5.3xApr 2015 Twitter TellApart Predictive marketing $533 5.3xApr 2015 LinkedIn Lynda.com Online training $1,500 10.0xMar 2015 PayPal (eBay) Paydiant Mobile payments $280 ConfidentialMar 2015 Nielsen eXelate Data technology $200 6.7xFeb 2015 Samsung LoopPay Mobile payments $250 ConfidentialJan 2015 Dun & Bradstreet NetProspex Data management $125 6.3xNote: Data marked confidential is either proprietary or related to transactions completed by JEGISource: JEGI Transaction Database
demand – a pursuit of growth
While deal specific drivers are as unique as the diversity of tech development, tech M&A buyers are almost exclusively focused on driving growth by reengineering their existing business or creating a new product or service line. Synergies therefore tend to come under the categories of scale, efficiency savings, product innovation, and talent acquisition.
‘traditional’ tech buyers
Scale is a key driver for traditional tech buyers, as evidenced by the $67 billion acquisition of EMC by Dell, heralding a new milestone. It is a matter of when, not if, a cross border tech deal of similar scale and profile occurs – arguably the Publicis acquisition of Sapient is a great example of this trend.
Product innovation and growth opportunities are two areas of focus for CIOs. The growth opportunities afforded within the EU from select pockets of less mature high growth tech targets are proving attractive. The Ooyala (Telstra) acquisi-tion of Nativ (UK headquartered cloud-based media logistics platform) provides an excellent example of such.
Tech companies are under pressure to maintain (profitable) growth – either organically or through acquisition. There is also pressure for transactions to be quickly accretive, as well as provide a strategic advantage. The HGGC backed Selli-gent acquisition (a Belgium headquartered omni-channel marketing technology company) of Strongview exemplifies EU companies’ increasing preparedness to tap the US markets to gain market access and secure growth.
The ongoing clarification of corporate strategy is leading to the uncoupling of mergers and divestitures (e.g., HP’s planned separation into two companies and eBay’s spin-off its eBay Enterprises business). These separations will allow the parent companies to focus on fewer businesses lines and create the ability to compete against nimbler competi-tors – again fueling M&A.
‘non-traditional’ tech buyers
Over the past decade, we have observed an increase in buyers of technology assets from outside the traditional technol-ogy ecosystem, as a variety of businesses seek ways to accelerate growth and propel their own digital revolution.
‘Non tech’ acquirers are supplementing acquisition and investment activity formerly dominated by traditional tech buyers and VCs, particularly in areas such as retail, media, finance and healthcare. It is in these markets where firms are increas-ingly looking to differentiate themselves from their competitors. Recent examples include the £2.0 billion acquisition of the HERE digital mapping business by the German automotive consortium of AUDI, BMW and Daimler; and Conde Nast parent Advance/Newhouse’s acquisition of big data analytics company 1010data for $500 million.
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The proportion of non tech acquirers of tech businesses (approximately 40% of the market) increased about 2% in 2014-2015. However, when you pick through the data and exclude the small number of highly acquisitive US tech behemoths (Google, Facebook, etc.), the number of ‘occasional non-tech acquirers’ of tech assets is significant and increasing.
We are seeing the evidence in M&A processes, where our sellside clients are getting offers from outside the traditional buy-er set, feeding demand and therefore pricing. All sellers would be well advised to invest the time and effort to seek out those
“outside the box” acquirers that might have a readily-apparent or aspirational need for their product or service offerings.
private equity and venture capital
Historically the preserve of the tech specific VC funds, technology is increasingly viewed as a key asset class for main-stream PE. The increase in number of maturing assets, as well as attractive growth opportunities presented both by pure tech and tech-enabled businesses, means that tech assets, such as the recent $5.3 billion acquisition of Informatica led by Permira Funds, are increasingly forming part of funds’ portfolios.
In contrast to identifying the next disruptive tech innovation, mainstream PE firms are looking for proven tech compa-nies that have grown without traditional venture capital and have demonstrated ability to generate sustainable growth. Through continuing to invest in innovation, while also improving growth rates, mainstream PE will crystalize value through positioning assets as ‘tech enablers’.
Furthermore, savvy PE funds, through a well deployed application of tech solutions, will ‘tech enable’ their existing port-folio companies to help them outperform their peers. For example, we are seeing these companies find value in the Euro-zone through using IT to outsource services, incorporate platforms and build more valuable relationships with customers that drive greater value through pricing or reducing churn.
In the EU, the European banking sector continues to suffer from a lack of self-confidence, presenting PE and innovative debt firms with opportunities to fill gaps in investment required by small and mid-size enterprises. Europe, which still lacks economic momentum, will remain a riskier investment proposition than the US, at least for the short term, and therefore offers potentially lucrative investment opportunities over the medium term.
The increase of PE dry powder (both through accumulated commitments and an increasingly accessible fundraising envi-ronment) to more than $1.14 trillion will drive asset valuations. During 2014, over 225 European PE funds were able to raise 100 billion – a five-year high. At current investment rates, these funds have 18 months of capital to deploy, in absence of further capital raising.
the global pessimist should not unduly concern the technologist
An increase in global conflict and the resulting demographic pressure on the EU could reverse the pan-European return to growth. The UK “In-Out” referendum (on whether to remain part of the EU) presents the inevitable anxieties result-ing from worldwide uncertainty and change. China’s challenges as it shifts towards a consumer, rather than an export, economy will also present a number of opportunities.
IPO market activity fell in Q3. While mainland China saw more public listings in 2015 than in the whole of 2014, the closure of mainland Chinese markets to new listings, as well as wider market volatility, has resulted in a reduction in global IPO activity. Remaining issues are reverting to more established markets. Japan, for example, is on course for 100 IPOs by the end of 2015 – the highest level since 2007.
Tech specific threats exist, such as US technology companies perceiving an EU regulatory backlash in light of the ‘Snowden debacle’. The most recent intervention – scrapping the ability of US tech firms to ship personal information wholesale to the US – is identified by many as latent ‘protectionism’.
This unpredictability should not stop investor confidence, as the onward march of ‘tech’ adoption, the digitalization of business and associated M&A will continue into 2016 and beyond.
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Hey, Did You See This?ABM & Jobaline – November 11, 2015 ABM, a provider of integrated facility solutions, signed a multi-year national agreement with Jobaline, a mobile and bilingual hourly jobs matching marketplace and training network. Jobaline will assist ABM’s rapid growth by facilitat-ing faster access to skilled workers and reducing pre-screening and recruitment costs. Jobaline is enabling ABM to put people back to work faster and more efficiently.
Centric Software – September 22, 2015 Centric Software, a provider of product lifecycle management (PLM) solutions for retail, apparel, footwear, luxury and consumer goods, announced a new solution specifically designed for small businesses called Centric Cloud. As a cloud-based PLM solution, Centric Cloud helps speed product development, improve costs and increase market responsive-ness. Centric Cloud is designed to grow with companies and can be rapidly deployed to bring expert know-how to small businesses, leveling the competitive playing field.
edo Interactive – September 21, 2015edo Interactive, an advertising technology innovator, announced a multi-year partnership with Rewards Network, a leading operator of dining rewards programs. Global financial institutions use edo’s patented card-linking technology to deliver instantly redeemable discounts to cardholders, tailored to their spending habits and backed by data-driven insights. Cardholders are automatically enrolled in edo’s “Prewards” program through their bank’s credit or debit cards and can access offers via desktop, tablet or mobile. The partnership will market Rewards Network’s 11,000 participating restaurants to over 40 million cardholders in edo’s Prewards network.
Intercom – October 20, 2015 Intercom, a provider of integrated products for targeted communication with customers, has launched a new website messaging and live chat platform – Acquire. Acquire is intended to change the way businesses communicate with visi-tors, and to help capture email addresses (among other things) in a more useful and interactive way. The messaging platform sits quietly in the corner of a company website until invoked; it is easily accessible but a stark difference from the typical pop-up method. Intercom’s mission is to make the internet business more personal by providing two-way communication solutions.
Spredfast – November 12, 2015Spredfast, a social media management platform, has announced the first implementation of Shoutlet technology after acquiring the competitor in August. Promotions is a custom form builder that allows brands to create contests, sweep-stakes, polls, quizzes, surveys and other interactive features, and capture the user data. The technology collects user data to use in conjunction with a customer relationship management (CRM) platform. This is the first platform of its kind to offer a complete suite of functions.
Volusion – November 3, 2015Volusion, an ecommerce platform for small- to medium-sized businesses, has announced a new built-in support for “Pay with Amazon.” This feature will provide hundreds of millions of active Amazon customers with the ability to seamlessly shop on Volusion merchant stores by securely logging into their Amazon accounts and completing their purchases with stored payment and shipping information. This means a hassle-free checkout experience for customers, and fewer abandoned carts for retailers.
Weebly – October 27, 2015Weebly, a website-builder and web-hosting service based in San Francisco, has announced a major localization program for Europe that will cater to businesses in the UK, France and Germany. While the company already allowed merchants to accept payments from their customers in multiple currencies, Weebly itself has only accepted payments in US dollars from its own customers – now, it will accept euros and British pounds as well. Given that web hosting is a core part of Weebly’s offering, the company is also now offering localized domain names, including .co.uk (U.K.), .de (Germany), .nl (Netherlands), .fr (France), .es (Spain), .eu (Europe), .us (U.S.), .ca (Canada), and .info.
JEGI Tech M&A Update - November 20155
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Selected October M&A Transactions in JEGI Tech Coverage
Buyer Seller Target DescriptionEnterprise
Value ($mm)
Silver Lake Partners/Thoma Bravo SolarWinds Network management software $4,500
Roper Technologies Aderant Holdings Legal practice management software $675
Tyler Technologies New World Systems Corporation Public sector ERP systems $670
Cisco Systems Lancope NBAD software $453
Quality Systems HealthFusion Holdings EHR & practice management SaaS $165
Deluxe Corporation Datamyx Consumer data analytics marketing $160
LogMeIn Marvasol Password management software & application $110
WEX Benaissance Healthcare billing & payments SaaS $80
Rapid7 RevelOps Log management & analytics SaaS $68
PTC Qualcomm Incorporated (Vuforia business) Augmented reality software development $65
OpenText Corporation Daegis E-discovery SaaS $14
Diligent Thomson Reuters (BoardLink assets) Board meeting document collaboration SaaS $10
Ruckus Wireless Cloudpath Networks BYOD mobile device security SaaS $9
Premier InflowHealth Healthcare operational analytics SaaS $6
Ansira (KRG Capital Partners) Sq1 Digital marketing & design services
Apple Perceptio Mobile AI-based image-recognition software
Aptean (Vista Equity Partners) CoreTrac Banking CRM & Salesforce SaaS
Asentinel (Marlin Equity Partners) eMOBUS Enterprise mobility management SaaS
Autodesk Configure One Configure, price & quote software
Cisco Systems 1 Mainstream Streaming video distribution SaaS
Ellie Mae Mortgage Returns Mortgage marketing automation SaaS
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Deals with Values (by size)
Deals without Announced Values (alphabetical by buyer)
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Buyer Seller Target DescriptionEnterprise
Value ($mm)
Enrollment Advisors HighRoads (employer technology division) Benefits plan management SaaS
Eze Software Group (TPG Capital) TKS Solutions Hedge fund accounting software
Google Divshot Web application interface PaaS
IBM Corporation Cleversafe Object storage SaaS
Idera (TA Associates) Embarcadero Technologies (Thoma Bravo) Database development software
Intel Corporation Saffron Technology Cognitive computing software
j2 Global OnlineBackupVault.com Online managed storage services
Milestone Internet Marketing Oracle (MICROS eCommerce business unit) Web marketing & design services
Morningstar FNA Investment portfolio rebalancing SaaS
Nitro Software Daggerboard Marketing document management SaaS
PatientSafe Solutions Vree Health (Merck) Patient care app & BPO
PhishMe Malcovery Security (assets) Malware threat intelligence software
Raycom Media Pure Auto Automotive digital marketing
Reynolds and Reynolds (Vista Equity/ Goldman Sachs)
International Document Services Mortgage document e-signature SaaS
Roper Technologies Atlas Medical Software Healthcare management software & services
Simply Measured DataRank Social media analytics SaaS
SintecMedia Broadway Systems Television advertising management software
SkyBitz (Telular Corporation) SMARTLogix Petroleum distribution & tracking SaaS
Unbound Commerce Apptive Mobile e-commerce application development SaaS
Versata Enterprises (Trilogy Enterprises) Quantum Retail Technology Retail SCM software
VersionOne ClearCode Labs Software workflow management SaaS
VMware (EMC) Boxer Mobile email management application
Wombat Security Technologies ThreatSim (Stratum Security) Anti-phishing simulation & training SaaS
Ziff Davis Media ( j2 Global) Salesify B2B customer analytics SaaS
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Wilma Jordan Founder & CEO
Tom Pecht Managing Director
Scott Peters Co-President
David Clark Managing Director
Tolman Geffs Co-President
Joseph Sanborn Managing Director [email protected]
Sam BarthelmeDirector
Richard Mead Managing Director [email protected]
Adam Gross Chief Marketing Officer
Amir Akhavan Managing Director
Tom Creaser Executive Vice President
Bill HitzigChief Operating Officer
Jeff Becker Managing Director
BostonCIC Boston
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About JEGI JEGI is the leading independent investment bank for the global software, tech-enabled services, media, marketing and information sectors. Over the past 28 years, the firm has completed nearly 600 M&A transactions, serving global corporations, private companies, entrepreneurs and founders, and private equity and venture capital firms.
JEGI’s senior bankers average nearly 20 years of M&A experience and personally lead each client engagement. Through the firm’s broad network of industry contacts and a deep understanding of the markets that its clients serve, JEGI helps technology companies find their optimal strategic paths via exit or growth capital. The firm provides clients with a wide and global breadth of buyers, leveraging its unique and extensive market knowledge and deep relationships across diverse markets to maximize value. For more information, visit www.jegi.com.
Select Recent JEGI Technology Transactions*
*Some of the transactions highlighted above were completed by JEGI Managing Directors Joseph Sanborn and Jeff Becker, prior to joining the firm.
a leading tech-enabled searchand digital marketing agency
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July 2014
a leading event housing softwareand services provider
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October 2014
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July 2015
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an international SaaS platformdelivering omnichannelaudience engagement
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a leading mobile video and brandedcontent advertising platform
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a leading provider of enterprisesecure �le sharing and collaboration
services for IT business managers
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a portfolio company of
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March 2015
a cloud-based provider of globalsourcing and collaborative
supply chain software solutions
a leading provider of mobileworkforce management solutions
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the leader in omnichannelcontent creation and delivery
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May 2013
a leading provider of shoppingand shopper marketingsoftware and services
has receiveda signi�cant investment
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a pioneer and leading SaaSprovider of talent analytics toHR and C-level professionals
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a leading mobile app marketintelligence and analytics provider
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to
May 2014 May 2012
a pioneer and leader in mobileentertainment services
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