Architect Partners » M&A Alert

IBM Acquires Worklight

Margaretha M — Wed, 01 Feb 2012 14:00:24 +0000

Author: Tom Brehme

Transaction Overview

On January 31^st 2012, IBM agreed to acquire Worklight for $70mm.

Target Description

Worklight offers HTML5 mobile application development and management platform which allows organizations to develop and deliver HTML5-based native applications that can be integrated with existing enterprise IT systems. Companies use Worklight so they can integrate security features, data management and analytics in the mobile applications. Worklight enables companies to reduce time to market, efficiently manage devices and minimize cost and complexity when offering mobile applications that promote better customer and employee user experiences across devices. For example, a bank can create a single application that offers features to enable its customers to securely connect to their account, pay bills and manage their investments, regardless of the device they are using. A hospital could use Worklight technology to extend its existing IT system to allow direct input of health history, allergies, and prescriptions by a patient using a tablet. Upon acquisition, Worklight will be integrated to IBM’s Software Group. Other enterprise mobile application development companies include Appcelerator, PhoneGap (acquired by Adobe), Rhomobile (acquired by Motorola), and Sencha. Worklight was founded in 2006 and has raised $18mm in funding from Genesis Partners (Eddy Shalev), Index Ventures (Bernard Dalle) and Pitango Venture Capital (Rona Segev-Gal).

Buyer Description

IBM provides a broad array of hardware, software and services to business customers. IBM’s software offerings span across many categories and are generally oriented toward helping large and medium-sized businesses run their businesses more efficiently. Enterprise mobile device management has been a key sector that IBM has focused on. The same day of the Worklight acquisition, IBM announced Endpoint Manager for Mobile Devices, a software platform that companies use to secure and manage employees’ smartphones, tablets and laptops. This product is based on IBM’s July 2010 acquisition, BigFix, a system and security management tool for servicing connected devices across a number of operating platforms, including laptops and point of sale hardware. The key executive sponsor of the Worklight acquisition was Marie Wieck, general manager, IBM application and infrastructure middleware.

Transaction Parameters

IBM did not disclose details of the transaction but TechCrunch reported that, according to Israel publication Calcalist, the transaction value is $70mm.

Comparable transactions in the enterprise mobile application sector include Motorola’s acquisition of Rhomobile in October 2011, Adobe’s acquisition of PhoneGap in October 2011, and Keynote’s acquisition of Device Anywhere for $45mm (4.5 times revenue) in October 2011.

Strategic Rationale

Worklight expands IBM’s enterprise mobile portfolio. IBM’s goal is to enable global corporations to leverage the proliferation of mobile devices by offering a development platform that helps speed the delivery of existing and new mobile applications to multiple devices and ensures secure connections between smartphone and tablet applications with enterprise IT systems. Worklight fits in this strategy.

Architect Partners’ Observations

1) Since IBM doesn’t frequently buy early stage companies, this transaction is particularly telling of the importance global corporations and traditional IT vendors are placing on mobile.

2) Enterprise mobile application development and device management are becoming critical capabilities as companies adopt to the growing demands of an increasingly mobile workforce and customer base. The ability to bridge a myriad of devices and applications to an existing enterprise IT system is key to ensure security, analytics and, importantly, workforce and/or customer engagement.

3) We have also published an Ecosystem Thought piece on the mobile application development framework. Please click here for our research.

Resources

IBM buys Worklight, launches its own BYOD manager
IBM Buys Worklight
IBM Acquires Israeli Mobile Software Player Worklight
IBM acquires Worklight, eyes mobile device management
IBM Buying Worklight to Enhance Mobile-Application Software
IBM Buys Worklight for Mobile Software Platform
Architect Partners: It’s Good To Be A Developer

Siemens Acquires RuggedCom

Margaretha M — Wed, 01 Feb 2012 01:00:32 +0000

Author: Eric F. Risley

Transaction Overview

On January 30, 2012, Siemens (NYSE: SI, market cap: $83b) outbid Belden (NYSE: BDC, market cap: $1.8b) to acquire RuggedCom (Toronto Stock Exchange: RCM, market cap: $326mm).

Target Description

RuggedCom provides wired and wireless communications and networking solutions (including switches, routers, servers, multiservice platforms and network management) that accommodate harsh industrial environments including extreme temperature (-40°C to +85°C), water immersion and Zero-Packet-Loss immunity against high levels of electromagnetic interference. RuggedCom products are used in electric power (including smart grid environments and power distribution — electric power generates approximately 70% of its revenue), transportation (traffic / railway control management), industrial (refineries, manufacturing automation, oil and gas,) and military (defense systems). Customers include Areva, Alcoa, Chevron, GE, Siemens, Boeing, Lockheed Martin, L3 Communications, Cooper Power Systems, National Grid, City of Houston Transportation, Washington State Department of Transportation and the U.S. Navy. Competitors include GE, Moxa, Belden (via their GarrettCom and Hirschmann product lines), Silver Spring Networks and Ethernet Direct. Founded in 2001, RuggedCom has approximately 360 employees. RuggedCom is headquartered in Concord, Ontario, Canada.

Buyer Description

Siemens provides a broad set of products and services to the industry, energy, healthcare, and infrastructure and government sectors worldwide. Solutions industry automation, plant system integration, power generator and transmitter, oil and gas extraction and technologies that enable efficient use of resources and productivity.

Siemens has a portfolio of industrial Ethernet networking components with an install base mainly in Europe. Siemens has a stated goal of acheiving 100 billion euros ($131 billion) in sales, partially via acquisitions. Sales in the fiscal year ended September 30 2011 were 73.5 billion euros. Anton S. Huber, CEO of the Siemens Industry Automation Division and Robert Hardt, President and CEO of Siemens Canada were executive sponsors of this transaction.

Transaction Parameters

Siemens agreed to pay RuggedCom’s shareholders $33 per common share for a total transaction value of $408mm in cash. Belden made a $278mm hostile bid to acquire Ruggedcom in December 2011.

Purchase Price: $408mm

Enterprise Value (1): $369mm

Enterprise Value Multiples (2):
EV/2011 Revenue 3.4x
EV/2011 EBITDA 20.5x
EV/2011 Net Income 52.7x

Premium Analyses:
One Day Prior 26%
One Week Prior 27%
One Month Prior 37%

(1) Includes net cash of $39mm

(2) Based on LTM Revenues of $108mm, LTM EBITDA of $18mm and LTM Net Income of $7mm.

Other recent comparable transactions within the industrial networking sector include Spectris’ acquisition of N-TRON for $51mm in October 2010, Belden’s acquisitions of GarrettComm for $57mm (1.4 times revenue in November 2010) and Hirschmann for $320mm (1.3 times revenue) January in 2007.

There has also been significant consolidation activity within the microwave wireless networking sector which typically serves similar industrial clients. These include DragonWave’s acquisition of Nokia Siemens’ microwave transport business for between $51mm – $161mm (.2x – .5x revenue) , Alvarion’s acquisition of Wavion for $30mm (1.9x revenue) and Vector Capital’s acquisition of Motorola’s Orthogon and Canopy businesses for approximately $90mm (.6x revenues).

Strategic Rationale

RuggedCom’s largely North America client base provides a solid complement to Siemens’ concentration in Europe. Siemens had a previous relationship with RuggedCom and had recently announced a joint customer win.

Architect Partners’ Observations

On Decembe 19, 2011, Belden initiated a hostile bid for RuggedCom after friendly conversations broke down. Belden’s initial offer represented a 62% premium to RuggedCom’s stock price the day prior to the public announcement. Hostile takeover approaches are unusual within the technology sector and rarely successful. According to CapitalIQ, since 2000 there have been only 29 hostile offers within the technology sector and only 9 of those offers prevailed.

A portion of RuggedCom’s product offering was wireless networking equipment. As mentioned above, the microwave wireless networking market has already begun to experience consolidation, which we expect to continue.

Sources

Siemens Bids C$382 Million for Ruggedcom, Trumping Belden
UPDATE 3-Siemens to buy Canada’s RuggedCom for C$382 mln
Industrial Ethernet Switches – Five Year Market Analysis and Technology Forecast through 2014
US Smart Grid Market Forecast: 2010-2015
Wi-Fi vendors becoming hot acquisition targets

Constant Contact Acquires CardStar

Margaretha M — Wed, 25 Jan 2012 22:04:33 +0000

Author: Eric F. Risley

Transaction Overview

On January 19^th 2012, Constant Contact agreed to acquire CardStar.

Target Description

CardStar develops a mobile application that allows consumers to consolidate membership and rewards cards and mobile coupons within a single application in their smartphone. Consumers scan their cards and their information is then imported into the application. Merchants can also use CardStar to tailor mobile deals and offers to their customers as well as track purchase behaviors to reward loyalty. The CardStar application is available on iPhone, Android and Blackberry and CardStar claims over two million users. Competitors include KeyRing, Stampt, Cartera Commerce and Chatterfly. CardStar’s employees will join the Constant Contact team, including CEO and Founder Andy Miller and CTO and Founder Danny Espinoza. Miller will serve as Director of Mobile Products, reporting to Joel Hughes, Constant Contact’s senior vice president of strategy and corporate development. CardStar was founded in 2008 and is headquartered in Boston, MA. CardStar has raised $2.3 million in funding from Launch Capital (Bill McCullen), Verizon Ventures, Acta Capital and Amplifier Venture Partners.

Buyer Description

Constant Contact provides online marketing services including email marketing, social media and online surveys to 450,00 small and medium size businesses. Last year, Constant Contact bought social CRM startup Bantam Live for $15 million in cash, and social email startup Nutshell Mail. Constant Contact has raised $37mm in total funding from Investor Growth Capital, Longworth Venture Partners (James Savage), Morgan Stanley Venture Partners, Greylock, Commonwealth Capital Ventures, Hudson Ventures and Institutional Venture Partners.

Transaction Parameters

Transaction value was not disclosed. Other comparable loyalty marketing transactions include TIBCO’s $23mm acquisition of Loyalty Labs in December 2010 and Google’s acquisition of Punchd in July 2011.

Strategic Rationale

Constant Contact is all about allowing SMB’s to deliver marketing messages to well targeted consumers. Their legacy is using email as the delivery mechanism, which remains their core channel. Email, while still an effective, is practically limited to a one way exchange (outbound to the consumer), partially suffers from it’s association with spam and is increasingly perceived to be overloaded by consumers.

Constant Contact, consistent with other email marketing providers, is seeking fresh ways in which it can help SMBs deliver their marketing messages to existing and new customers. CardStar allows consumers a way to effectively manage the multitude of loyalty/reward programs in which they have membership, using their phone as the “card”. This provides Constant Contact with several new assets to enhance its business. These include 1) CardStar’s current users, who are technology savvy with an attractive demographic to marketers, 2) access to valuable behavioral, location and purchase data associated with these customers to help improve targeting, 3) a frequently used mobile application where selected marketing messages and offers can be presented to the consumer optimized for time, location and circumstances and 4) a clear opportunity to provide SMB merchant customers with other loyalty related programs.

Architect Partners’ Observations

While undoubtably small in size, we highlight this transaction as it represents a great example of the importance of establishing a persistent, reciprocal relationship with customers. While outbound marketing efforts such as email, display advertising, print ads, … will continue to play an important role in attracting and retaining customers, applications such as customer loyalty provide the opportunity for businesses to build a persistent, one-on one, personalized, two-way relationship with their customers.

Resources

Constant Contact Buys Mobile Loyalty Card Startup CardStar
Constant Contact acquires Boston-based CardStar to help small businesses run loyalty programs
CardStar’s 2009 Under The Radar Presentation
CardStar’s 2010 Under The Radar Presentation

Synchronoss Acquires Miyowa

Margaretha M — Fri, 13 Jan 2012 21:44:11 +0000

Author: Steve Payne

Transaction Overview

On January 5^th, 2012, Synchronoss Technologies (NASDAQ: SNCR, market cap: $1.1 billion) agreed to acquire Miyowa for up to $59mm.

Target Description

Miyowa provides messaging and social networking solutions for mobile devices. Its foremost solution, InTouch5, aggregates a user’s social networks, IM & Mail in one mobile interface. Miyowa has partnerships with social networks and messaging providers including Facebook, Twitter, Windows Live, Yahoo!, Gtalk and AIM to link contacts, status updates, photos and feeds into one unified interface. Miyowa’s customers include European service provider Orange and 30 other carriers and handset OEMs HTC, Samsung and ZTE. Their software is used in over 100 million mobile handsets in Europe and North America. Founded in 2003, Miyowa has 70 employees, is headquartered in Marseille, France and has raised $12mm in total funding from Credit Agricole Private Equity (Francois-Xavier Dede, Michel de Lempdes), Sophia Euro Lab and Techfund Europe Management (Kurt Kellhacker, Mike Kaul).

Buyer Description

Synchronoss Technologies provides service providers, cable operators, retailers and mobile device OEMs with in-store or online services for automating new subscriber activations, transferring and synchronizing content (media and address book data) among multiple mobile devices and provisioning new services. Synchronoss’s 2011 revenues were over $200m, with 50% attributable to AT&T Mobile and another 35% attributable to Time Warner Cable, Level 3, Verizon and Vodafone, collectively.

Transaction Parameters

Synchronoss will pay $45.5mm in cash and up to an additional $13.5mm in earnout based on Miyowa’s business achieving certain performance targets over the next four quarters. Synchronoss expects the transaction to be at least neutral to its non-GAAP earnings per share for 2012. Miyowa’s 2011 revenue was estimated at $12.7mm (a majority of which comes from carriers). Miyowa’s revenue model is based on the number of users (similar to Synchronoss) and has gross margins in the 80%+ range.

Enterprise Value: $45.5-$59.0
EV/Revenue: 3.6x-4.6x

Other comparable transactions include Motorola’s acquisition of Zecter for $40mm in December 2010, RIM’s acquisition of NewBay for $100mm in October 2011, Acer’s acquisition of IGware for $320mm-$395mm in July 2011 and Synchronoss’s acquisition of FusionOne for $49mm-$75mm in July 2010.

Strategic Rationale

This deal links Synchronoss’s mobile strength with Miyowa’s social networking capabilities to provide a broader solution set for carriers and OEMs. Miyowa brings unique relationships with mobile messaging and social network vendors (via private APIs) and also with European and Asian carriers and device OEMs. These social networking and messaging capabilities will be connected with Synchronoss’s Network Address Book sync product to allow consumers to manage and consume contacts, social media and messaging from one integrated interface on their phones. Synchronoss’s ConvergenceNow Plus+ platform and its Network Address Book in effect become a more powerful social address book.

Architect Partners’ Observations

This transaction highlights four key themes:

1) The importance of Service Provider IT (SPIT) vendors in mediating services across multiple carriers and device OEMs.

2) The attractiveness of higher-layer services that attempt to keep carriers relevant in an ecosystem where the smartphone platforms have taken a dominant position.

3) The ubiquity of social networks as a communication channel.

4) The continued interest in sync and backup products as a way for carriers, OEMs and platforms to lock in customers and generate incremental services revenues.

Resources

Synchronoss Acquires Miyowa
Synchronoss Buys Miyowa for $45.5mm, Expanding Its Cloud Software
Synchronoss Adds Miyowa’s Social Networking Capabilities to Its Mobility Platform

Mindspeed Acquires Picochip

Margaretha M — Thu, 12 Jan 2012 17:25:58 +0000

Author: Eric F Risley

Transaction Overview

On January 5^th 2012, Mindspeed Technologies (NASDAQ: MSPD, market cap: $189mm), agreed to acquire Picochip for up to $77mm.

Target Description

Picochip develops system on a chip (SoC) silicon powering femtocells. Femtocells are micro-cellular base stations which can be deployed in a home, office or metropolitan setting. Femtocells allow wireless operators to improve cellular reception in weak signal areas as well as offload voice and data traffic from their primary network in areas where congestion is an issue. Picochip sells its products to network equipment OEMs who then in turn sell the complete equipment to wireless network operators. Picochip claims a greater than 70% share of the 3G HSPA femtocell market. Picochip products are deployed in 50 mobile network operators such as Vodafone, ATT, T-Mobile, Rogers, China Mobile, TeliaSonera and SingTel. Customers include Cisco, Alcatel-Lucent, Samsung, Femtel, ip.access and MitraStar. Founded in 1997, Picochip has 150 employees and is headquartered in Bath, the U.K. Competitors include Ubiquisys, ip.access, Airwalk and Airvana. Picochip has raised $121mm in funding from Atlas Venture (Christopher Spray), Highland Capital Partners (Daniel Rosen, Matthew Nichols, Sean Dalton), Intel Capital (Abdul Guefor), Pond Venture Partners (Jamie Urquhart, Richard Irving), Samsung Ventures (Brian Kang), ATT, Scottish Equity Partners (Stuart Paterson) and ETV Capital.

Buyer Description

Mindspeed develops semiconductors which are integrated into wireline and wireless network infrastructure. Mindspeed offers three product families: 1) Communications convergence processing (low-power, multi-core digital signal processor system-on-chip (SoC) solutions for fixed and mobile (3G/4G) carrier infrastructure), 2) high-performance analog (high-density crosspoint switches, optical drivers, equalization and signal-conditioning solutions to coordinate complex switching, timing and synchronization in next-generation optical networking) and 3) wide area networking communications (to optimize circuit-switched networks that are the foundation to the Internet’s long-distance infrastructure). In February 2011, Mindspeed announced Transcede, the first small cell SoC baseband processor for LTE networks, which has been adopted by 22 companies. Mindspeed’s customers include major telecommunication equipment vendors such as Alcatel-Lucent, Cisco, Huawei, Hitachi, Ericsson, Mitsubishi, Nokia Siemens Networks and ZTE.

Transaction Parameters

Mindspeed will pay $27.5mm in cash (financed with debt) and $24.3mm in stock (Mindspeed will issue 5.19mm of stock which equals 15% of Mindspeed’s outstanding shares). In addition, Mindspeed will pay up to $25mm, payable in cash or stock in the first quarter of CY2013 contingent upon revenue delivery of above $25mm in CY2012. Picocell’s CY2011 revenue was $15mm. Mindspeed believes Picochip products can grow 50%-60% in CY2012, a growth that is consistent with external market research for the small cell base station market for the same period. The transaction is expected to close in the first quarter of CY2012 and will be accretive to earnings in the second half of CY2012.

Enterprise Value (EV): $52-$77mm
EV/CY’11 Revenue Multiple: 3.5x-5.1x

Other comparable transactions include:

1) Nvidia’s acquisition of Icera for $367mm (4.0 times revenues) in May 2011
2) RadiSys’ acquisition of Continuous Computing for $112mm (2.0 times revenues) in May 2011
3) Qualcomm’s acquisition of Atheros for $3.1b (3.5 times revenues) in January 2011
4) Broadcom’s acquisition of Beceem Communications for $316mm (4.0 times revenues) in October 2010
5) Intel’s acquisition of Infineon’s wireless unit for $1.4b (1.1 times revenues) in August 2010
6) Renesas’ acquisition of Nokia’s baseband technology for $200mm in July 2010

Strategic Rationale

Picochip brings Mindspeed a strong market position, customer base and expertise addressing the key flavors of 3G femtocell technology complementing Mindspeed’s LTE (4G) capabilities. Although LTE represents an attractive market long-term market, according to ABI Research, 3G (WCDMA/HSPA) will still account for up to 70% of the total markets for small cells through 2016, emphasizing the importance of 3G solutions, in spite of the inevitable upgrade to LTE over time. Integrating both standards into multi-core processors is also expected to enable the growth of carrier-grade small cell base stations. Small cell base station shipments are expected to grow to 24mm units by 2016, which translates to a 98% CAGR from CY2011-CY2016 according to ABI Research.

Architect Partners’ Observations

As GigaOM nicely illustrated, small cells/femtocells are one of the key solutions for wireless carriers to effectively manage the dramatic increase of data traffic on their networks. In addition, small cells potentially represent a new revenue stream for wireless carriers. At times, the wireless carrier sells the femtocell to its customers and has the opportunity to provide the internet service connection which is the connection point for the femtocell base station.

The small cell/femtocell market has been big on promise for quite some time but has been slow to develop commercially. As is evedenced by Picochip’s $121mm in capital raised since inception, it’s also been an expensive endeavor to develop the technology and market the products.

Sources

Mindspeed Blog
Mindspeed Investor Presentation
Small-Cell Maker Picochip Acquired by Mindspeed
Mindspeed Buys ‘Small Cells’ Maker Picochip For Up To $76.8 Million
With Picochip, Mindspeed buys big into a small market
Mindspeed Buys Small Cell Pioneer
Mindspeed Snaps Up Picochip for $51.8 Million

Akamai To Acquire Cotendo

Margaretha M — Tue, 10 Jan 2012 14:00:39 +0000

Author: Tom Brehme

Transaction Overview

On December 22^nd 2011, Akamai (NASDAQ: AKAM, market cap $5.8b) announced that it has agreed to acquire Cotendo for $268 million.

Target Description

Cotendo offers acceleration services for websites, mobile websites and applications through an integrated suite of Web and Mobile Acceleration Services from its global distributed points of presence (POPs). Cotendo’s single platform software includes acceleration services for dynamic web applications, static and dynamic web content, SSL, Advanced DNS, Adaptive Image Compression, performance monitoring and automatic failover as well as real-time reports and analytics. Cotendo also offers a distributed cloud application environment called Cloudlet™ that allows decision-making (logic, data) at the edge, closest to the end users.

Cotendo’s customer base includes Fortune 500 enterprises, Tier 1 telecommunications providers and the world’s largest social networks, eCommerce sites, and advertising networks, such as: Facebook, Microsoft, Google, Zynga, VistaPrint, Digg, MyYearbook and Answers.com Cotendo has a partnership with AT&T (Cotendo’s Dynamic Site Acceleration to be integrated with ATT’s network), launched a joint-product with Citrix to accelerate enterprise SaaS applications and worked with Google to deploy and commercialize a new Page Speed Automatic service. CDN competitors include Amazon Web Services, BitGravity, EdgeCast, Internap and Limelight Networks, among others. Competitors in the mobile and video acceleration spaces include Skyfire, Flash Networks, Openwave, and Ortiva, among other. Cotendo was founded in 2008 and is headquartered in Silicon Valley with R&D facilities near Netanya, Israel. Cotendo’s three co-founders are Commtouch Software veterans. Cotendo has raised $41 million in total funding from Benchmark Capital (Arad Naveh), Sequoia Capital Israel (Randy Ditzler & Halm Sadger), Tenaya Capital (Benjamin Boyer & Thomas Banahan), Juniper Networks, Investment Arm, Presidio Ventures and Citrix.

Buyer Description

Akamai is a global leader in web application acceleration and performance management. Akamai controls 90% of of the content management and streaming market. In February 2011, Akamai announced a partnership with Ericsson to create mobile cloud acceleration solutions. Akamai is now developing a licensed CDN offering to telcos and carriers and has signed up customers including AT&T, Deutsche Telekom, Telecom New Zealand and Telus. Akamai has made numerous CDN-related acquisitions including Velocitude in June 2010, Red Swoosh in April 2007, Netli in February 2007, Nine Systems in November 2006 and Speedera in March 2005.

Transaction Parameters

Cotendo’s 2011 revenues are estimated at $30 million. Industry sources claim that Cotendo’s dynamic site accelerations (“DSA”) pricing is about 25%-30% lower than Akamai. Juniper and AT&T were also rumored to have been involved in acquisition talks with Cotendo.

Enterprise Value (EV): $268mm
EV/CY’11 Revenue Multiple: 8.9x

Comparable transactions include Riverbed’s acquisition of Zeus for $110mm-$140mm (6.9x-9.3x revenue) in July 2011, HTC’s acquisition of Saffron Digital for $48mm (4.6x revenue) in February 2011, Cisco’s acquisition of Inlet for $95mm (6.3x revenue) in February 2011, Qualcomm’s acquisition of iSkoot for $52mm in October 2010 and Juniper’s acquisition of Ankeena for $69mm in April 2010.

Strategic Rationale

Cotendo’s optimization technology at the network protocol level complements Akamai’s content streaming & management offerings. Additionally, many industry sources claim that Cotendo’s competitive pricing was negatively impacting Akamai’s margins. Akamai likely viewed Cotendo as an opportunity to both acquire complementary technology and alleviate margin pressure by absorbing a growing competitor.

Architect Partners’ Observations

Much (justifiable) attention has been paid to the phenomenal growth expected in mobile video and the associated infrastructure challenges facing mobile carriers. Mobile video solution providers such as Skyfire, Flash Network and Ortiva are well positioned to benefit from trend. However, it’s important to remember that there is still an enormous amount of non video-related data moving around that originates from real-time applications such as e-commerce, social networking, and content heavy websites. It was in accelerating the movement of these types of data / content that Cotendo excelled.

Sources

Akamai Confirms the Rumor, Nabs Cotendo for $268mm in Cash
Done Deal-Akamai Buys Rival Cotendo for $268mm
How Dynamic Site Acceleration Works, What Akamai and Cotendo Offer
Pressure On Akamai Growing, Company Needs To Make Some Acquisitions To Jumpstart Their Business
Updated List Of Vendors In The Content Delivery Ecosystem

IBM Acquires DemandTec

Margaretha M — Thu, 08 Dec 2011 20:33:41 +0000

Author: Eric Risley

Transaction Overview

On December 8th 2011, IBM acquired DemandTec for $440mm in cash.

Target Description

DemandTec offers cloud-based analytic application software that enables retailers and merchants to examine different customer buying scenarios, both online and in-store, and spot trends and shopper insights to make better price, promotion, and assortment decisions. Retailers can use DemandTed to gain a quick and accurate analysis of consumer trends, predict how consumers will respond to a price change, adjust the marketing mix for a product and craft a merchandising plan that is targeted to shopper segments. DemandTec has approximately 450 customers worldwide in grocery, drug, convenience, consumer electronics, office supplies, apparel, department stores, quick-serve restaurants and consumer goods including food, beverage, and health & beauty. Customers include Ahold USA, Best Buy, ConAgra Foods, Delhaize America, General Mills, H-E-B Grocery Co., The Home Depot, Hormel Foods, Monoprix, PETCO, Safeway, Sara Lee, Target, Walmart, and WH Smith. DemandTec has a portfolio of 31 patents in the areas of pricing, response analysis, and promotion analysis. DemandTec is based in San Mateo, CA and has more than 350 employees, with additional offices in Minneapolis, London, Paris, and Bangalore. Upon acquisition, DemandTec will be integrated to IBM’s Smarter Commerce product offering.

Buyer Description

IBM provides a broad array of hardware, software and services to business customers. IBM’s software offerings span across many categories and are generally oriented toward helping large and medium-sized businesses run their businesses more efficiently. Commerce and marketing are two sectors that IBM has been bolstering via acquisitions. IBM acquired Unica for $447mm (4.1x LTM revenue multiple) in August 2010 and Coremetrics for $150mm in June 2010 and Sterling Commerce for $1.4 billion in May 2010. These three acquisitions, along with IBM’s WebSphere Commerce Platform, are the foundation of Smarter Commerce, an IBM product offering that was launched in March 2011. The key executive sponsor of the DemandTec cquisition was Craig Hayman, General Manager of IBM’s Industry Solutions group.

Transaction Parameters

IBM will pay $13.20 for each of DemandTec share.

Equity Value: $440mm

Enterprise Value: $427mm¹

Multiple Analyses²:

EV/LTM Revenue 4.8x³

Premium Analyses:

One Day Prior 57%
One Week prior 81%
30 Day Prior 75%

Note:
1) Enterprise value includes DemandTec’s options valued at $44.5mm and DemandTec’s net cash of $57.9mm.
2) DemandTec has negative EBITDA multiple, therefore EBITDA multiple is not applicable.
3) Based on LTM revenue of $89.1mm.

Comparable transactions in the commerce space include Oracle’s acquisitions of Endeca in October 2011, RightNow Technologies for $1.5b (7.0x LTM revenue multiple) in October 2011 and Art Technology Group for $799mm (4.1x LTM revenue multiple) in November 2010; and TIBCO’s acquisition of Loyalty Lab for $23mm in December 2010

Strategic Rationale

DemandTec fits within IBM’s Smarter Commerce initiative by enhancing price, promotion and other merchandising and marketing analytics to help companies better define the best price points and product mix based on customer buying trends. DemandTec also expands IBM’s Software-as-a Service portfolio. IBM estimates the market opportunity for Smarter Commerce at $20 billion in software alone.

Architect Partners’ Observations

Traditional enterprise software vendors are aggressively augmenting their retail commerce-oriented marketing and analytic capabilities to serve the evolving needs of retailers. Our recent sector assessment, The Evolution of Shopping, highlights some of the important trends and emerging vendors.

Resources

Behind the Strategy: Commerce and the Connected Customer
The Forrester Wave: Comprehensive Integration Solutions, November 2010
The Forrester Wave: B2C eCommerce Platforms, October 2010
Gartner Magic Quadrant for Enterprise Content Management, October 2011

eBay Acquires Hunch

Margaretha M — Tue, 29 Nov 2011 09:03:01 +0000

Author: Eric F. Risley

Transaction Overview

On November 21st, 2011, eBay acquired Hunch for $80 million.

Target Description

Hunch is an online platform that enables users to share and discover personalized recommendations over a wide range of topics such as art, electronic gadgets, fashion, books, movies and vacations. Hunch has patented prediction technology (which combines data mining, machine learning and predictive modeling) which powers the company’s flagship product called “Taste Graph”. Taste Graph integrates data from around the Web, including social networks such as Twitter and Facebook, users’ historical online behaviors and users’ interest/preference profiles (which users provide via a Hunch questionnaire when signing up for Hunch service) to predict users’ affinity for products and services. Hunch also allows users to share their recommendations and connect with other users with similar interests and preferences. Hunch offers its product to companies to power custom recommendations on their own websites and applications. Competitors include myStrands, iGuiders, Baduk, YouChooze and Amazon’s recommendation engine. Based in New York, Hunch was founded in 2007 and has raised more than $19mm in funding from Bessemer Venture Partners (Eric Arnold and Robert Stavis), General Catalyst Partners (Hemant Taneja), Founder Collective (Caterina Fake who was also a co-founder of Hunch), Khosla Ventures and SV Angel. Upon acquisition, Hunch’s employees will remain with the company, including co-founders Chris Dixon, Tom Pinckney and Matt Gattis. Chris Dixon will lead eBay’s existing 50 person recommendations team which is estimated to grow to 200 employees in New York.

Buyer Description

eBay has been aggressively refining its e-commerce business by building its online/mobile shopping services as well as enhancing its online/mobile payment offerings. Recently, eBay has made numerous acquisitions including Zong (carrier-based mobile payment), Magento (open source e-commerce site platform), Where (location-based shopping service), GSI Commerce (e-commerce platform), PrivateSale (flash sale site), RedLaser (mobile barcode scanning), Milo.com (local inventory) and Critical Path (mobile app developer). Last year, eBay launched its own recommendation engine. This year, eBay has also launched x.commerce platform, an open source eBay shopping and payment platform for developers.

Transaction Parameters

eBay is paying $80mm for Hunch. Hunch provides the services for free to individual consumers and licenses its services for a fee to retailers. We believe that given the stage of Hunch’s licensed-based business, that revenues were quite low.

Other recent comparable transactions include LinkedIn’s acquisition of mSpoke (content recommendation engine) and Time’s acquisition of Stylefeeder (personalized recommendation engine, value undisclosed). Other comparison involving unstructured data analytics include Salesforce’s $326mm-$340mm acquisition (8.3x-9.7x LTM revenues) of Radian6 and WalMart’s $300mm acquisition of Kosmix (pre-revenue). It was reported that last year Hunch declined a $60 million offer from Google.

Strategic Rationale

Over the past two years, eBay has substantially broadened its efforts beyond its individual and small merchant oriented auction platform. eBay’s strategy is to also serve the needs of mid and large retailers with their online, mobile and physical store-based efforts. Recommendations are a powerful catalyst behind consumer purchases and are an important capability across eBay’s product offerings including its legacy auction offering and products from recent acquisitions, Magento and GSI Commerce. Merchants can better target marketing efforts based on users’ preferences, social signals and past behavior and consumers can more easily discover relevant products and services.

Architect Partners’ Observations

This is another in a long list of M&A transactions driven by the value of data analysis. Analytics involving unstructured data (typically text-based) is an area of significant innovation with many unmet challenges. Unstructured data is growing faster than structured data (organized in a database) and rivals it’s size today. We expect this area to continue to attract capital and M&A activity.

Sources

Why eBay is buying recommendation engine Hunch
eBay’s got a hunch for around $80 million

Microsoft Acquires VideoSurf

Margaretha M — Tue, 29 Nov 2011 00:35:20 +0000

Author:

Transaction Overview

On November 22nd 2011, Microsoft acquired VideoSurf for a rumored $70mm.

Target Description

VideoSurf develops software that enables users to search and discover video through real-time visual/audio recognition technology that scans videos to identify and tag content. VideoSurf also has a mobile app that enables users to perform video search and discovery either through text based search or by using its technology to identify visual/audio patterns as video is viewed through a device’s camera – think Shazam but for video. Through the VideoSurf website, users can search video by keyword and categorize their searches by slideshows, Web series, full television episodes and full movies. As of April 2011, more than 20 million users view video clips on VideoSurf each month. The company indexes over 250 million videos from 60 sources such as YouTube, Hulu, DailyMotion, CNN, ESPN, Comedy Central and Facebook. VideoSurf has analyzed and categorized more than 12 billion visual moments on the Web to understand who the most important characters and scenes are in a video, and uses this knowledge to sort clips according to relevancy. Competitors include Akiira, DigitalSmiths, Tribune Media, Qwiki, ReelSurfer, Shazam, IntoNow (acquired by Yahoo! for $20 million) and Truveo (acquired by AOL in December 2005 for $50mm). Founded in 2006, the company is based in San Mateo, CA. VideoSurf has raised $28mm in total funding from Verizon Ventures, Israeli investment fund Pitango, former U.S. Vice President Al Gore, Facebook COO Sheryl Sandberg and SurveyMonkey CEO David Goldberg.

Buyer Description

Microsoft is best known for its Windows Operating System and Microsoft Office-based software product line for PCs, notebooks, laptops and handheld devices. Microsoft also owns the Bing Search Engine and develops electronic devices including Xbox 360 and Xbox Live (game console and online entertainment service) and Windows-based smartphones. Recently, Microsoft began offering online content including TV shows, games and music via Xbox LIVE. Microsoft announced that in the coming months, they will bring nearly 40 TV and entertainment providers to Xbox LIVE, including Bravo, Comcast, HBO GO, Verizon FiOS and Syfy in the U.S., among others. Microsoft launched Kinect, an add-on device that will let users control Xbox games with their bodies. Recent Microsoft acquisitions include: Canesta (gesture recognition technology) and Vivaty (social games platform) in October 2010 and 3DV systems (3D video imaging and motion sensing) in March 2009. Microsoft acquired Skype in May 2011, which will be integrated to Xbox devices. Alex Garden, Director of Xbox LIVE for Microsoft’s Interactive Entertainment Business, was a key executive sponsor of the VideoSurf acquisition.

Transaction Parameters

While the transaction value was not disclosed, industry rumors place the value at $70mm. VideoSurf generates revenues from licensing its technology to enterprises (which is the main source of revenue) and video advertising revenues from direct viewers. Industry sources estimate VideoSurf revenues at <$10 million, which translates to a transaction multiple of >7.0x revenues. Other comparable transactions include Yahoo!’s acquisition of IntoNow for $20 million in April 2011, CBS’ acquisition of Clicker.com for $50mm-$100mm in March 2011, Google’s acquisitions of Like.com in August 2010 for $100mm and Plink Search in April 2010, and AOL’s acquisition of Truveo for $50 million in December 2005.

Strategic Rationale

VideoSurf and its technology are important components to Microsoft’s strategy around entertainment services (games, video, music, etc.) on its Xbox LIVE platform where its technology will be applied to enhance the cross media search and discovery functionality of the platform. Plenty of competition from Google TV, Apple TV, Roku and other game devices such as Sony PlayStation and Nintendo requires that these home entertainment platforms differentiate not only though the availability of entertainment services but also by keeping users engaged with the platform through the discovery of new relevant content.

VideoSurf can also be expected to be integrated into Microsoft’s Bing search engine in order to enhance the search and discovery experience around online video and compete with Google Search.

Architect Partners’ Observations

Online TV and video consumption are now mainstream and represent a rapidly growing market opportunity that presents many challenges around content search and discovery (not to mention the related surge in mobile bandwidth usage driving infrastructure investment).

Unlike broadcast and cable TV where content channels are limited and categorized – online video is nearly unlimited and much of it is “non-premium” or “scripted” content and therefore uncategorized (think user generated content, clips of premium video, etc.). As noted by comScore in their 2009 U.S. Digital Year in Review, 52 percent of all time spent watching videos on the Internet the previous year was on ‘long tail’ video sites beyond the top 25.

What that means is that the search and discovery process for online video must not only filter through a lot of noise but also effectively tag and index this ‘non-premium’ content. A process important for the search and discovery experience, but also necessary when determining appropriate video content for advertising placement.

Resources

Microsoft acquires video search co VideoSurf
A Search Engine With a Real Eye for Videos
Al Gore-backed VideoSurf bought by Microsoft for $70 million
Why Microsoft bought VideoSurf for $70 million

VeriFone Acquires Global Bay Mobile Technologies

Tom Brehme — Thu, 03 Nov 2011 13:00:22 +0000

Author: Tom Brehme

Transaction Overview

On November 1^st, 2011, VeriFone announced that it acquired Global Bay Mobile Technologies.

Target Description

Global Bay Mobile Technologies provides a mobile retail software platform that can be custom-configured and seamlessly integrated into merchants’ existing POS, CRM, eCommerce and traditional store systems. Merchants use Global Bay to give employees the ability to access their POS and inventory information on their mobile devices. Merchants can also use Global Bay’s platform to offer a mobile retail kiosk to interact with customers and offer loyalty rewards, promotions/coupons, customer surveys and videos/commercials via mobile applications. In addition, Global Bay offers a mobile clienteling application that enables store associates to move freely around the store and assist customers on a personalized level by understanding customers’ purchase history, scheduling tasks/appointments and making relevant purchase recommendations. Global Bay’s platform is compatible with Apple, Windows, Android and BlackBerry devices. Global Bay was founded in 2002 and is based in New Jersey. Global Bay was co-founded by Sandeep Bhanote and Nimit Sabharwal. Bhanote, CEO of Global Bay, has been appointed general manager of VeriFone’s Mobile Retail Systems business. Sabharwal, Global Bay vice president, has been appointed senior director of operations. Global Bay’s staff will join VeriFone’s Mobile Retail Systems division.

Buyer Description

VeriFone offers products and technology that enable merchants to accept secure payments. Traditionally known as a provider of POS payment card readers, VeriFone has recently launched mobile payment offerings including a NFC-enabled payment reader (in partnership with Google) and PAYware (a Square-like mobile payment card reader). VeriFone also offers VeriFone Media, an interactive platform inside taxi and at gas stations, enabling advertisers to reach customers with relevant coupons and product offerings. VeriFone and other POS payment system providers have been experiencing competition from a host of emerging payment vendors such as Square, PayPal, Intuit, ROAMPay, Erply and PayAnywhere. PayPal, traditionally known as online payment specialist, announced its plan for in-store POS system and launched x.commerce payment platform to facilitate the convergence of social, local & mobile commerce.

Transaction Parameters

Transaction value is not disclosed. Recent transactions in the mobile commerce sector include eBay’s acquisitions of Magento in June 2011, GSI Commerce for $2b in March 2011 and Milo for $75mm in December 2010, Raymark’s acquisition of Retaligent in June 2011 and Great Hills Partners’ acquisition of Plimus for $115mm in August 2011.

Strategic Rationale

Global Bay fits with VeriFone’s strategy to integrate mobile retailing and payments solutions. Not only does Global Bay enhance and differentiate VeriFone’s mobile (smartphone and tablet) payment solutions with a suite of valuable commerce applications but, importantly, it creates an opportunity for VeriFone (and its merchant customers) to engage with customers earlier in and throughout the in-store shopping process. The customer engagement opportunities and insight gathered through this engagement creates many targeted marketing opportunities, such as: recommendations, promotions, loyalty rewards, etc.

Architect Partners’ Observations

We are still early on in the formation of the mobile payments ecosystem. Most of the attention has been around new (and newer) players such as Google, Square, eBay/PayPal, Visa, etc. and their efforts to use mobile phones and other connected devices to disrupt the incumbent payment and POS landscape. However, the incumbents will not be so easy to displace given their substantial resources, legacy relationships and deep enterprise integration. Additionally, they will move to extend their core offerings, as VeriFone has done, with the very same consumer-oriented services and new merchant marketing opportunities the newcomers are looking to capitalize on.

Resources

VeriFone Acquires Global Bay to Give Retailers Flexibility At the Point of Sale
PayPal Softens Its Stance on NFC as It Pitches Retailers
VeriFone Press Release