A vote of confidence?
Posted by Ben Kolada on January 26, 2012
Contact: Ben Kolada
There’s no denying that behavior in the equity markets is one of the main influencers on big-ticket M&A. Stock market stability provides a vote of confidence for corporate acquirers to pursue large, game-changing deals. Without stable markets, the valuation gap between buyers and sellers becomes too wide for potential sellers to accept. As a result, when the equity markets dip, so too does deal volume.
Nearly every drop in the tech-heavy Nasdaq Composite stock index coincided with a drop in both the volume and value of acquisitions of publicly traded technology companies. (Note: we’ve limited the scope of this research to the acquisition of Nasdaq- and NYSE-listed companies valued at more than $250m.) The number of acquisitions of large public companies tracks the stock market so closely that while the Nasdaq ended 2011 basically flat from the prior year, so too did the number of large tech transactions.
Public company acquisitions relative to Nasdaq activity
Source: The 451 M&A KnowledgeBase, 451 Research
By early 2012, the Nasdaq had effectively regained the level it held before the credit crisis. Despite this bull run, however, there’s very little certainty or stability in the equity markets. Although not a flawless metric, we can use predictions for the IPO market as a gauge of 2012 activity. A stable stock market is desired before a private company hits the public stage. According to our 2011 Tech Banking Outlook Survey, which forecasts activity for 2012, bankers expect the public markets to be stable enough to welcome 25 new technology firms this year – the same number predicted for 2011.
But the number of IPOs is only half of the equation, as subsequent stock performance shows longer-term confidence in the newly public companies’ businesses. In 2011, we saw a number of fairly successful tech IPOs, many of which came from the consumer technology sector, such as LinkedIn and Zynga. But some of these vendors’ initial good fortunes were short-lived. LinkedIn, for example, has lost one-quarter of its market value since the company debuted in May 2011, and Zynga is trading below its offer price.
Among the top issues affecting stock markets are progress toward resolving or containing the European debt crisis and an agreement by the US congress on a bipartisan plan that would reduce the federal deficit by at least $1.3 trillion over the next 10 years. A full 85% of tech bankers surveyed answered that progress on the European debt crisis would increase M&A activity, while 73% said the same about progress on reducing the federal deficit. However, neither of these issues seems likely to be resolved anytime soon. The European sovereign debt crisis appears particularly hairy, after credit rating agency Standard & Poor’s recently downgraded nine major European nations’ credit ratings. Meanwhile, presidential election season in the US is likely to cause most to focus on campaigning rather than the federal deficit. While many weigh their options in voting for the next US president, the stock market may lose its vote of confidence, and deal volume could decline as a result.
Filed Under Europe, investment banking, IPO, M&A, technology stocks | Leave a Comment
NTT continues global expansion, bags Netmagic
Posted by Ben Kolada on January 25, 2012
Contact: Ben Kolada
NTT Communications has made another move in the Indian datacenter services market, this time taking a 74% stake in Netmagic Solutions. Netmagic provides managed hosting, colocation and infrastructure management services, among others, from seven datacenters throughout India. This is the latest in a growing line of transactions NTT has inked that have been meant to expand the company’s global datacenter and cloud services footprint.
The deal is yet another international investment in datacenter and cloud services for NTT. In the press release announcing the transaction, the Japan-based telco noted Netmagic’s footprint in the growing Indian datacenter services market as among the top drivers for the acquisition. Our colleagues at Tier1 Research previously wrote that NTT subsidiary Datacraft has already been working with India-based telecom provider Bharat Sanchar Nigam Limited (BNSL). However, NTT said the deal has strategic benefits beyond India, and that it will accelerate its infrastructure and cloud services throughout greater Asia.
This isn’t the first India-specific or international move NTT has made in the datacenter or cloud sectors. In July 2010, the company announced that it was forking over roughly $3.2bn for Johannesburg-based Dimension Data, which also has a footprint in India. NTT cited the cloud computing opportunity as the main motivation behind that transaction. Almost exactly a year later, Dimension Data, then a subsidiary of NTT, announced that it was acquiring cloud, colocation and managed hosting provider OpSource. Although based in Santa Clara, California, OpSource’s cloud technology and capabilities will be sold throughout Dimension Data’s global footprint.
Filed Under cloud computing, Europe, Internet Access, investment banking, IT Outsourcing, M&A | Leave a Comment
The ‘state of the union’ for tech unions
Posted by Brenon Daly on January 19, 2012
Contact: Brenon Daly
To get a sense of what we might see in tech M&A in 2012, we looked back on the previous year to highlight some of the trends and marquee transactions that we expect to continue to shape the market. In our annual ‘state of the union’ report, we noted that both the number of IT, telecom and Internet deals as well as the spending on them last year posted a mid-teen percentage increase over 2010.
And while the gain may seem pretty straightforward, getting there was rather erratic. We saw spending hit its highest level in August, but then get dragged down to anemic levels in the following months amid concerns about European debt levels. Spending on deals in Q4 actually declined from 2010 – the only quarter last year to do so. Still, we see a number of drivers, which we highlight in our report, that should keep dealmakers busy over the coming year.
Overall tech M&A activity
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Source: The 451 M&A KnowledgeBase
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IGT rolls dice on Facebook gaming, but hedges bet
Posted by briansatterfield on January 13, 2012
Contact: Brian Satterfield
In yet another sign of the power of social networking, casino gaming systems maker IGT agreed on Thursday to purchase Facebook casino videogame startup Double Down Interactive for a potential consideration of up to $500m. The Double Down deal highlights the growing importance of social networking websites to traditional gaming companies, as Double Down enables IGT to reach millions more players online in a single day than the company could ever hope to in the smoke-filled parlors of Las Vegas or Atlantic City. But in a nod to the risk associated with entering a new market, IGT has hedged its bet by structuring the deal to include a $165m earnout (as well as $85m in retention incentives), which is equal to two-thirds of Double Down’s $250m price tag.
The transaction is one of the largest in the social gaming industry, and follows half a year after Electronic Arts made a similar move in buying PopCap Games for $750m (that acquisition also included a substantial earnout payment of up to $550m, or nearly three-quarters of PopCap’s deal value). Founded in 2009, Seattle-based Double Down’s large user base and rapid growth could help to explain why the company commanded such a large valuation for its sector. In November 2011 alone, its games received 54 million visitors, of which 1.2 million returned to play on a daily basis. Double Down also has a healthy base of what it calls monthly ‘active users,’ which the company said rocketed 30% from 3.3 million in October 2011 to 4.7 million at the time of acquisition.
Filed Under application software, Gaming, investment banking, M&A | Leave a Comment
Social software M&A on the uptick in 2011
Posted by briansatterfield on January 11, 2012
Contact: Brian Satterfield
As more businesses leverage social networking websites for marketing and customer support purposes, many big-name buyers are finding social media software vendors to be increasingly attractive targets. The number of deals in the sector rose more than 150% in 2011 from 2010, while spending during that same period soared more than five-fold from $75m to $389m.
The bulk of 2011 social software spending came in March, when salesforce.com forked over $326m for Radian6, a Canadian startup that had raised just $6m. Radian6 was both the CRM giant’s largest deal as well as the priciest transaction ever in the sector. Salesforce.com bought Radian6 in order to add social media monitoring features to a number of products in its portfolio. On a smaller scale, we saw similar purchases around that same time by Meltwater Group, which added JitterJam for $6m, and call-center software maker KANA Software, which reached for Overtone.
But enterprise software providers aren’t the only takers in the social software world. Many tech companies that have partial or completely social business models got in on the action, presumably in order to track activity on their own networks. Twitter, for instance, picked up social media monitoring software maker BackType, while Google bought a similar company called PostRank.
Filed Under application software, investment banking, M&A, media, online advertising | Leave a Comment
PE firms play small ball
Posted by Brenon Daly on January 4, 2012
Contact: Brenon Daly
After years of writing multibillion-dollar checks in some of the largest tech transactions, private equity (PE) shops dramatically scaled back their purchases in 2011. The single biggest deal last year (The Blackstone Group’s $3bn take-private of healthcare technology vendor Emdeon) only ranked 15th among the largest transactions in 2011.
It was the first time PE firms haven’t have a hand in at least one of the year’s 10 largest deals since 2008. Even in the recession-wracked year of 2009, one buyout slotted into the top 10. And in 2010, when the economy appeared to be solidly recovering and the credit markets were more welcoming, PE firms accounted for fully three of the 10 largest transactions of that year. But last year, the buyout barons were overwhelmed by their corporate rivals, who are flush with cash.
Filed Under investment banking, LBO, M&A, Private equity, technology stocks | Leave a Comment
A continuing M&A recovery in 2011
Posted by Brenon Daly on January 3, 2012
Contact: Brenon Daly
The choppiness that was felt in the overall M&A market in 2011 also came through in the totals for the year. While the number of transactions hit a five-year high, spending on tech deals in 2011 didn’t necessarily keep pace. The total value of transactions announced last year around the globe rose 17% to $219bn. Still, the increase in 2011 represented the second straight year of higher M&A spending following the dramatic decline in the recession of 2008-2009. However, the total for 2011 is only about half the value of deals announced in the previous years of the tech bull market.
Overall, dealmaking in 2011 started slowly, but then dramatically picked up in late spring and early summer. But that rebound stalled as uncertainty around European stability pushed out acquisitions, or canceled them altogether. The concerns knocked M&A spending in November to the lowest monthly level seen since the depths of the recession in February 2009. And while spending did rebound in December to a more typical level of nearly $20bn, the final few months of 2011 were hardly a robust time for significant transactions. Just one of the 10 largest deals of last year was announced in the final quarter of 2011.
Filed Under investment banking, M&A, technology stocks, VC | Leave a Comment
And the Golden Tombstone goes to …
Posted by Brenon Daly on December 23, 2011
Contact: Brenon Daly
It’s time to once again hand out our annual award for Tech Deal of the Year, as voted by corporate development executives in our recent survey. For the second straight year, the voting came down to a tight race between two transactions. For 2011, Google’s planned purchase of Motorola Mobility just edged SAP’s reach for SuccessFactors. (Last year, Intel’s rather unexpected acquisition of McAfee slightly topped Hewlett-Packard’s takeout of 3PAR following a drawn-out bidding war.)
Both of the deals in the running for the 2011 prize certainly would have been worthy recipients of the Golden Tombstone. Google’s all-cash $12.5bn purchase of Motorola Mobility is more than the search engine has spent on its more than 100 other acquisitions and, beyond that, stands as the largest tech transaction (excluding telecommunications) since mid-2008. (Specifically, it is the largest deal since HP’s $13.9bn pickup of services giant EDS, which was voted the most significant transaction of 2008.) Meanwhile, SAP is paying an eye-popping 11 times trailing sales for SuccessFactors. With a price tag of $3.5bn, the deal is the largest-ever SaaS acquisition, more than twice the size of the second-place transaction.
Filed Under application software, cloud computing, Enterprice Resource Planning, Human Capital Management, investment banking, M&A, mobile, online advertising, SaaS, technology stocks, Web 2.0 | Leave a Comment
AT&T’s loss is Verizon’s gain
Posted by Ben Kolada on December 21, 2011
Contact: Ben Kolada
In the land of multibillion-dollar telco mergers, sometimes the piecemeal approach is more effective than a one-and-done deal. AT&T attempted to leap over the competition with its proposed $39bn acquisition of T-Mobile USA; however, the world’s largest telecom company fell flat on its face. In failing to secure the T-Mobile takeover, AT&T is on the hook for a hefty $3bn cash breakup fee and must share spectrum in 128 cellular markets with its still-independent competitor. The spectrum loss is of particular irony, considering the primary driver for the T-Mobile purchase in the first place was the target’s spectrum assets.
Rather than pursue another long-shot acquisition, AT&T should focus on smaller spectrum purchases. That’s precisely what its competition has done. While AT&T spent months attempting to persuade politicians and federal regulators to approve the T-Mobile deal, which would have combined the second- and fourth-largest wireless carriers in the US, Verizon was dutifully seeking out smaller spectrum buys. Just this month, the company announced a pair of spectrum transactions worth a combined total of nearly $4 billion – the same price as the pretax charge AT&T will take in the fourth quarter (that charge includes the $1bn book value for the spectrum agreement with T-Mobile). Meanwhile, AT&T still hasn’t received FCC approval for its $1.9bn acquisition of certain Qualcomm spectrum licenses, which was announced back in December 2010.
Filed Under divestitures, investment banking, M&A, mobile, technology stocks | Leave a Comment
Survey says: Tech M&A is likely to pick up in 2012
Posted by Brenon Daly on December 19, 2011
Contact: Brenon Daly
After a summer of discontent, the environment for tech M&A in the coming year once again appears welcoming, according to 451 Research’s annual survey of corporate development executives. More than half of the company dealmakers we surveyed indicated they expected to be busier in the coming year than they had been in the previous one. The number who predicted an increase actually ticked up slightly to 56% this year from 52% in our previous survey.
Meanwhile, when we asked about the overall climate for M&A, three times the number of corporate development executives projected it would get better rather than worsen in the coming year (43% vs. 14%). The sentiment is slightly more bullish than the result last year, when actual M&A spending totals rose for the second straight year following the dramatic drop-off during the recession.
The robust outlook for dealmaking in 2012 is even more remarkable when we compare it with the results from a special ‘flash survey’ we sent out in early August. At that time, the equity markets were sliding to their lowest levels in a year as volatility hit its highest level since early 2009. (It was also the time when the US got its AAA credit rating clipped by Standard & Poor’s, a downgrade that had been largely unimaginable before the recession.) Back in August, just one-third (32%) of respondents indicated they would be busier in the back half of 2011 compared with the first half of the year. We’ll have a full report on the survey results – including the outlook for M&A valuations, as well as which deal got voted as the most significant one in 2011 – in tonight’s Daily 451.
Projected change in M&A activity
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Source: 451 Research Tech Corporate Development Outlook Survey
Filed Under investment banking, M&A, Private equity, technology stocks, VC | Leave a Comment
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