IHS makes its mark on financial sector with $5.9bn Markit buy

Contact: Mark Fontecchio

IHS pays $5.9bn for Markit Group, the biggest deal in online financial information and analysis, according to 451 Research’s M&A KnowledgeBase. The acquisition increases IHS’s headcount and revenue by about 50%, giving it strong entry into online reference and analysis data in the financial sector to complement its similar offerings in the energy and automotive verticals. While the two vendors perform similar functions, their customer bases don’t overlap much, with IHS’s clients including most of the top oil and automotive companies and Markit selling to banks, hedge funds and other financial institutions.

IHS and Markit will merge to form a new entity called IHS Markit, of which IHS shareholders will own 57%. The transaction values Markit at 5.9x trailing revenue, a few ticks higher than the 5.5x multiple that Intercontinental Exchange paid for Interactive Data Corp (IDC) in a similar deal last October. IDC’s revenue had a 3.8% CAGR over the previous five years, compared with Markit’s roughly 10% CAGR over the previous four years. That said, Markit’s 4.5% revenue increase to $1.1bn last year was considerably slower than previous rates in the 10-12% range.

The move marks the third $5bn+ transaction in financial technology in the past year, and highlights fintech M&A as one of the few bright spots this quarter. While overall deal value is down about 30% to $62bn thus far in 2016, the Markit sale has lifted fintech M&A up 79% to $7.4bn. The transaction is expected to close in the second half of this year. M. Klein and Company, Goldman Sachs and Bank of America Merrill Lynch advised IHS, while J.P. Morgan Securities banked Markit.

SS&C pays a premium for Advent

Contact: Scott Denne

SS&C Technologies scoops up Advent Software in one of the highest multiples we’ve seen among software vendors serving the investment and finance community. At $2.5bn, SS&C values the target at 6.8x trailing revenue.

The valuation is predicated on cross-selling Advent’s portfolio management software and services alongside SS&C’s broader offering of fund administration and related software, then using the accelerated revenue to pay down the combined company’s new debt. SS&C is funding the deal with $3bn in new debt and refinancing. Few businesses switch out their portfolio management systems and given that those products generate about 70% of Advent’s revenue, cross-selling could be a tricky proposition.

The combined company, however, will be well-positioned to win sales among new firms and new lines of business at existing ones. For example, SS&C has a hedge fund administration business (one it obtained in 2012 with the $895m purchase of GlobeOp) and Advent also has portfolio management for that same audience. As stock markets rise, so too will new hedge funds.

While the transaction is the highest multiple in this sector in nearly a decade, according to The 451 M&A KnowledgeBase, it’s not without precedent. Carlyle Group paid 8.2x TTM revenue when it took SS&C private in 2005 for $982m. And SS&C itself is trading today at 6.8x, benefiting from a 10% bump in its share price on news of the deal.

Following the close, SS&C will have a 5.3x debt-to-EBITDA ratio. The acquirer has leveraged up before to get a transaction done. Following its own take-private, it was at 6.8x and after its pickups of GlobeOp and Thomson Reuters’ PORTIA business in 2012 it was up to 4.2x, which today stands at 1.4x. Judging by the increase in share prices, Wall Street is confident it can de-lever again.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

eBay adds Braintree to payments brain trust

Contact: Scott Denne

eBay’s PayPal subsidiary is paying $800m for payments software provider Braintree Payment Solutions to advance its position in serving software and e-commerce businesses. Through organic growth, Braintree became the payments technology provider of choice for many high-growth e-commerce startups. Cementing its position was an inorganic move meant to help its customers tackle the growing adoption of mobile payments.

Braintree was specifically chosen to bring more software vendors, especially mobile software firms, to eBay’s PayPal business. Braintree specializes in providing payment processing for the newest generation of consumer Internet and SaaS companies. As those companies – such as Airbnb, LivingSocial, Uber and Fab.com – have grown, Braintree has grown with them. And as those companies became more mobile-focused, so too did Braintree, by acquiring mobile-wallet provider Venmo for a reported $26m last year.

Just as it has in its last two major payments purchases – the $240m reach for Zong in 2011 and the $820m pickup of Bill Me Later in 2008 – eBay is paying a mindful price for Braintree. While Braintree’s revenue isn’t disclosed, the company is still small – it processes less than one-tenth of PayPal’s total. Braintree’s platform processed $4bn in payments in 2011, netting the vendor $10m in revenue. Now, it’s on pace to process $12bn in annual payments. Keeping the ratio constant would likely put its revenue in the $30-40m range. If our rough math is correct, the deal would value Braintree at a whopping 20x sales.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

In ICE-NYSE deal, a shark swallows a whale

by Brenon Daly

For all of the talk about the disruptive forces that have reshaped the tech landscape through M&A, the changes – at least at the high end of the market – have been largely incremental. Just take a look at deal flow so far this year. We’ve seen a bit of big-ticket telco consolidation as well as a pair of multibillion-dollar take-privates, the largest of which would see the current CEO play a leading role in not only the transaction itself but also the operation of the company after the close. It’s hardly dramatic stuff.

Certainly, we would argue that not one of those deals comes anywhere close to the upheaval embodied by the IntercontinentalExchange’s (ICE) planned acquisition of NYSE Euronext. The deal, which was backed by NYSE shareholders today, may well be the ultimate example of a startup gobbling up an established vendor.

For starters, the roles in the transaction are flipped from what we would expect in a typical tech deal. (Indeed, the NYSE has been a busy buyer in recent years, expanding into electronic trading platforms and consolidating old-line exchanges both in the US and abroad via M&A.) Consider the fact that ICE is barely more than a decade old while the fabled NYSE traces its roots back to 1792. And while ICE is the buyer, it is less than half the size of the NYSE, or the ‘Big Board’ as it is known on Wall Street.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

IntraLinks finally gets to use its deal room

Contact: Brenon Daly

Although IntraLinks is well-known for its ‘virtual deal rooms,’ the company itself hasn’t spent much time in them. That changed on Thursday. After being out of the market for more than a decade, IntraLinks announced a double-barreled deal, picking up two online deal-sourcing platforms, MergerID and PE-Nexus. (And yes, the company did use its own deal room to run the process.)

The addition of the two sourcing platforms makes sense as a way to increase the number of transactions that get executed in IntraLinks’ core deal room. In fact, the company had added sourcing and networking features around the end of 2011, but had only attracted a few hundred users. MergerID and PE-Nexus dramatically increase the number of potential participants, with the two firms having attracted, collectively, some 5,000 firms representing about 7,200 total users.

Further, the two platforms serve very different markets. MergerID – divested by the FT Group’s Mergermarket division – focuses on midmarket deals, primarily in Europe and Asia. Meanwhile, PE-Nexus (as its name implies) largely targets US private equity shops from its Florida headquarters. IntraLinks has indicated that it will pick up 11 employees from the two firms, and we understand that very little revenue will be added from the two subscription-based services.

More broadly, IntraLinks’ move fits with the strategy and recent performance of its business. The M&A unit, which represented 42% of total revenue in 2012, was the only one of the company’s three divisions to post growth last year. The 9% increase in its M&A-related revenue in 2012 helped bump up the overall top line at IntraLinks during what was – by design – a year of stabilization and investment.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Fiserv acquires Open Solutions and its debt

Contact: Ben Kolada, Tejas Venkatesh

Fiserv has acquired fellow financial software company Open Solutions, adding new clients and bolstering its offerings for credit unions and banks. Fiserv is buying Open Solutions from Carlyle Group and Providence Equity Partners, paying $55m for the target’s equity and assuming $960m in debt. While Open Solutions’ enterprise value (EV) this time around is about 20% less than its price in its 2006 take-private, its equity value is a much smaller fraction of the previous transaction.

In the time since Carlyle Group and Providence Equity took Open Solutions private to Monday’s sale to Fiserv, the company’s debt has ballooned. Open Solutions had roughly $448m in net debt when it announced that it was being taken private. That amounted to about one-third (36%) of its total EV. The company’s debt has nearly doubled in the past six years and now accounts for nearly all (95%) of its EV.

Although Open Solutions’ debt does appear troubling, Fiserv is recognizing some financial benefits from the acquisition. Open Solutions has had a history of losses, which means that tax breaks are available to Fiserv. The net present value of those breaks is $165m, which will ultimately reduce the total cost of the acquisition from $1.01bn to $865m.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

NCR rings up another software purchase with Retalix

Contact: Brenon Daly

NCR will hand over $763.5m in cash for Retalix, the latest example of an old-line hardware vendor using M&A to build up its more valuable software and services business. The deal is actually the second significant software acquisition by the company formerly known as National Cash Register, and takes the equity value of the transactions to a collective $2bn. In mid-2011, NCR dropped $1.2bn on fellow publicly traded company Radiant Systems.

NCR leaned on the credit market to finance nearly all of its purchase of Radiant, the largest acquisition the company has done. It will add a bit more debt to cover the just-announced reach for Retalix. An Israeli company, Retalix has no debt and about $133m in cash, lowering the net cost of the business to roughly $650m.

In comparing NCR’s two software plays, the valuations line up rather closely. NCR’s bid for Radiant valued the company (on the basis of enterprise value) at about 3.2 times trailing sales and 21x trailing EBITDA. For Retalix, the comparable figures are 2.4x trailing sales and 25x trailing EBITDA.

Further, the premium NCR paid for Radiant, compared with the stock price 30 days prior, came in at 47%; for Retalix it was 50%. A final similarity between the two deals: the advisers. J.P. Morgan Securities banked NCR in both deals while Jefferies & Company worked for both Radiant and Retalix.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

Accounting for M&A

Contact: Ben Kolada

As accounting software giant Intuit buys beyond its traditional roots, it is leaving the door open for competition from a new breed of accounting startups. A handful of accounting companies have popped up over the past few years in the US and abroad to target consumers and SMBs, some with freemium models. These Davids are walking in Goliath’s giant footsteps, and are announcing a number of their own expansion plays.

Over roughly the past year, accounting startups Wave Accounting (based in Toronto), Xero (based in New Zealand) and FreeAgent (based in the UK) have each announced at least one acquisition. For the most part, these companies’ purchases have been done to expand beyond their core accounting focus. Wave, for example, recently announced the pickup of small stock analysis startup Vuru.

Xero has been particularly acquisitive, announcing four acquisitions since its founding in 2006. The company, publicly traded on the New Zealand Stock Exchange, has been doing deals to both complement its products and expand geographically. Its purchase of PayCycle in July 2011 helped the company enter the nearby Australian market. Through organic and inorganic growth, Xero has grown its revenue to about $16m in its 2012 fiscal year, which ended in March.

Beyond M&A, some companies have developed new products as an offshoot to their businesses. Ruby on Rails developer LessEverything, based in Fort Lauderdale, Florida, is now offering LessAccounting. And Toronto-based invoice vendor 2ndSite now offers FreshBooks.

Meanwhile, Outright Inc was recently acquired by Go Daddy Group. Though, if you ask LessEverything, it could have very well been its LessAccounting product. The company purported on its blog that Go Daddy approached it two years ago with interest in buying its LessAccounting product.

For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.

Intuit pays up for SMB-focused Demandforce

Contact: Ben Kolada, Thejeswi Venkatesh

Intuit on Friday announced its largest M&A move in six years, acquiring SMB-focused marketing automation startup Demandforce for $423.5m. The deal, and Demandforce’s valuation, was primarily driven by the target’s market traction. The company, founded just in 2003, has amassed a customer roster of more than 35,000 SMBs. The transaction also demonstrates the accounting and tax giant’s desire to further penetrate this market with additional products and services – this is its first major play in marketing automation.

The Demandforce acquisition complements Intuit’s QuickBooks software and expands its offerings for SMBs. (We’d note that Intuit already offers a marketing management and productivity application called QuickBase, though that product is for enterprises.) Demandforce provides marketing automation SaaS and helps businesses maintain an online profile and better communicate with their customers. The company has grown considerably over its short lifetime. According to Inc.com’s annual survey of the fastest-growing companies, Demandforce generated $15.3m in revenue in 2010, up from $6.4m in 2009. Continuing that growth rate would put its 2011 revenue at roughly $25-30m.

Intuit is handing over $423.5m in cash for Demandforce, making this deal Intuit’s largest since it forked over $1.35bn for transaction processor Digital Insight in 2006. Demandforce’s growth certainly factored into its valuation. Assuming that Demandforce maintained historical growth rates, Intuit’s offer would value the target at a whopping 15-20 times trailing sales. If our initial estimates are correct, that valuation is double and even triple some precedent valuations. For example, in 2010, IBM bought Unica for 4.4x sales. Unica had flatlined during its final years as a public company, with revenue remaining in the $100m ballpark for the four years before its sale. The valuation is also double Teradata’s Aprimo acquisition, also announced in 2010. Teradata paid $525m for Aprimo, or 6.3x sales.

Software AG feels the need for speed in latest acquistion

by Brenon Daly

Moving to bolster its middleware messaging technology, Software AG said Monday that it would pick up London-based my-Channels. The acquisition of 13-year-old my-Channels, which is probably best known for its Nirvana product used in foreign currency trading, will provide technology to the German BPM giant that will allow customers to stream data to a variety of sources. Software AG plans to release the first product integrated with the newly acquired Nirvana technology before the end of the year, although the technology will be interoperable with its webMethods suite shortly.

The purchase by Software AG, which is its first deal in almost a year, has a few echoes with an acquisition Informatica did almost two years ago. Like my-Channels, 29West focused on high-volume, low-latency messaging for financial services firms. Informatica indicated that it paid about $40m for 29West, which we suspect is more than Software AG paid for my-Channels. However, according to our understanding, 29West had almost three times the revenue of the UK-based startup