Another ‘down round’ IPO?

Contact: Brenon Daly

Another unicorn is set to gallop onto Wall Street, as MongoDB has put in its IPO paperwork. The open source NoSQL database provider plans to raise $100m in the offering, on top of the $311m it drew in from private-market investors over the past decade. As has been the case in other recent tech offerings, however, some of those later investors in MongoDB may well find that the IPO represents a ‘down round’ of funding.

Any discount for MongoDB likely won’t be as steep as the discount Wall Street put on the previous data platform provider to come public, Cloudera. Investors currently value the Hadoop pioneer at $2.2bn, slightly more than half its peak valuation as a private company. For its part, MongoDB, which last sold stock at $16.72, has more than 100 million shares outstanding, giving it a valuation of roughly $1.7bn.

While not directly comparable, Cloudera and MongoDB do share some traits that lend themselves to comparison. Both companies have their roots in open source software, and wrap some services around their licenses. (That said, MongoDB has gross margins more in line with a true software vendor than Cloudera. So far this year, it has been running at 71% gross margins, compared with just 46% for Cloudera.) Further, both companies are growing at about 50%, even though Cloudera is more than twice the size of MongoDB.

Assuming Wall Street looks at Cloudera for some direction on valuing MongoDB, shares of the NoSQL database provider appear set to hit the public market marked down from the private market. Cloudera is valued at slightly more than six times its projected revenue of $360m for the current fiscal year. Putting that multiple on the projected revenue of roughly $150m for MongoDB in its current fiscal year would pencil out to a market cap of about $920m. Given its cleaner business model and less red ink, MongoDB probably deserves a premium to Cloudera. While MongoDB certainly may top the $1bn valuation on its debut, reclaiming the previous peak price seems a bit out of reach.

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

Ivanti keeps rolling along, adds RES Software

Contact: John Abbott, Brenon Daly

The rollup continues at Ivanti, the PE-backed company that itself is a bit of a rollup, created from the combination of LANDESK and HEAT Software in January. In its second acquisition under its new name, the Clearlake Capital portfolio company reached for user workspace management and IT automation firm RES Software. Although terms weren’t disclosed, subscribers to 451 Research’s M&A KnowledgeBase can see our deal record and proprietary estimate of the price and valuation in this transaction.

For years, RES fought it out in the virtual desktop management space with direct rival AppSense, while LANDESK, once part of Intel, tried to hold its ground in traditional desktop management. In 2010, Thoma Bravo stepped in to buy LANDESK from its then-owner Emerson Electric for $230m, supplementing it with a handful of smaller firms and topping it off with AppSense in March 2016. (While larger than RES, AppSense garnered basically the same multiple as RES in its sale to LANDESK. 451 Research M&A KnowledgeBase also has estimates for the AppSense sale.)

In January, Clearlake stepped in to buy LANDESK, a transaction that we understand valued the company at $1.15bn. The PE firm combined it with its own portfolio company, HEAT Software — itself a combination of FrontRange and Lumension — and eventually gave the cobbled-together infrastructure software giant its new name, Ivanti.

The rechristened company offers products in four main areas: client management, endpoint security, IT service and support software, and enterprise mobility management. Overall, it employs roughly 1,300. RES, with roughly 250 employees, adds complementary software tools. The startup is strongest in user workspace management and automation tools, but also has an enterprise app store, file sharing and synchronization, IT service management desk, and (most recently) endpoint security. RES also brings more of a European focus – the company was founded in Holland in 1999 and maintains a fairly strong business in the Benelux region.

From a technical point of view, it’s likely RES Automation Manager will be the most valuable asset that can be cross-sold to the rest of the Ivanti customer base. Virtual desktop management is a maturing space that’s now mostly dominated by Citrix, VMware, Microsoft, AWS and Google, alongside a growing set of desktop-as-a-service providers using technology from one or more of those companies. This broad competitive pressure weighed heavily on RES’s valuation, as surely as it did in the sale of rival AppSense a little more than a year ago.

No ray of sunshine from Cloudera IPO

Contact: Brenon Daly

As far as Wall Street is concerned, the outlook for the tech IPO market is still cloudy after Cloudera’s offering. Sure, the data analytics platform vendor priced shares higher than its underwriters expected and investors pushed the freshly minted stock about 20% higher in aftermarket trading on Friday. But that solid start isn’t likely to necessarily draw other startups to the public market because Cloudera’s capital structure got so uniquely inflated.

Few startups could even imagine – much less collect – an investment of three-quarters of a billion dollars from a single investor in a single round, as Cloudera did from Intel three years ago. The chipmaker paid up for the privilege, putting a ‘quadra unicorn’ valuation of $4.1bn on Cloudera. Altogether, Cloudera raised more than $1bn from private market investors, making the $225m raised from public market investors seem almost like lunch money.

And then there’s the small matter of valuation. In its debut, Cloudera is only worth about half of what Intel thought it was worth when it made its bet. (As we noted in our full preview of Cloudera’s IPO, Intel’s investment appears even more bubbly when we consider that, at the time, Cloudera was generating less than half the quarterly revenue it currently puts up and its operating loss actually topped its revenue.)

As a longtime corporate investor, Intel can chalk up the overpayment for the stake of Cloudera to ‘strategic’ considerations. (Much like the chipmaker effectively wrote off its massive bet on security, unwinding half of its underperforming acquisition of McAfee at roughly half the valuation it initially paid in the largest infosec transaction in history, according to 451 Research’s M&A KnowledgeBase.) Besides, Intel can afford it: the day that Cloudera priced its IPO – thus confirming Intel’s overpayment – the chipmaker reported that it earned $3bn in the first quarter of this year alone.

http://www.the451group.com/images/upload/4-28-17_kbi_pic.png

VMware nabs Wavefront as infrastructure M&A hits new frequency 

Contact: Scott Denne  and Kenji Yonemoto

Responding to the need for new monitoring and management tools to match the growing adoption of infrastructure technologies such as containers and cloud, VMware has reached for Wavefront. The deal embodies the craving for the latest technologies in infrastructure management M&A through the start of the year.

That craving stands in stark contrast to last year, when divestitures and aging assets led to a record $15.3bn spent on infrastructure management targets, according to 451 Research’s M&A KnowledgeBase. Less than four months into the year, buyers have already shelled out $5.6bn, skewing toward younger and growing businesses fetching higher multiples.

While VMware hasn’t disclosed terms of the transaction, it’s likely paying a premium valuation as Wavefront, an early-stage company with about 50 customers, landed a $52m series B less than six months ago. The acquisitions of AppDynamics ($3.7bn) and SOASTA ($200m) – which like today’s deal, were done to improve the buyers’ ability to cope with new types of application deployments – have helped drive up multiples. The median multiple for the category stands at 4.2x trailing revenue this year, compared with 3.4x in 2016.

The pressure to pay up for these technologies could continue. Our surveys show that new forms of application deployment are rising among enterprises. In 451 Research’s most recent Voice of the Enterprise report, 48% of respondents expected their spending on cloud to increase by more than 11% in 2017 and similar surveys have shown a growing shift toward using containers and microservices in production, not just testing and development, environments.

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

Alteryx makes it two software IPOs in two weeks

Contact: Brenon Daly 

Data analytics vendor Alteryx has made its way to Wall Street, the second enterprise software provider to go public in as many weeks. The IPO, which raised $126m for the company, comes on the heels of a more-ebullient offering from MuleSoft. Together, the two oversubscribed IPOs indicate that the market for new offerings has rebounded from this time last year, when not a single a tech company made it public until late April.

Alteryx priced its shares at $14 each, and then edged higher to $15.50 on the NYSE during afternoon trading. With roughly 58 million (non-diluted) shares outstanding, the company is valued at about $900m. While MuleSoft more than doubled its private market valuation when it hit Wall Street, Alteryx’s IPO pricing is only slightly above the level it last sold shares to private investors in September 2015.

Although Alteryx debuted at a more modest valuation compared with MuleSoft, it did secure a double-digit multiple, albeit barely. Wall Street is valuing Alteryx, which recorded $86m in revenue last year, at 10 times trailing sales. That compares with about 16x for MuleSoft in its debut. The reason for the discrepancy? MuleSoft is more than twice as big and growing faster, increasing 2016 revenue by 71% compared with the 59% year-over-year growth for Alteryx. (Whether the comparison between the two vendors is fair or not, it is perhaps inevitable given the timing of their IPOs.)

In terms of future growth, Alteryx does face some challenges, as we have noted. Currently, the company focuses primarily on transforming and cleansing data and analyzing it using a combination of internally developed algorithms and functions based on the R open source computing statistical computing environment. Its own visualization and discovery capabilities are rather limited. Alteryx partners with Tableau, Qlik and Microsoft (Power BI) for this technology.

However, this partnership strategy could inhibit the company’s future expansion because visualization and data discovery are useful for attracting less-technical end users, which it will need to do to increase the number of users of its technology. Right now, Alteryx’s users are largely data analysts even though the company markets itself as a self-service data analytics vendor for technical and nontechnical end users.

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

MuleSoft gets a thoroughbred valuation in its IPO

Contact: Brenon Daly 

After a four-month shutout, the enterprise tech IPO market is back open for business. Infrastructure software vendor MuleSoft surged onto the NYSE, more than doubling its private market valuation. It sold 13 million shares at an above-range $17 each, and the stock promptly soared to $24.50 in late-Friday-afternoon trading. That puts the fast-growing company’s market valuation at slightly more than $3bn, twice the $1.5bn value that venture investors put on it.

MuleSoft’s debut valuation puts it in rarified air. Based on an initial market cap of $3.1bn, investors are valuing the company at a stunning 16.5x its trailing sales of $190m. That multiple is twice the level of fellow data-integration specialist Talend, which went public last July. Talend currently trades at a market cap of about $875m, or 8.3x its trailing sales of $106m. The valuation discrepancy indicates that investors are once again putting a premium on growth: MuleSoft is larger than Talend and – more importantly to Wall Street – it is growing nearly twice as fast. (See our full report on the offering as well as MuleSoft’s ‘hybrid integration’ strategy – what it is and where it might take the company in the future.)

The IPO netted MuleSoft $221m, or $206m after fees. That’s undoubtedly a handy amount, but we would note that it is still less than the $260m it raised, collectively, from private market investors. (Somewhat unusually, there are three corporate investors on the company’s cap table.) All of those MuleSoft backers are substantially above water on their investment following the IPO. That bullish debut is likely to draw more high-flying startups to Wall Street after a discouraging 2016, when only two enterprise tech unicorns went public. This year will likely match that number next month, when Okta debuts. The identity management startup revealed its IPO paperwork earlier this week, putting it on track for a mid-April debut.

 

With Okta, infosec no longer conspicuously absent from the IPO market

Contact: Brenon Daly 

Even as several other fast-growing enterprise IT sectors have all seen unicorns gallop onto Wall Street, richly valued information security (infosec) startups have stayed off the IPO track. The sector hasn’t seen a $1bn company created on a US exchange in more than two-and-a-half years. Infosec has been conspicuous by its absence from the tech IPO market, especially considering that no other single segment of the IT market has as many viable public company candidates. Fully one-quarter of the startups in the ‘shadow IPO’ pipeline maintained by 451 Research’s M&A KnowledgeBase Premium come from the infosec space. (See related report.)

At long last, one of the infosec unicorns is (finally) ready to step onto the public market: cloud-based identity management startup Okta has publicly revealed its paperwork for a $100m offering that should price next month. The company, which raised nearly $230m in venture backing, had already achieved a $1bn+ valuation in the private market – and will head north from there in the public market.

Wall Street will undoubtedly find a lot to like in Okta’s prospectus. The company is doubling revenue each year, with virtually all of its sales coming from subscriptions. (Professional services accounts for roughly 10% of total revenue, a lower percentage than most of the big-name SaaS vendors.) Subscription revenue gives a certain predictability to a company’s top line, especially when coupled with the ability to consistently expand those subscriptions. Okta notes in its prospectus that its customer retention rate, on a dollar basis, is slightly more than 120%, an enviable rate for any subscription-based startup. Put it altogether and revenue at Okta for the fiscal year that ended in January is likely to be in the neighborhood of $160m, up from $86 in the previous fiscal year and just $41m in the fiscal year before that.

Having quadrupled revenue in just two years, Okta’s red ink isn’t likely to worry many investors. Through its first three fiscal quarters (ended October 31, 2016), Okta lost $65m, up from $55m in the same period the previous fiscal year. As is often the case with SaaS providers, Okta’s losses stem primarily from heavy spending on sales and marketing. Early on, Okta was spending slightly more than $1 on sales and marketing to bring in $1 of subscription revenue. It has since slowed the spending, with the result that in its latest quarter it spent $32m on sales and marketing to bring in $38m in subscriptions. (For comparison, Box – one of the more egregious spenders – shelled out $47m on sales and marketing to generate exactly the same subscription revenue as Okta ($39m) in its most recent quarter when it originally filed to go public in 2014.)

Okta’s IPO would represent the first new $1bn valuation for an infosec vendor on the NYSE or Nasdaq since CyberArk’s offering in September 2014. Sophos went public (rather quietly) in 2015 on the London Stock Exchange, and the two domestic infosec IPOs since then (Rapid7 and SecureWorks) both currently trade underwater from their offering. In contrast to the recent infosec shutout, startups from several other IT sectors have all been able to enhance their $1bn private-market valuation on Wall Street, including Nutanix, Atlassian, Twilio and Pure Storage. That list will get a little longer as MuleSoft is set to debut at more than a $2bn market cap, up from $1.5bn in its final round as a private company.

CA’s two M&A strategies come together in Veracode

Contact: Brenon Daly 

CA Technologies plucks Veracode out of the IPO pipeline, paying $614m for the application security scanning startup. The acquisition bridges the two areas where CA has been shopping recently: security and DevOps. According to 451 Research’s M&A KnowledgeBase, all 10 of CA’s transactions in the four years leading up to the Veracode purchase have either brought additional technology for software development or security, primarily related to identity and access management. Including Veracode, CA’s recent shopping spree has cost the company slightly more than $2bn.

Originally a spinoff of Symantec, Veracode raised $122m from investors over the past 11 years, including a late-stage round in September 2014 that was expected to bridge the company to the public market. Shortly afterward, it tapped J.P. Morgan Securities to lead the planned offering. (J.P. Morgan gets the print for advising Veracode on its sale.) The IPO paperwork was filed with the SEC but never publicly revealed.

As it angled toward Wall Street, however, Veracode’s revenue growth slowed a bit, according to our understanding. (Subscribers to the M&A KnowledgeBase can see our estimate of Veracode’s top line.) Also working against an IPO for Veracode has been the rather lackluster market for new tech offerings overall, compounded by a slump on Wall Street for the two previous information security vendors to come public on US exchanges, SecureWorks and Rapid7. In opting for a sale rather than an IPO, Veracode secured a valuation that essentially matches the multiple that CA paid in its similarly sized pickups of fellow infrastructure software providers Automic Software in December and Rally Software in May 2015.

Veracode has steadily expanded its customer base, more than doubling that count since 2014 to 1,400. And, based on 451 Research surveys of more than 200 information security buyers, the company still has room to move higher once it is acquired by CA, which is expected in Q2. In our Voice of the Enterprise: Information Security survey in late 2016, Veracode ranked only as the fourth-most-popular supplier of application scanning, trailing open source tools from Qualys and IBM.

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

A mule that’s actually a unicorn

Contact: Brenon Daly 

Unlike a fair number of late-stage startups, MuleSoft is no donkey trying to pass itself off as a unicorn. The fast-growing data-integration specialist has tripled revenue over the past three years, and appears to be on track to put up about $250m in sales this year. More importantly, MuleSoft is not hemorrhaging money. That should play well on Wall Street, which has telegraphed that it will no longer reward the growth-at-any-cost strategy at startups that want to come public (ahem, Snap Inc).

Assuming MuleSoft does indeed make it to the NYSE, where it will trade under the ticker MULE, it would mark the first enterprise technology IPO since last October. Of course, Snap is currently on the road, telling potential investors that its business model, which consists of hardware and disappearing messages, is the next Facebook rather than the next Twitter. But we’ll leave aside the offering from that consumer technology vendor, which just might be able to convince investors that losing a half-billion dollars last year, which is about $100m more than it booked as revenue, is a sustainable or even desirable business model.

Instead of Snap’s planned IPO, MuleSoft’s offering lines up more closely with fellow infrastructure software provider AppDynamics. (At least up to the point where Cisco comes in with a too-good-to-be-ignored $3.7bn offer.) A glance at the prospectus from each vendor shows both growing at a rapid clip (AppDynamics posted a slightly higher rate, even off a bigger base) and posting GAAP numbers that were at least headed out of the red (MuleSoft lost less than AppDynamics, on both an absolute and relative basis). Also, both firms had annual customer retention rates, measured by dollars spent, of roughly 120%. Wall Street eats up that sort of metric.

MuleSoft raised roughly $250m in total funding, most recently announcing a $128m round in mid-2015. With investors clamoring for growth tech companies right now, MuleSoft could certainly start life as a public entity with a double-digit multiple. Maybe not the nearly 18x trailing sales that AppDynamics commanded in its sale to Cisco. (After all, that was terminal value, not trading value.) But MuleSoft could almost undoubtedly convince Wall Street that it’s worth a premium to Talend, a rival data-integration vendor that came public last summer and currently trades at about 7x trailing sales. MuleSoft is larger than Talend and – more importantly to Wall Street – it is growing twice as fast. That profile will likely boost MuleSoft’s initial valuation on Wall Street to north of $2bn, or 10x its trailing sales of $190m.

2016 enterprise tech IPOs*
Company Date of offering
SecureWorks April 22, 2016
Twilio June 23, 2016
Talend July 29, 2016
Apptio September 23, 2016
Nutanix September 30, 2016
Coupa October 7, 2016
Everbridge October 11, 2016
BlackLine Systems October 27, 2016
Quantenna Communications October 27, 2016
Source: 451 Research *Includes Nasdaq and NYSE listings only

PE-backed StorageCraft crafts another deal

Contact: Steven Hill Brenon Daly

In the year since TA Associates picked up StorageCraft Technology, the data-protection vendor has been working to build out a broader vision for metadata-rich data protection and management. Its latest move adds scale-out NAS appliance vendor Exablox, already an existing partner. Terms weren’t disclosed. The purchase of Exablox is StorageCraft’s second acquisition since being bought by private equity firm TA Associates, and comes five months after it snagged data analytics startup Gillware Online Backup.

This deal further extends an existing partnership between Exablox’s object-based core technology and StorageCraft, which has focused its recent strategy on metadata-based, long-term data management and protection. Both companies stressed that Exablox appliances will continue to be marketed for both primary storage and secondary storage applications, as opposed to a dedicated backup appliance only. The pairing has potential benefits for both companies, in particular adding StorageCraft’s ShadowProtect data protection and Gillware-based data intelligence enhancements to the Exablox platform.

From our perspective, the transaction reflects an increasing awareness of the importance of metadata as part of a larger vision for long-term data protection and management across the industry. Data growth is a given, and these vendors recognize that the next generation of storage requires greater intelligence about the data itself. Buying Exablox should allow StorageCraft to add closely integrated, on-premises storage offerings as an extension of its existing cloud, SaaS, storage analytics, data-protection and DR/BC portfolio. With the scarcity of funding available for storage and infrastructure companies, we expect more vendors to use deals such as StorageCraft’s reach for Exablox to expand their technology and market opportunity.