Bankrate boosts insurance biz with recent deals

Contact: Scott Denne

Though Bankrate’s dealmaking has slowed since its 2011 IPO, its recent acquisitions, including its latest purchase of LeadKarma, have been focused on a single strategic initiative – shifting from a quantity- to a quality-based approach to selling sales leads to insurance companies.

LeadKarma furthers this strategy by bringing search engine marketing savvy to Bankrate (as well as about $3m in quarterly revenue, according to the acquirer). Bankrate runs a variety of websites with financial content (Bankrate.com, CreditCards.com, CarInsuranceQuotes.com, etc.) and generates cash mainly by selling leads to credit card and insurance firms. Its lead-generation business accounted for nearly three-quarters ($89m) of its $121m in revenue last quarter. Until recently, Bankrate had a volume-based approach to selling insurance leads, but it has been in the process of moving to lower-volume and higher-quality leads.

The company made a similar move toward quality in 2010, picking up CreditCards.com for $143m to grow the size of its credit card lead-generation business and focusing on performance-based pricing for credit card leads. Bankrate’s last two purchases before LeadKarma (InsWeb in 2011 and InsuranceAgents.com last year) also focused on improving the quality of its insurance leads. The insurance portion of the business grew 30% sequentially in the most recent quarter, following a few down quarters as a result of the strategy shift.

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Bye-bye Ballmer

Contact: Brenon Daly

Lost in the schadenfreude and snark that has accompanied Steve Ballmer’s decision to leave the top spot at Microsoft within a year is one undeniable piece of his legacy: No other tech CEO has accumulated as many assets in key markets as Ballmer.

In addition to the fat-margin franchises that Ballmer inherited, he steered the company on an M&A program that built up offerings around growth markets such as mobility, cloud infrastructure, data warehousing, online communications, digital advertising, collaboration and beyond. During Ballmer’s 13 years running the software giant, Microsoft dropped more than $25bn on its acquisitions.

Of course, there have been M&A missteps. The company has endured big write-offs (aQuantive), gotten burned by targets with dubious accounting (FAST Search & Transfer), drastically overpaid on other acquisitions (Skype), and has seen the period for returns on deals drag beyond a decade (Great Plains Software, Navision).

But in the end, Microsoft has at least brought together a basket of offerings, built on in-house and acquired technology, that makes it relevant in today’s tech market. Want proof of that? Microsoft is actually increasing sales. Granted, it’s only about 5% growth, but at least Microsoft is growing. The same can’t be said for IBM or Oracle or Intel or Dell or Hewlett-Packard. (Oh yeah, and Microsoft is growing while also throwing $20bn to the bottom line each year.)

From our perspective, one of the main challenges for Microsoft’s next CEO will be realizing a return on all of its previous dealmaking. Ballmer’s M&A program has put the pieces in place, but for the most part, they have been underutilized. It’s time for an execution-focused chief executive to wring more value out of the enviable collections of assets that Microsoft has already acquired.

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SEOmoz’s acquisition announcement gets listed

Contact: Ben Kolada

Search engine optimization (SEO) specialist SEOmoz could also be considered a public relations expert. Rather than issuing a staid press release that follows the typical format, the company announced its acquisition of GetListed on Tuesday in rare form that included both style and substance. Having one characteristic without the other can cause a release to be a flop, but when combined together the impact can be profound.

Privately held SEOmoz announced on Tuesday the $3m cash and stock acquisition of GetListed, also privately held, using both a more formal press release and a ‘ransom note’ format.

The strategic rationale for the deal makes sense. The purchase of GetListed provides SEOmoz with software tools that SMBs use to analyze and utilize free local marketing outlets, such as Google Places. The deal adds a local component to SEOmoz’s otherwise geo-agnostic software.

But the substance of the announcement arguably carried more weight than the rationale of the fairly small transaction. Privately held companies are not required to disclose sensitive details of acquisitions, such as price, and very few choose to do so.

In providing both substance (the price of the transaction) and style (the ransom note format), SEOmoz was able to generate considerable media coverage. For example, a quick Google search for ‘seomoz’ and ‘getlisted’ generated more than three times as many results as a search for ‘urban airship’ and ‘tello’ – a pairing that was announced the same day.

Though perhaps a stretch, after seeing the success of its own public relations model, we wonder if SEOmoz may want to offer public relations capabilities to its customers. If it decides to go this route, one likely target would be young startup AirPR, which provides a platform for companies to find public relations professionals.

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GFI may face IPO headwinds

Contact: Brenon Daly

Undeterred by a chilly reception to similar firms, GFI Software has put in its paperwork for a $100m IPO. The company, which is based in Luxembourg, sells a variety of infrastructure and collaboration services to the SMB market. GFI was originally founded in 1992 as an e-fax software vendor, and has steadily built out its portfolio through internal expansion and a handful of acquisitions.

However, it is still primarily known for its security offerings, with that product line accounting for about 60% of total revenue in 2010. Since then, the company has been rapidly expanding into other areas, most notably collaboration. In its prospectus, GFI said collaboration now generates almost one-third of all revenue.

Still, Wall Street may well put GFI into the bucket of ‘European IT security vendor.’ If that’s the case, it could hurt the company’s debut, because investors haven’t backed IPOs from other infosec firms from across the Atlantic. AVG Technologies, for instance, has never traded above its offer price since coming public in February. And AVAST Software had to pull its IPO paperwork in July.

Additionally, there are some concerns with GFI itself. The company’s growth rate has cooled so far this year, with revenue ticking up just 27% in the first half of 2012 after increasing 46% in 2011. (The falloff in billings growth has been even sharper.) Further, GFI is not profitable and has not been generating as much cash as it had been.

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

A tale of two IPO markets as Palo Alto Networks and Kayak hit the road

Contact: Brenon Daly

To understand the relative health of consumer and enterprise IPOs in the aftermath of the Facebook offering, consider the rather stark contrast between KAYAK.com and Palo Alto Networks. Both technology vendors set terms for next week’s debuts on Monday, but only enterprise-focused Palo Alto can expect to run with the bulls.

For starters, take a look at the gestation period for each of the offerings. Palo Alto set its range in only its third amendment to its S-1, which it filed just three months ago. (For the record, Palo Alto plans to sell 6.2 million shares at $34-37 each). In contrast, KAYAK’s paperwork has a lot of dust on it. The online travel site originally filed in November 2010 and set its range in its 12th update to its S-1. (For its part, KAYAK intends to sell 3.5 million shares at $22-25 each.)

But the contrast will come out even more sharply in terms of valuation. Although the companies are roughly the same size (Palo Alto did $220m in trailing 12-month (TTM) revenue, compared with $245m in TTM revenue for KAYAK), Palo Alto is more than doubling sales each quarter while KAYAK is posting growth in the mid-30% range.

Wall Street always awards fast-growing companies a premium, but the gap between these two offerings is substantial. Assuming both Palo Alto and KAYAK come to market at the high end of their expected price ranges, the security vendor will begin life with a market cap of about $2.5bn while the online travel site will start life as a public company at a valuation of roughly $1bn. That means Palo Alto will be valued at more than 11 times TTM sales, while KAYAK will garner just 4x TTM sales.

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

A splashy IPO for Splunk

Contact: Brenon Daly

After spending the past two weeks baking off, Splunk has picked Morgan Stanley, J.P. Morgan Securities and Credit Suisse to run the books on its upcoming IPO, according to sources. The offering is expected to raise $150m for the San Francisco-based company, with the paperwork likely coming in January. Splunk will finish this year at about $110m in sales, an increase of some 65% over 2010. For 2012, projections call for the company to top $160m in sales.

The fast growth – an eager anticipation of the company’s rumored IPO – indicates just how far Splunk has grown beyond its roots as a basic event management vendor. Although most people currently know the company as a simple, easy-to-use search engine for IT data, it has been broadening the information sources it collects, including ever-increasing volumes of machine-generated data. Additionally, we recently profiled the beta release of Splunk Storm, a monitoring tool for cloud-based apps that runs on Amazon Web Services.

While the company has been fairly clearly focused on an IPO, several sources have indicated that Splunk has nonetheless attracted attention from both Dell and Oracle in recent months. However, for both financial and philosophical reasons, the company is expected to remain independent. Splunk has a number of executives that have already helped sell companies for more than $1bn, notably Hyperion Solutions, ArcSight and Opsware. Several bankers who have met with various executives say there is a sort of ‘been there, done that’ attitude toward a trade sale, and they want to build a stand-alone business for the long run. That sentiment also comes through in the rumored clearing price for Splunk: a robust $1.5-2bn.

IncrediMail reaches deep for deal

Contact: Brenon Daly

Almost exactly a year after taking the top spot at IncrediMail, CEO Josef Mandelbaum has announced his first acquisition at the digital media company. And it’s a big one: IncrediMail, which had just $33m in cash in March, will spend $25m upfront and another possible $15m earnout to add startup Smilebox. IncrediMail will cover at least the first tranche of the payment from its own treasury when the deal closes later this year, but it may look to tap the credit market for the earnout.

The transaction represents a significant bet by the Israeli firm, which has a market cap of just $70m. According to IncrediMail’s forecast, Smilebox should add more than $15m to revenue next year to the vendor, which, organically, has only generated about $30m in sales in each of the past two years. (We should note, however, that those sales are highly profitable for IncrediMail. Its operating margin runs at roughly 40%.)

The fact that Mandelbaum is doing deals for IncrediMail shouldn’t come as much of a surprise. Before taking the top spot at the small public company, he ran the interactive division of American Greetings, where it built out the digital business of the card provider through a series of acquisitions. Among the deals Mandelbaum put together included the pickups of BlueMountain.com, PhotoWorks, Egreetings.com and Webshots. In fact, during his tenure at American Greetings, we understand that Mandelbaum may have even been interested in buying his current firm, IncrediMail.

Taking care of unfinished business, Oracle snares InQuira

Contact: Ben Kolada

Oracle scratched a lingering itch recently, as it announced that it is acquiring knowledge management and customer service automation vendor InQuira for an undisclosed amount. The announcement comes nearly three years to the day after Oracle was stinted by salesforce.com in its attempt to scoop up InQuira rival InStranet. And although terms of the deal weren’t disclosed, we suspect that the database giant paid up for its expansion in this sector.

As usual, Oracle hasn’t disclosed terms of the transaction. Nearly all precedent deals in this sector have fallen in the range of $30-50m. However, InQuira could have broken this benchmark since the company was growing and was more mature than its acquired rivals. InQuira has expanded from about 135 employees serving 50 customers when we last covered the firm in 2008 to more than 85 customers today, with a headcount surpassing 200. Assuming its average deal size has remained somewhat constant, we would roughly place the company’s trailing revenue in the ballpark of $55-65m. Based on precedent valuations (comparable transactions have been valued at 1.3-1.8 times trailing sales) and our loose estimates of the company’s revenue, Oracle could have paid about $100m for InQuira. In comparison, salesforce.com forked over just $32m for InStranet in 2008.

Privately held InQuira offers integrated applications for Web self-service, knowledge management and agent-assisted support by bringing together intelligent retrieval, content management, collaboration and analytics. The acquisition, which is expect to close in the fall, will become the core of Oracle’s Fusion CRM product line.

A tale of two e-discovery deals

Contact: Nick Patience

Last week was more or less bookended with two acquisitions in the e-discovery market, with Autonomy Corp picking up Iron Mountain’s digital assets on Monday and Symantec buying Clearwell Systems on Thursday. Autonomy and Symantec share a market but little else between them. Both are experienced acquirers – having made, collectively, 50 deals over the past decade – but each company chooses its targets and executes acquisitions in very different ways.

Autonomy often buys rivals simply to remove them from the market. Or it inks deals to obtain customer bases or move into adjacent sectors, and it often swoops in on companies at the last minute (as it did with Zantaz in 2007). The purchase of Iron Mountain’s divested business has all four of those characteristics. Iron Mountain was a direct rival in the e-discovery and archiving segments, while it also provided a backup and recovery business, which is a new area for Autonomy. The buyer also netted 6,000 customers, although there is some overlap. Autonomy took out Verity back in 2005 to remove a competitor and picked up Zantaz to get into the archiving space. The vendor is known for being aggressive in integrating companies, which often leads to a lot of people quickly moving on after being acquired, and we expect both people and products to be removed rapidly here.

Symantec’s M&A strategy is still somewhat shaped by its misguided attempt to add storage to its core security offering with the acquisition of Veritas in 2004. (That deal remains Big Yellow’s largest-ever purchase, accounting for more than half of the company’s entire M&A spending.) Of course, that transaction happened more than a half-decade ago and a different management team was heading the company.

Still, that experience – along with the constant reminders about the misstep from Symantec’s large shareholders – appears to have made the company more considered in its approach. For example, it had been working with Clearwell in the field as well as at the product development level for more than two years before the deal. However, we don’t think Big Yellow could have waited much longer to add some key e-discovery capabilities to boost its market-leading (but aging) Enterprise Vault franchise. We suspect that is why Symantec paid such a high premium for Clearwell, valuing the e-discovery provider at 7 times sales – more than twice the multiple Autonomy paid in its e-discovery purchase.

Clearwell had been on a growth tear since its formation at the end of 2004 and the firm helped define the e-discovery space, starting with early case assessment and then systematically moving into other segments of the e-discovery process. We get the feeling that management may have wished to have waited another year or so before being bought. We think they would have relished the chance to turn Clearwell into something substantial and possibly take it public; the fact that no bankers were used on either side indicates that Clearwell was not actively shopping itself around. But some offers are just too good to turn down.

A new era at Google?

Contact: Brenon Daly

It’s a new era at Google. After the market closes, Google’s once-and-future king Larry Page will give his first report to Wall Street since returning to the throne at the search company he helped found. Page took over at the beginning of the month, with Google shares trading essentially where they were a year ago.

Page, of course, is replacing Eric Schmidt, the ‘grownup’ who was brought in a decade ago to run Google, who now serves as executive chairman at the company. It’s interesting to note from our view that Schmidt steps from Google’s corner office back into a tech industry that looks very different from when the avowed technologist joined the company in 2001. Consider this: both companies where Schmidt basically spent his entire career – most notably Sun Microsystems, but also a relatively brief stint in charge of Novell – have been sold while he was at Google.

Further, both of the sales of Schmidt’s previous companies were pretty much scrap sales, valuing the once-formidable companies at less than one times their revenue. (Collectively, the equity value for both Sun and Novell at the time of their sales is just one-twentieth Google’s current valuation.) Of course, there are some observers who say it’s only a matter of time before Google – having largely missed the shift to social networking – may be headed for a long, slow decline of its own. Just like Sun and Novell.