Now, let’s go from these trends to the deals those trends are driving, withy our 2015 Tech M&A Research report, led by Vice President and Director of Research Elon Gasper, joined by Alina Soltys, Amber Stoner, Tyler Vickers and Ivan Snook, and joining us from Europe, Nina Seghatoleslami and Artem Mamaiev. Elon?
Thanks, Tim. We’ll begin with a look back at the public markets, which set many new records as business profits and loose monetary policies around the world combined in an unprecedented, nearly global, liquidity event. The tech sector added overlapping cycles of innovation from disruptive trends like those we just mentioned to rack up double-digit gains year over year.
Pressured to maintain and build on these gains, big companies tapped that ready cash from their balance sheets and new borrowing, to chase growth through Tech M&A, led by top buyer Google with 37 acquisitions on our annual leaderboard, returning it to the position it held 3 of the last 4 years by breaking its high score of 2011, as we predicted back in July, continuing an impressive 11 year record of growth through acquisition, a strategy it has taken to new heights.
The surprising runner-up among the acquirers wasn’t last year’s top buyer Yahoo, but WPP, as it and Publicis led a wave of digital ad agency consolidation.
Just behind Yahoo, J2 Global’s fourth place showing was another surprise, as it rolled up more companies in media, backup and email security; and a 3D printer company broke onto the leaderboard for the first time, as 3D Systems edged in with its share of the dozens of other 3D deals, including Corum client Orthoview, bought by Materialise, confirming the Advanced Manufacturing trend we called out in last year’s list of disruptors.
Back to Google: can you unpack that shopping spree for us, Alina?
Sure. Google started 2014 with its daring consumer product purchase of Nest for $3.6B and London-based DeepMind known for their AI, then continued to invest through them and YouTube as subsidiaries. For instance, Dropcam was added as a complement to Nest, focusing on home security and monitoring for about half a billion. Among the rest, there were a number complementing the DeepMind purchase with artificial learning apps Jetpaс and Tinker Square’s Emu, a couple online advertising companies, Adometry for $150M and startup mDialog, and finally, Skybox Imaging, for $500M to augment Google Maps and Google Earth with high-quality real-time photos and videos.
Tracking last year’s change in the leading buyers’ landscape, the most changed was J2Global, a business cloud services vendor with a digital media subsidiary, gathering companies globally and backloading the year with a run of December closings just announced last week.
Close behind J2 came Dropbox, which also more than doubled its tech M&A purchases last year, including facial and object recognition firm KBVT to help organize photos stored in Dropbox accounts.
A number of perennial top buyers held on, while Yahoo and Apple slipped down the ranks. Buyers that dropped all the way off the chart included Accenture, Autodesk, Intel, IBM and Cisco.
Turning to the PEs, Insight tops the leaderboard with a swarm of small deals it added to existing portfolio companies, showing that bolt-ons were a core theme last year as IPOs and strategics bidding for deal flow drew private equity dollars downmarket. We’ll have more commentary next month in part two of this report, our yearly Private Equity webinar.
Summarizing 2014 with our Corum Index, we reached new highs in M&A volume gaining more than 18% and which drove a nice increase to our megadeals, now up to 46! We’ll take a deeper look at these megadeals but to wrap up the index, VC exits were down slightly over the year, while cross-border transactions continued to grow.
Back to the megadeals, let’s take a look at one from each sector:
The Internet market had the largest deal, the successful $22B acquisition of WhatsApp by Facebook.
Among the half-dozen IT Services deals we highlight French media giant Publicis paying $3.7B for Boston-based Sapient, a prominent omnichannel commerce player.
Moving onto the Horizontal space, SAP spent a whopping $8.3B on the acquisition of Concur, an employee mobility solutions provider. We’ll hear from Dr. Karl Pop from SAP in our panel in just a few minutes.
In the Infrastructure market Zebra took advantage of low rates to borrow $3B and double its size through M&A, picking up Motorola’s asset tracking tech in line with the IoT and Positioning Intelligence trends we mentioned.
There were a number of PE-backed buyouts within the Vertical sector. A consortium led by Blackstone and Goldman Sachs bought out IPREO. IPREO provides financial information on markets, trading and an extensive database of private investors which Goldman will certainly use to sell its financial products.
Finally, in the Consumer sector, the headliner atop a stack of massive casino gaming deals was Beats, the streaming music, headphones and audio software company bought by Apple for $3B.
Among regional geographies, North America continues to be the major buyer while Latin America, Mideast and Asia show growth of sellers. Within North America more detailed patterns can be resolved. Tyler, can you take us through some?
Sure. North America was a hub of M&A activity in 2014, with 3 out of 4 deals having at least one stakeholder in the region, representing a disclosed total of over $330B. In the U.S., the west saw the most activity, led by California, which had more deals than the combined total of any other region.
The state is also home to Chegg, which, with three transactions this year, is becoming a full service, one stop shop for college students. Right after their IPO, they acquired Corum Client Campus Special, a student deal platform for $17M. Following that, they purchased InstaEDU for their online tudoring network, then rounded out with Internships.com for $30M. All these transactions are diversifying their prior focus of textbook rentals into a platform serving college students.
Overseas interest from North America was, not surprisingly, directed to Western Europe, home to nearly two-thirds of all outbound targets, while the remaining third was mostly divided between Asia and Latin America.
You can tell us about a couple transactions there, Nina?
Yes, on that note, exactly one year ago, Equifax announced the acquisition of Corum’s Mexico City-based client, Inffinix.
In Brazil, TOTUS, Latin America’s largest software company and most active acquirer, bought Virtual Age, a SaaS supply chain platform for the textile and clothing industries.
Western Europe continues to show strong M&A performance with the UK, Germany, and the Nordics maintaining leadership. The biggest Nordic deal was payments firm Nets, bought by PEs Advent and Bain for $3.1B. Days later, Nets acquired Corum’s Finnish client Paytrail, the ecommerce payment service provider.
What about Eastern Europe, Artem?
Eastern Europe tripled tech M&A in the latter half of 2014, with financial tech companies also on the rise. Hungary-based mobile banking company IND was purchased by Vista-owned Misys, adding digital retail banking solutions to its portfolio.
In Asia, fast-growing companies emerge daily, while recently IPOed companies turn up the heat with M&A, like Alibaba, which spent 1.6B to buy Chinese digital mapping company AutoNavi at a strong 7.5x revenue multiple. Further south, Australian job marketplace Seek paid nearly half a billion to purchase its Malaysian competitor JobStreet, to penetrate deeper into Southeast Asia.
Finally, California’s ServiceNow spent $100M to add Israeli startup Neebula, which clearly had hit the strategic sweet spot with its ServiceWatch SaaS for enterprise management automation.
Drilling down now into our six markets, we’ll examine 29 sectors, a net increase of 3 new ones emerging as we revise our reporting with a significant annual reorganization reflecting the many structural market changes we confirmed in 2014. A major version release as the decade heads across its halfway mark!
To start, bring us up to date on the Horizontal Applications story, Amber.
Horizontal Software Valuation Metrics
With the changing of our subsectors and SaaS companies permeating multiple sectors, including Vertical and Infrastructure, Horizontal now finds itself in the middle of the pack. The sector saw EBITDA multiples fluctuate throughout the year, while sales multiples remained fairly steady, with a slight uptick to end Q4.
Sales multiples rose in the HR and SCM subsectors while CRM and Marketing and AdTech saw a jump in EBITDA multiples, although both sales and EBITDA multiples are down overall from this time last year. The dip in multiples hasn’t stopped acquisition activity in the space however, and, in fact, analytics was a hot trend in 2014 across sectors.
Announced just last month, Canadian giant OpenText is branching out from its content management roots spending $330M, a 2.5x sales multiple, to get BI analytics firm Actuate, enabling OpenText solutions with embedded analytics.
And BI giant TIBCO, prior to being taken private by Vista Equity, bought BI reporting and analytics SaaS provider, Jaspersoft, for $185M, a 6.2x sales multiple, bringing reporting capabilities to Spotfire’s visual analytics.
HR software companies were buying analytics as well. We’ve talked about a number of those deals over the course of the year, including Workday’s acquisition of Identified in February for $26M. HR analytics deals continued in Q4 with Cornerstone OnDemand paying $43M for Evolv in October.
And in December, from outside the horizontal sector entirely, telecom services company CenturyLink grabbed Cognilytics, a provider of BI predictive analytics and big data visualization SaaS.
With companies needing a way to make better use of their data, we expect further consolidation in the BI segment in 2015, particularly as it relates to analytics and big data.
Ivan, what activity did we see in the Internet sector?
Internet Software Valuation Metrics
The high valuations in our revised Internet sector reflect the outsized value placed by the market on successful emerging business models. Sales multiples peaked in February and by year’s end returned to a more rational 5x sales, while values from EBITDA remained steady.
Among the four new sectors, we see diverse valuations for different business models. Social networks lead significantly in sales multiple with both social and ecommerce out ahead in EBITDA.
Within those social networks knowledge proved powerful and profitable as major social media sites friended companies specializing in social network analytics. LinkedIn purchased Bizo for $175 million dollars to enhance targeted advertising and also Bright Media for $120M to boost its job matching service.
Twitter’s trending, with its 12 acquisitions over the year, including the $134 million dollar acquisition of Guh-nip, a Colorado-based startup that resells social media data. Twitter also entered the ecommerce sector with its purchase of Cardspring, who turns tweets into receipts by using hashtags to process mobile purchases, an exciting technology on our Top 10 Trend, Digital Currency Flow.
In our new travel and leisure sector, there’s a smorgasbord of online food delivery websites consuming their way to year-over-year growth of 500% and 19 total transactions, eleven of which from Berlin-based companies Delivery Hero and FoodPanda.
London-based takeout service JUST EAT gobbled up EatCity for its point of sale software that enables restaurants to serve up delivery ordering right onto their own websites. JUST EAT now also delivers to France and Canada after its acquisitions of Eat Online in Paris, and Delivery Town in Edmonton.
And for hungry travelers not interested in delivery, travel website giants are adding online restaurant reservations to the menu. Priceline bought OpenTable for a whopping two-point-six billion dollars, and TripAdvisor continued its three-year M&A feeding frenzy, including Paris-based La Fourchette and Amsterdam’s IENS.
TripAdvisor customers can now also connect with local experts via Tripbod, get cozy with VacationHomeRentals.com, and see the sights with Viator.
Amber, Infrastructure; how’d it do?
Infrastructure Software Valuation Metrics
Overall, the Infrastructure market has seen increases in both sales and EBITDA multiples over the last year. Valuations were up among almost all of the 6 Infrastructure subsectors.
We continued to see consolidation in the Network Management and Security spaces, both of which saw increases in EBITDA multiples. But 2014 also brought quite a bit of acquisition activity in the endpoint subsector to go along with an increase in sales multiples from a year ago.
The network management space was extremely active throughout 2014. Even the private equity firms got in on the action with Thoma Bravo spending a bundle in the space in two out of their seven 2014 deals, picking up Riverbed for $3.6B and Compuware for $2.5B. We’ll go into those deals in more detail next month when we spotlight private equity.
In our new Endpoint subsector, VMware acquired mobile device management company, AirWatch, for $1.5B, allowing it to better compete with Citrix as both companies rolled out new mobile device management tools early in 2013 and made acquisitions in 2014 to enhance their MDM portfolios, moving from managing desktops and servers to being able to manage and secure all endpoints.
One of the major network management players, Cisco, bought Tail-f, a provider of multi-vendor network service orchestration solutions for traditional and virtualized networks for $175M, accelerating Cisco’s cloud strategy.
Cisco also expanded its reach in infrastructure by paying $149M to get Metacloud, a three year old company that helps organizations build OpenStack clouds, and, most recently, grabbed enterprise security consultancy Neohapsis strengthening its risk management technology.
Elsewhere in the security space, after its IPO in 2012 and spending $55M in 2013, Proofpoint continued acquiring in 2014, landing security incident response and remediation software provider NetCitadel for $24M in May and following that deal with a $35M purchase of social media security and compliance SaaS provider Nexgate in October.
Elon, how are the Verticals?
Vertical Software Valuation Metrics
Our diverse vertical markets held steady at high levels; transition to SaaS continued to be the principal driver of value, as buyers’ interest in other models fades. With variation among subsectors ranging in value from the slow-moving government field, to a consolidating but still dynamic healthcare segment, to a couple hot new sectors: Automotive and Real Estate. Both held high EBITDA ratios, but the Real Estate, with its expanding networks of property sites, clearly tops the chart with 18% higher EV to sales. Among its deals: here in Seattle, search site Zillow took Trulia for $3.5B; in a second megadeal News Corporation grabbed Move, operator of Realtor.com, for nearly a billion.
Here in Spain, Trovit, the country’s leading website for real estate and other classified ads, was acquired by the Japanese real estate information firm Next for $100M at 4.5x revenue.
In the Automotive sector, Britain’s CAP Automotive was bought for over $460M by Solera, a risk management software provider for the automotive industry, which also bought Czech vehicle valuation provider IBS.
In related deals, Yandex added Auto.ru for $175M, while in a $1.8B megadeal Cars.com was bought by Gannett.
Finally, in the healthcare sector, UK-based Servelec paid $37M for Corelogic, a social care case management software business. Look for more in our Corum Research coverage in a special report on the healthcare IT vertical next month, in a Market Spotlight webcast.
Tyler, what’s been happening in IT Services?
IT Services Software Valuation Metrics
The number of IT Services deals in 2014 grew by 10% over last year, while values in sales multiples held on to gains made early in the year and EBITDA multiples ended on a high note.
In the developed markets, the biggest IT Services firms, having undergone significant domestic consolidation, and are now looking for growth internationally. French firm Atos acquired Xerox’s IT services arm for just over a billion, making them the largest European-based IT service provider and tripling their presence in the US. The financial services giant KPMG bought German provider of managed securities services p3 Consulting & Software, building on their strong position in the world's fourth largest economy and leveraging this targeted service to protect their clients in the non-tech sector.
IT security services and information security VARs were particularly popular, as highly publicized breaches in cybersecurity underscored its growing importance in the private and public sector. After being bought by PE Blackstone Group earlier in the year for $225 million, the network IT security company Accuvant announced its own cybersecurity purchase with the acquisition of FishNet Consulting, an information security solutions provider, combining two of the largest security companies.
In emerging markets, companies are maturing and growth is crucial. In Chile IT services firm Sonda paid 170 million for Brazilian provider CTIS, expanding its reach into Latin American countries with high growth prospects.
In India, cloud development services and consulting firm Aditi Technologies was acquired by Symphony Teleca, becoming its fifth division, focused on what Symphony calls “Systems of Engagement” applying cloud, mobility, and analytics.
That only leaves the Consumer sector, Alina?
Consumer Software Valuation Metrics
We have had a choppy monthly performance in 2014, especially with EBITDA swinging between 7-12x as a few newly public companies like GoPro were added part way through the year.
The consumer sector has brought education and entertainment into its folds along with gaming.
The gaming sector has continued to accelerate its acquisitive streak from last year’s record pace. Our gaming research team put together this chart reviewing half years going back to 2009 tracking deal flow for the gaming ecosystem. This year, we saw $33B spent on 222 transactions.
All of the large tech companies, Google, Yahoo, Amazon, Microsoft, are participating. Microsoft made the mega deal list with its $2.5B transaction of Minecraft maker Mojang. Actually, a couple months before the transaction, Rolling Stone magazine had asked for our opinion on the private company’s value; at the time, $2B was my estimate.
Another couple of billion dollar deals hit the casino gaming space with the largest transaction going to Pokerstars at $4.9B. Amaya almost doubled its size with this transaction and it became the largest online gaming company.
And lastly, Private Equity jumped in with almost a $1B buyout of online gambling and sports betting provider Sky Bet out of the UK, one of the few countries that have legalized real-money oinine gaming.
Moving on to Education, besides the Chegg deals that Tyler mentioned, LeapFrog acquired one of their partners, KidZui a kid-friendly web browser that supports the LeapSearch Browser on their tablets. There is a lot at stake for Leapfrog with this generation of tech savvy tikes totting iPads around.
Swinging over to entertainment, Alibaba invested $1.22B, gaining almost a 24% stake in Youku-Tudou, the chinese Youtube. Online video is one of the few sectors that Alibaba had not yet tapped in its acquisition spree.
Xiaomi, the 3rd largest mobile phone manufacturer also took a stake, potentially working a new channel to distribute internet TV straight through their devices.
And that’s part one of our look back at the 2014 tech M&A. We see 2015 bringing continued high valuations and steady demand powered by profits, tech trends, strong balance sheets and global liquidity.
Back next month with part two, the PE focus, plus our January 2015 update. Back to you, Tim.