Selected M&A Deals for the Week of 6/22/2012 – 6/28/2012

The table below includes a select list of Software, SaaS, Internet and Mobile M&A transactions for the week of June 22, 2012 – June 28, 2012.  For a comprehensive analysis of software industry mergers and acquisitions and public software company financial performance you can download our research reports by visiting http://www.softwareequity.com/research_reports.aspx.  Notable transactions for the week include:

• Microsoft Corporation’s acquisition of Yammer, Inc [for an Enterprise Value (EV) of $1,200.00]
• Digital Realty Trust’s acquisition of Sentrum Limited [for an EV of $1,116.59]
• Centaur Communications Limited’s acquisition of E-consultancy.com Limited [for an EV of $77.80]
• Isoftstone Holdings Limited’s acquisition of Abovenet International Inc
• salesforce.com’s acquisition of Thinkfuse
• T-Mobile USA’s acquisition of Cellco Partnership Inc
• SanDisk Corp’s acquisition of Schooner Information Technology Inc
• GAIN Capital Holdings Inc’s acquisition of Open E Cry, LLC

Selected M&A Deals for the Week of 6/15/2012 – 6/22/2012

The table below includes a select list of Software, SaaS, Internet and Mobile M&A transactions for the week of June 15, 2012 – June 22, 2012.  For a comprehensive analysis of software industry mergers and acquisitions and public software company financial performance you can download our research reports by visiting http://www.softwareequity.com/research_reports.aspx.  Notable transactions for the week include:

•Centaur Media’s acquisition of E-consultancy.com Limited [for an Enterprise Value (EV) of $77.8M, implying an EV/Rev multiple of 7.58x]
•APN News & Media’s acquisition of brandsExclusive [for an EV of $74.6M]
•Valassis Communications Inc’s acquisition of Brand.net, Inc. [for an EV of $18.0M]
•Facebook’s acquisition of Face.com
•Google’s acquisition of Magnolia Broadband, Inc.
•salesforce.com’s acquisition of ChoicePass, Inc.
•SeaChange International Inc’s acquisition of FLASHLIGHT Engineering and Consulting, Inc.
•Tencent Holding’s acquisition of Epic Games, Inc.

Initial Public Offerings

The vast majority of IPOs had strong first day performances, as investors bid up prices in contemplation of substantial future growth.

 

This excerpt is from our complimentary Q1 2012 Software Industry Financial Report which can be downloaded here:  http://www.softwareequity.com/research_reports.aspx

The software IPO market began the year with a bang, as eleven software/SaaS and Internet companies went public in 1Q12, compared to only four in the first quarter of 2011 (Figure 25).  Collectively, these eleven newly listed companies touted a median TTM revenue growth rate of 49.8% and a median TTM EBITDA margin of 3.8%.  In aggregate, they raised nearly $1 billion, ranging individually from $22.7 million to $147 million.

The two biggest IPOs of the quarter were Millennial Media (NYSE:MM), an online mobile advertising solution that raised over $123 million and ExactTarget (NYSE:ET), an email marketing provider for Fortune 500 companies that raised $147 million.  Of the 11 newly trading companies in 1Q12, all are headquartered in the US except for AVG technologies (NYSE:AVG), which is based in Norway.

The stock prices of these 11 newly listed companies performed exceptionally well in Q1, increasing a median 65.6% by the close of the quarter.  Five of the new public market entrants advanced 80% or more by March 31, led by Brightcove which rewarded investors with a 125.5% return.  The median revenue growth rate of the eleven was a noteworthy 49.8%.  Four of the eleven companies grew revenue by more than 50%, led by Millennial Media (116.8%) and Yelp, Inc. (74.5%).

The vast majority of IPOs had strong first day performances, as investors bid up prices in contemplation of substantial future growth.  Millennial Media debuted at $13 and closed the first day of trading at $25, up 92.3%.  Yelp, initially priced at $15 per share, closed its first day at $24.58, up 69.3%.  Other strong first day performances were turned in by Demandware (47.4%) and ExactTarget (32.2%).  All but one of the first quarter’s IPOs (Millennial Media) were able to achieve 1Q12 stock returns above their first day return.

 

Public Internet Company Financial Performance: By Product Category

…there appears to be a strong relationship between the revenue growth of the product category and its median EV/Revenue multiple.

 

This excerpt is from our complimentary Q1 2012 Software Industry Financial Report which can be downloaded here:  http://www.softwareequity.com/research_reports.aspx

The public market valuations of companies comprising the SEG Internet Index varied widely by Internet category in 1Q12 (Figure 23).  Yet, there appears to be a strong relationship between the revenue growth of the product category and its median EV/Revenue multiple (Figure 24).

The outlier, on both TTM revenue growth and median EV/Revenue multiple, is Social Media which racked up a median EV/Revenue multiple of 14.3x – nearly six times higher than the overall Internet median of 2.5x.  Companies with market valuations exceeding the median Internet EV/Revenue multiple included Mail.ru Group (17.7x), Yelp (16.3x), and LinkedIn (15.2x).  Besides a median growth rate in 1Q12 exceeding 70%, investor enthusiasm for Social plays was bolstered by the success of Facebook and other high flying, yet still private, social media companies that are generating tremendous buzz.

While less spectacular than Social, the Travel product category also had an impressive market valuation in 1Q12, posting a median 4.7x EV/Revenue multiple.  Key market performers in the Travel category included HomeAway (8.9x EV/Revenue), TripAdvisor (7.1x) and Priceline (6.2x).

The Commerce category was widely eschewed by investors, closing 1Q12 with a highly disappointing 0.9x EV/Revenue multiple, by far the lowest of our Internet categories.  Lackluster revenue growth, well below the Internet median, is surely to blame here. The notable exception was Mercardolibre, which posted a median EV/Revenue multiple of 13.7x, over fifteen times the Commerce category median for 1Q12.  Mercardolibre, Latin America’s eBay, was favorably looked upon by investors enamored with emerging markets, particularly in light of its 38% TTM revenue growth rate.

 

Public Internet Company Market Valuations

Investors were clearly focused on Internet category winners, awarding premium valuations to those that exceeded their high TTM revenue hurdle rate…

 

This excerpt is from our complimentary Q1 2012 Software Industry Financial Report which can be downloaded here:  http://www.softwareequity.com/research_reports.aspx

The median EV/Revenue multiple for the 87 public companies comprising the SEG Internet Index was 2.5x in 1Q12, the same as the prior quarter, but down 16.7% from 3.0x in 1Q11 (Figure 18).  The exception was Internet companies with revenues under $100 million which experienced strong YoY growth in market valuation – quite a contrast from their sub-$100 million software counterparts who couldn’t stimulate nearly as much investor enthusiasm (Figure 20).

Investors were clearly focused on Internet category winners, awarding premium valuations to those that exceeded their high TTM revenue hurdle rate, but largely ignoring the rest.  As testament, public Internet providers with TTM revenue growth rates between 30% and 40% had a relatively modest median EV/Revenue multiple of 2.6x, while those above 40% were awarded a whopping 6.7x multiple (Figure 21).

As in the case of SaaS, investors had no problem betting on unprofitable Internet investors that reported rapid growth and appeared to have extraordinary upside.  In 1Q12, Internet providers with negative EBITDA margins had a median TTM revenue growth rate of 67.4% and a whopping median EV/Revenue multiple of 6.6x (Figure 22).  The list of companies in this group include new IPOs Jive Software (-49.2% EBITDA margins, 13.3x EV/Revenue), Angie’s List (-47.3%, 8.2x), Zynga (-27.5%, 6.6x), Groupon (-13.7%, 7.0x) and Yelp (-9.3%, 16.3x).

But unlike SaaS investors who showed complete indifference to ranges of profitability (Figure 16), Internet investors rewarded profitable Internet providers as well.  Public Internet companies that were able to achieve EBITDA margins in excess of 40% in 1Q12 received a premium median market valuation of 5.8x, in contrast to those with 0% – 10% EBITDA margins that had a median 1.4x EV/Revenue multiple (Figure 22).

Selected M&A Deals for the Week of 6/8/2012 – 6/15/2012

The table below includes a select list of Software, SaaS, Internet and Mobile M&A transactions for the week of June 8, 2012 – June 15, 2012.  For a comprehensive analysis of software industry mergers and acquisitions and public software company financial performance you can download our research reports by visiting http://www.softwareequity.com/research_reports.aspx.  Notable transactions for the week include:

• Apax Partners’ acquisition of Paradigm B.V. [for an Enterprise Value (EV) of $1,000.0]
• IHS Inc’s acquisition of GlobalSpec, Inc. [for an EV of $135M]
• Constant Contact, Inc’s acquisition of SinglePlatform, Corp [for an EV of $95M]
• The Descartes Systems Group Inc’s acquisition of Integrated Export Systems, Ltd. [for an EV of $35M]
• Autodesk, Inc’s acquisition of Vela Systems, Inc
• LivePerson Inc’s acquisition of Look IO Inc
• Qlik Technologies, Inc’s acquisition of expressor software corporation

Public Internet Company Financial Performance

In 1Q12 there were significant disparities in revenue growth rates among consumer focused public Internet companies…

 

This excerpt is from our complimentary Q1 2012 Software Industry Financial Report which can be downloaded here:  http://www.softwareequity.com/research_reports.aspx

Public companies comprising the SEG Internet Index posted a stellar median TTM revenue growth of 29.3% in 1Q12, the highest of our three tracking Indices (Figure 18).  1Q12’s revenue growth compares quite favorably to 1Q11’s 23.4% revenue growth rate, and is even more impressive considering the SEG Internet Index has the highest median TTM Revenue ($393.6 million) of the three SEG indices.  By comparison, public software companies had median TTM revenue of $370.8 million in 1Q12, but a considerably lower TTM revenue growth rate of 14.2%.  Of the 15 public Internet companies with TTM revenue of $1 billion or more, nearly three out of four generated TTM revenue growth rates of more than 20% in 1Q12.  The high performing Internet companies span an array of Internet categories, including eCommerce (Amazon, eBay), Search (Google, Baidu), Gaming (Tencent, Zynga) and Travel (Priceline, Expedia).

In 1Q12 there were significant disparities in revenue growth rates among consumer focused public Internet companies, thanks to the virtually unlimited number of prospects and the demonstrated ability of some to grow exponentially by “going viral”.  Indeed, the SEG Internet index has the widest distribution of revenue growth rates among our three tracking indices (Figure 19).  Nearly ten percent of public Internet companies achieved TTM revenue growth at or above 100% in 1Q12, including Groupon (415%), Qihoo (191%), Youku (131%), Zillow (117%), LinkedIn (115%), KIT Digital (102%), and Pandora (100%).  At the other end of the spectrum, over 10% of SEG Internet providers posted negative revenue growth, including Tree.com (-71%), Yahoo (-21%), and AOL (-9%).  Yahoo and AOL are great examples on how quickly leading consumer Internet companies can go out of favor, something, Groupon, and other high flyers, should monitor closely.

The median EBITDA margin of public Internet companies declined to 13.7% in 1Q12, down sharply from 16.8% in 1Q11.  The drop can be largely attributed to higher sales and marketing expenses to drive market adoption and a number of newly public Internet providers that had eye-popping revenue growth but weak profitability.

Jive Software is a good example, listing in 2011 and posting a 67% TTM revenue growth rate and -49% EBITDA margins in 1Q12.  Nevertheless, an extended period of consistent profitability has bolstered the balance sheets of Internet providers.  For most Internet providers, however, revenue growth appeared to compensate for lower margins.  By the close of the first quarter, the median Cash & Equivalents of companies comprising the SEG Internet Index was $161.8M, up 32.2% from 1Q10 (Figure 18).