Select Industry Acquisitions – 8/31/2012

Red Hat acquires Polymita

Red Hat, Inc. (NYSE: RHT), the world’s leading provider of open source solutions, today announced it has acquired business process management (BPM) technology developed by Polymita Technologies S.L.  Polymita, a Barcelona, Spain-based start-up, created a comprehensive BPM platform that empowers business users to become agents of change in their organizations.

Accenture acquires NewsPage

Accenture (NYSE:ACN) has entered into an agreement to acquire Singapore-based NewsPage Pte Ltd (“NewsPage”), a leading provider of integrated distributor management and mobility software for the consumer goods industry in emerging markets.

Chicago Growth Partners acquires Marathon Data Systems

Chicago Growth Partners (“CGP”) is pleased to announce its investment, in partnership with management, in Marathon Data Systems (“Marathon”). Marathon is the leading provider of comprehensive turnkey software solutions delivered predominately on a SaaS basis used by field service businesses, such as pest control and HVAC repair service providers, to manage a wide variety of critical business processes.


Public Internet Company Financial Performance

This excerpt is from our complimentary Q2 2012 Software Industry Financial Report which can be downloaded here:

The median TTM revenue of SEG Internet Index companies grew an impressive 27.4% in 2Q12, 41% higher than 2Q11 (Figure 18). Among SEG’s three tracking indices, companies comprising our Internet Index have the highest median TTM revenue ($394.7 million), making their median revenue growth in 2Q12 all the more impressive.

By comparison, public software companies had median TTM revenue of $365.1 million in 2Q12, but a considerably lower TTM revenue growth rate of 15.5%.

Of the 19 public Internet companies with TTM revenue of $1 billion or more, nearly two-thirds grew TTM revenue by more than 20% in 2Q12. Q2’s top Internet performers spanned an array of Internet categories, including eCommerce (Amazon, eBay), Search (Google, Baidu), Gaming (Tencent, Zynga), Travel (Priceline, Expedia) Social Networks (Facebook) and Lead Gen (Groupon).

Nevertheless, growth disparities among public Internet providers abounded in Q2; the SEG Internet index has the widest variance of revenue growth rates among our three tracking indices (Figure 19). Five public Internet companies achieved TTM revenue growth at or above 100% in 2Q12, including Groupon (232.2%), Qihoo (201.7%), Youku (123%), Zillow (113.3%), and LinkedIn (111.1%).

At the other end of the spectrum, ten SEG Internet providers posted negative revenue growth, led by Yahoo (-16.4%), Mecox (-9.0%), eHealth (-7.3%) and AOL (-5.2).

As for profitability, the median EBITDA margin of public Internet companies continued to decline in 2Q12, closing the quarter at 13.5%, after reaching a historic high in 1Q11 of 16.8%. The declining profitability is primarily attributable to higher sales and marketing expenses to drive market adoption. It was a strategy that worked, for some: Jive Software is a good example, which publicly listed in 2011, posted 64% TTM revenue growth, but a -45% EBITDA margin in 2Q12.

Nevertheless, the SEG Internet Index includes a good number of companies that are highly profitable. One out of eight public Internet companies achieved EBITDA margins of 40% or greater, including (65.7%), Baidu (58.5%), Facebook (53.4%), Netease (50.2%) and TripAdvisor (45.6%).

Though EBITDA margins may have declined, the surge in revenue enabled many Internet companies to boost their cash reserves. By the close of the second quarter, the median Cash & Equivalents of companies comprising the SEG Internet Index was $155.4M, up 36% from 2Q11 (Figure 18).

Public Internet Company Market Valuations

The median EV/Revenue multiple for the 87 public companies comprising the SEG Internet Index was 2.3x in 2Q12, the same as in Q1, but down 30% YoY from 2Q11’s 3.2x (Figure 18). In contrast to the YoY decline in the broader index, Internet companies with revenue under $100 million saw their median EV/Revenue multiples climb 121% over the past year (Figure 20).

Investors clearly favored public Internet companies with above average TTM revenue growth. As testament, companies in the SEG Internet Index with TTM revenue growth rates above 40% were rewarded with a median 5.3x EV/Revenue multiple, while those with negative TTM revenue growth rates had a median market valuation of 1.0x (Figure 21).

Investors found unprofitable but rapidly growing public Internet companies to be as appealing as their SaaS brethren. Internet providers with negative EBITDA margins at the close of 2Q12 had a whopping median EV/Revenue multiple of 4.4x, thanks to a stellar median TTM revenue growth rate of 67.4% (Figure 22).

But unlike SaaS investors who seemed indifferent to profitability (Figure 16), Internet investors paid great attention to the bottom line in 2Q12. Public Internet companies with EBITDA margins greater than 40% in 2Q12 were rewarded with a premium median market valuation of 8.7x, while those with 0% – 10% EBITDA margins were punished with a median 1.0x EV/Revenue multiple (Figure 22).


Select Industry Acquisitions – 8/27/2012

Thoma Bravo acquires Deltek

Deltek, Inc. (Nasdaq: PROJ), the leading global provider of enterprise software and information solutions for professional services firms and government contractors, announced that it has entered into a definitive agreement under which Deltek will be acquired by leading private equity investment firm Thoma Bravo, LLC in an all-cash transaction valued at approximately $1.1 billion.

IBM acquires Kenexa

IBM (NYSE: IBM) and Kenexa Corporation (NYSE: KNXA) announced they have entered into a definitive agreement for IBM to acquire Kenexa, a leading provider of recruiting and talent management solutions, in a cash transaction at a price of $46 per share, or at a net price of approximately $1.3 billion.

Trimble acquires TMW Systems

Trimble (NASDAQ: TRMB) announced that it has entered into a definitive agreement to acquire privately-held TMW Systems, Inc., a leading provider of enterprise software to transportation and logistics (T&L) companies.

Confirmit acquires CustomerSat

Confirmit, a global software provider for Customer Experience, Employee Engagement and Market Research, has announced that it has acquired CustomerSat, the Enterprise Feedback Management (EFM) software and services provider,  previously owned by MarketTools.

Public Software as a Service (SaaS) Company Market Valuations: By Product Category

This excerpt is from our complimentary Q2 2012 Software Industry Financial Report which can be downloaded here:

SaaS providers in the ERP & Supply Chain category finished 2Q12 with the highest median EV/Revenue multiple, 6.0x. The category was bolstered by strong performances from Netsuite (12.5x) and Ariba (7.1x).

Public SaaS companies in the Workforce Management category improved their median EV/Revenue multiple in 2Q12, to 4.8x. Ultimate Software Group led the pack, boosting its YoY EV/Rev an impressive 22.8%. The category’s relative strength was driven, at least in part, by investor hopes of capitalizing on the wave of consolidation in the SaaS WFM arena.

Public Software as a Service (SaaS) Financial Performance: By Product Category

This excerpt is from our complimentary Q2 2012 Software Industry Financial Report which can be downloaded here:

The SEG SaaS Index, consisting of 27 pure play SaaS providers, now has sufficient critical mass for us to track four distinct subcategories: CRM & Marketing, ERP & Supply Chain, Workforce Management and Vertically Focused providers (Figure 17).

Vertically Focused SaaS providers posted a 34.4% TTM revenue growth at the close of 2Q12, the highest among all categories. DealerTrack, a provider of solutions to the automotive industry, led the pack with a TTM revenue growth rate of 39.2%.

Vertically Focused SaaS providers achieved EBITDA margins of 15.3% in 2Q12, 55% higher than the SaaS sector median of 9.9%. Ebix, a provider of e-commerce solutions to the insurance industry, earned top honors within the category with EBITDA margins of 43.6%.

SaaS companies comprising the ERP & Supply Chain product category of our SaaS Index achieved the largest YoY jump in median TTM revenue growth, driven by a five consecutive quarters of accelerating growth. SaaS companies in this category are benefitting from growing enterprise and SMB acceptance of cloud-based, remotely hosted applications.

Public Software as a Service (SaaS) Company Market Valuations

This excerpt is from our complimentary Q2 2012 Software Industry Financial Report which can be downloaded here:

In 2Q12, the median EV/Revenue multiple of the 27 pure-play public SaaS providers comprising our SEG SaaS Index fell to 5.0x, from 5.3x in 1Q12 (Figure 12). However, it wasn’t all bad news, as over 50% of public SaaS providers actually maintained or increased their EV/Revenue QoQ. Leading the pack was Ellie Mae, closing 2Q12 with a 109% QoQ jump in EV/Revenue. Ellie Mae is revolutionizing the mortgage industry with a SaaS based solution designed to address the litany of inefficiencies within the mortgage origination process. Even in the face of declining mortgage volumes, the Company has managed to accelerate revenue growth (12.3% to 46.4%) and expand EBITDA margins (6.6% to 15.4%) over the past three years.

Four public SaaS companies had EV/Revenue multiples above 10x at the close of 2Q12: ServiceNow (17.4x), Demandware (12.5x), Netsuite (12.5x) and Cornerstone OnDemand (11.7x). Investors are clearly favoring growth over profitability in the current market, as three of the four SaaS providers with the highest market valuations had negative EBITDA margins; the fourth, Demandware, reported a paltry 2.3% EBITDA.

Indeed, there was a clear, causal relationship in 2Q12 between SaaS company market valuations and TTM revenue growth rates (Figure 15). Public SaaS companies with TTM revenue growth rates between 10%-20% registered a median EV/Revenue of 3.5x, while those generating TTM revenue growth rates above 40% boasted a median EV/Revenue multiple of 9.4x. By contrast, there was very little relationship between EBITDA margins and public SaaS company market valuations (Figure 16). As testament, SaaS providers with negative EBITDA margins were awarded with a median EV/Revenue multiple of 6.0x, compared to a median EV/Revenue of 4.0x for those with EBITDA margins above 20%.