Quarterly Technology M&A Review

Transcription

1 $ millions $ billions Quarterly Technology M&A Review Q 014 Significant Increases in Both Aggregate Deal Value and Volume In aggregate, both total deal value and volume in the technology space increased significantly in Q 014. Aggregate deal value for technology M&A totaled $161.5B in Q 014, representing a 9% quarter-overquarter increase, although two transactions AT&T/DIRECTV ($67.1B) and Altice/SFR ($3.3B) accounted for nearly 56% of the quarterly total. When normalizing for $10B+ deals, deal value increased 9% from the previous quarter, while volume increased by 17%. Deal Value Technology M&A Overview¹ Deal Count & Deal Value. Total deal value surged 9% in Q 014, driven substantially by two large mergers (AT&T/DIRECTV $67.1B and Altice/SFR $3.3B). Deal volume also increased by 17% over Q1 014 and by 8% over Q 013. # of Deals Deals valued at $10B+ $ Deal volume increased substantially in Q, reaching 966 total deals, a level not seen since the financial crisis began in 007. There have been 1,786 deals year-to-date. Therefore, on a run-rate basis, 014 is on track to finish with 3,500+ deals, meaningfully higher than 013 s deal volume of 3,19. Despite the overall increase in deal value, there were fewer $1B+ transactions announced during the quarter. In Q, there were 13 $1B+ transactions during the quarter, representing $47.B, or 66% of the normalized deal value. This compares to 85% of the aggregate deal value in Q In addition, median deal size for the quarter was $8.4M, marking the third consecutive quarter of median deal size declines. The decrease in both $1B+ deals and the overall median deal size is representative of a shift to smaller tuck-in deals for large strategic acquirers, potentially caused by continued investor scrutiny over capital allocation, and emphasis on technology and strategic value rather than buying market share. The median valuation for the quarter was 1.9x revenue, a 5% decrease from Q1 014, but meaningfully higher than a median of 1.7x revenue for the period from Q1 009 Q The Internet & Digital Media sector garnered the highest median valuations during the quarter at 3.0x revenue, followed by Software at.5x revenue. Venture backed M&A continues to show strength. In aggregate, VC-backed M&A value totaled $7.3B and transacted at 5.7x revenue, or 59% higher than the Q1 009 Q1 014 average of 3.6x. There were three $500M+ transactions during the quarter, Apple/Beats Electronics ($3B), Google (Nest)/Dropcam ($555M) and Google/Skybox Imaging ($500M). These three deals accounted for approximately 56% of disclosed VCbacked deal value during the quarter. $10. $ $ $ $19.0 $36.4 $65.3 $ $90.4 $71.1 Median Multiple & Valuation. The median revenue multiple in Q 014 was 1.9x, a 5% decrease from the prior quarter, and approximately 16% higher than the historical median. Median deal value was $8.4M in Q 014, significantly lower than previous quarters, and approximately 17% lower than the historical median for the period from Q1 009 Q1 014 of $34.3M..0x Median Deal Value 1.5x 1.7x $41.1 $41. $38.0 Median EV/Rev² Q 014 Disclosed Deal Count and Median Multiple by Deal Size. During the quarter, there were 4 deals with disclosed transaction values. In line with previous quarters, deals valued at greater than $50M generally garnered higher multiples, with the highest multiples paid for deals valued at $100M or above..0x $ x $8.4 The IPO market for technology companies remained strong during Q as well, with 18 IPOs on major exchanges worldwide. IPOs in the technology sector represented a total of $6.4B and 11.4% of the entire worldwide IPO market. Post-IPO the sector performed relatively well with an average return of 13.3% for the quarter with Cheetah Mobile (CMCM; +58%), JD.com (JD; +49%), and Arista Networks (ANET; +48%) all outperforming x 3.3x.6x 1.9x 5 4.7x 55 Source detail on the last page.

2 M&A Overview Active Technology Segments¹ M&A Activity by Segment. During Q 014, Communications Services, Internet & Digital Media, IT Services, Semiconductors, and Software sub-segments accounted for 67% of all technology M&A deal value and 77% of total deal count. Of the 15 $1B+ deals during the quarter, nine fell into these categories. The Software sector was the most active by volume, with more than 300 transactions announced during the quarter, followed by the IT Services sector, totaling 3 deals. Q 014 Median EV/Rev² Sector Total Deal Count Disclosed Value ($B) Median Value ($M) Q 013 Q1 014 Q 014 Y/Y 3 Delta Q/Q 4 Delta Communications Services x 4.8x.x 19% (60%) Internet & Digital Media x.x 3.0x 56% 7% IT Services x 0.9x 0.9x 13% 0% Semiconductors x.0x 1.4x (33%) (30%) Software x 3.8x.5x (7%) (4%) Total: Active Sectors x.x.x % 0% Total: Overall Technology x.0x 1.9x (5%) (5%) M&A Activity Active Technology Segments¹ Communications Services. Of the 36 Communications deals completed during the quarter, 15 had disclosed values, totaling $0.6B. There were eleven deals valued at more than $00M and the overall sector had a median valuation of.x revenue. This is a significant decrease from the median of 4.8x revenue in the previous quarter. The historical median valuation for deals in the Communications Services sub-segment has been approximately 1.5x revenue x.x 1 1.5x Internet & Digital Media. There were 36 Internet & Digital Media deals with disclosed values during Q, totaling $9.0B. This value is significantly higher than the previous quarter and is relatively high compared to 01 and 013 levels for the sector. Similar to 013, the majority of deals disclosed in Q were under $5M. The median deal value for Q was $16.0M, much lower than the medians of $38M, $33M and $7M, respectively. The historical median deal value for the segment is approximately 1.8x revenue x 3.0x 6 3.0x 5 3.3x 3 0.4x

3 M&A Activity Active Technology Segments (continued)¹ IT Services. IT Services was the second most active sector in the second quarter in terms of deal volume, with 3 total transactions, 3 of which had disclosed values. The median deal value was $14.4M, significantly lower than the historical median of $0.1M. The median revenue multiple was 0.9x,which was on par with the historical median, for the period from Q1 009 Q1 014, of 0.9x, and the lowest of the active sectors. 1 1.x.0x 1.6x x Semiconductors. After a relatively inactive Q1 014, the Semiconductor sector nearly doubled in terms of deal value, with 19 deals with disclosed values totaling $6.7B in Q 014. This was primarily due to several large transactions resulting in a median deal value of $3.0M for the sector, quadruple the historical median of $56.3M. The median valuation for the quarter was 1.4x, significantly lower than previous quarters, and approximately 1% lower than the historical median of 1.8x revenue x x 1.x 1 1.7x Software. The Software segment was the most active sector of Q 014, accounting for 3% of total technology deal volume and 9% of total deal value. The median revenue multiple for software deals was.5x, on par with the historical median of approximately.5x. There were nine $00M+ transactions representing 71% of the total disclosed deal value in the software sector this quarter. The largest transaction was Vantiv s $1.9B acquisition of Mercury Payment Systems x 10 5 NA 6.0x 9.x 3

4 $ millions $ billions M&A Overview Venture-Backed Companies¹ M&A Activity. Venture-backed M&A was $7.3B for the quarter, in-line with historical averages after a sharp increase to reach $3.4B in Q1, while deal volume meaningfully increased to 00 compared to the previous quarters 158. In total, there were six $00M+ transactions with the largest transaction being the $3.0B acquisition of Beats Electronics by Apple. Deal Value # of Deals $3.4 $5.4 $7.0 $7. $7.3 Q 013 Q3 013 Q4 013 Q Median Deal Value & Multiples. Venture-backed M&A median deal value decreased to $39.0M during the quarter, slightly lower than the historical median of approximately $48.7M. Median revenue multiples significantly increased to 6.8x compared to the the historical median of 3.6x. Median Deal Value Median EV/Rev² 6.8x 4.7x 4.7x $90.0 $70.0.6x 4.0x $35.0 $43.4 $39.0 Venture Exits Percentage of Total M&A Activity by Count and Deal Value. Venture-backed M&A exits comprised 1% of total deal count, and 10% of total disclosed deal value. Deal count as a percent of total M&A has remained relatively stable over the past several quarters, however disclosed deal value as a percent of total M&A returned to normal levels in Q after increasing in conjunction with deal volume in Q1. Disclosed Deal Value Deal Count 38% % % 1% 19% 1% 1% 10% 1% 10% 4

5 $ billions Private Equity Participation¹ Private Equity-Backed Technology M&A Overview. Private equity-backed acquisitions totaled $3.7B during the quarter, or 5.% of aggregate technology M&A value, down significantly from historical levels while total volume remained relatively consistent compared the previous four quarters. This may be indicative of a renewed interest by PE in smaller companies. Key deals of the second quarter include the Blackstone/Goldman Sachs $960M takeover of private Ipreo Holdings and the Insight Venture Partners/GIC $75M acquisition of iparadigms (doing business as TurnItIn.com). Deal Value # of Deals $1.5 $6.9 $1.5 $8. $3.7 M&A Geographic Distribution 1 Technology M&A Overview by Geography. North America s share of technology M&A continued to decrease to 63.1% compared to 68.7% in Q1 014 and 65.5% in Q 013. Other geographies remained relatively flat on a quarter to quarter basis with the exception of Asia and Australia which grew 1.5% and 1.9%, respectively. Western Europe, 3.1% Asia, 5.6% Australia, 3.5% Eastern Europe, 1.4% North America, 63.1% NA Other,.0% South America, 1.3% 5

6 Q 014 Notable Transactions¹ Apple Beats 05/8/14 Consumer Electronics $3.0B N/D N/D On May 8, Apple announced the acquisition of Beats Electronics and Beats Music for approximately $3.0B. The transaction was structured using $.6B of cash and $400M of stock representing 87% and 13% of the transaction, respectively. Beats provides headphones, ear buds, speakers and related consumer electronic accessories as well as a subscription-based music streaming services via Beats Music. The acquisition may help bolster Apple s hardware product line and allowing Apple to meaningfully enter the streaming music business. itunes sales have slowed recently due to increased competition from music streaming companies (i.e. Spotify and Pandora), and analysts expect the acquisition will help boost both music and subscription-services sales across both platforms. Beats was founded by Jimmy Lovine and Andre Young (Dr. Dre) in 008 and is based in Santa Monica, CA. Prior to the acquisition, Beats received an undisclosed amount of investment capital from The Carlyle Group in 013. Nest Labs Dropcam 06/0/14 Smart Home Technology $555M N/D N/D Nest Labs acquired Dropcam for a reported $555M in cash on June 0. Dropcam provides WiFi-enabled home security digital video equipment, online live streaming of home security footage, and related home monitoring SaaS applications. NestLabs, recently acquired by Google in Q1 014, is deeply rooted in the smart home technology market and the acquisition of Dropcam aligns well with the company s core competencies and overall vision of shaping the future of the connected home. Additionally, NestLabs has shown it can leverage its pre-existing distribution network to grow sales and gain market share after successfully expanding into smoke and carbon monoxide detectors. Prior to the acquisition, Dropcam received approximately $53M in capital from Bay Partners, Bessemer, Felicis Ventures, Kapor Capital, Accel Partners, Menlo Ventures, Pinnacle Ventures, TriplePoint Ventures, Institutional Venture Partners, Kleiner Perkins Caufield & Byers, and other undisclosed investors. GTCR Vocus 04/07/14 PRM / CRM SaaS $44M.4x NM On April 7, GTCR acquired Vocus for $18.00/share, or $390M in cash. This represents a 48% premium to the trading price oneday prior to the acquisition. Vocus provides a cloud-based public relations management (PRM) and customer relationship management (CRM) platform that uses business analytics to help companies acquire and retain customers. Based on Vocus LTM revenue of $186M, the deal represents a.4x revenue multiple, a significant discount when compared to the median for the SaaS industry. Vocus went public in 005 with approximately $8M of revenue and has grown eight-fold since that time. However, the Company has yet to reach sustained profitability, with March 31 LTM EBITDA of ($1.0M), and growth has slowed modestly over the past two years. By taking Vocus private, GTCR can restructure the business without the burden of quarterly public reporting requirements. TIBCO Jaspersoft 04/8/14 BI SaaS $185M 6.x N/D On April 8, TIBCO acquired Jaspersoft for $185M in cash. Formerly known as Panscopic, Jaspersoft provides open-source business intelligence (BI) reporting and analytics software for businesses. The acquisition represents TIBCO s largest transaction since its entry into the analytics market through the acquisition of Spotfire in 007 for $195M. According to management, the acquisition of Jaspersoft furthers TIBCO s strategy of providing a wide range of pricing, packaging, and deployment options for its customers. Jaspersoft s light-weight BI will provide TIBCO a complementary solution to its existing analytics offering, may have been too feature rich for some customers. At 6.x trailing revenue, the deal represents a significant premium of more than double TIBCO s current revenue multiple of 3.0x LTM revenue. Jaspersoft was founded in 001 and is based in San Francisco, CA. Investors prior to the acquisition include Partech International, Scale Venture Partners, Adams Street Partners, Quest Software, Red Hat, DCM, Morgenthaler Partners, and other undisclosed investors. 1. Limited to transactions with disclosed values as of 06/30/14; variances due to rounding; sources used throughout the report include The 451 Group, Capital IQ, Company Filings and other Wall Street Research. Removed the following transactions for normalization purposes: Comcast/Time Warner ($68.7B), AT&T/DIRECTV ($67.1B), Altice/SFR ($3.3B). EV/Rev = Enterprise Value / Revenue 3. Y/Y = Year on Year 4. Q/Q = Quarter on Quarter 5. EBITDA earnings before interest, taxes, depreciation, and amortization Disclaimer: The information provided is for general informational purposes only and should not be considered legal or investment advice. Pagemill Partners LLC, recommends you seek advice from qualified legal counsel for specific questions you may have regarding M&A transactions. In addition, nothing contained herein is to be construed as an offer or recommendation, or the solicitation of an offer, to sell or buy a specific security, nor is any of the information contained here intended to constitute an analysis of any company or security reasonably sufficient to form the basis for any investment decision. The information herein is based in part on third party sources. While we believe the information to be reliable, it has not been verified by us to be accurate. As such, we do not guarantee that the information is accurate or complete. 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