Busy day as NICE bolsters leadership in financial compliance arena and tucks in location based services

On August 31, 2009, NICE Systems announced a $73.5 m all cash acquisition of Fortent analytics based compliance and risk management business. Transaction expected to be accretive in 1Q 2010 is valued at 5x EV/Forward revenue, in line with NICE’s acquisition of Actimize in July 2007. Positions Actimize, wholly owned subsidiary of NICE, to be the one-stop shop for all banks in their compliance and financial crime prevention efforts. Fortent provides analytics based Anti-Money Laundering (AML), Know-Your-Customer (KYC) and other financial crime prevention software for financial services industry

NICE also announced a $11 million Hexagon System Engineering tuck-in which provides cellular location tracking technology for law enforcement, intelligence and security groups. Acquisition enhances security offerings to government agencies, aka homeland security and enhances NICE’s position in communication interception market as highlighted by Israel Digital News

Xora Gearworks combine as mobile software is overcrowded w few carrier partners

On Aug 12^th, Xora announced the acquisition of Gearworks following in the footsteps of Antenna/Dexterra, continuing the consolidation in Enterprise mobility. Phillipe Winthrop spoke with Jim Hemmer, CEO of Antenna, on the consolidating nature of enterprise mobility pure-play vendors and the need for platform vendors to provide robust end-to-end solutions to enterprise customers.

Both Xora and Gearworks partner with wireless carriers to provide location-based field force management tools on mobile devices. The combination creates a larger player to better compete in the crowded Mobile Workforce Applications space as vendors seek the attention of fewer wireless carriers. The transaction also enables Xora to offer customizable apps to its mostly out-of-the-box solutions.

The Xora management team will run the combined entity and the VC backers have agreed to invest $8.5 m which is over the combined $50 m previously invested. Investors include Downtreader, BlueStream, Split Rock and Rho.

VMware enters app development stack w $420 m SpringSource; largest VMW deal yet

On August 10th VMware announced a $420mm cash & stock acquisition of open-source Java development framework vendor SpringSource. The purchase price which marks the largest VMware transaction, includes $331 m in cash, $31 m in stock for vested unexercised SpringSource options and $58 m of unvested SpringSource stock. In addition VMware is setting aside a $60 m stock retention bonus pool.

SpringSource has 150 employees, $20 m in trailing revenues, with cash flow positive expected in 1H 2010 and $25 m in funding from Accel and Benchmark. The premium price, a nice exit for the VCs, represents a 21x EV/TTM Revenue multiple. The premium is justified when you consider the need for VMware to diversify away from its core market and the scarcity of the target. Red Hat's $350 m acquisition of JBoss and Citrix's $500 m acquisition of XenSource serve as examples of platform vendors moving into development and deployment stack and paying a significant premium. The acquisition will also help draw some of the unwanted attention away from the recent ousting of founder-CEO Diane Greene.

VMW plans to use SpringSource to jointly develop Platform-as-a-Service (PaaS) solutions for data centers and for cloud service providers. TechCrunch's Cameron Christoffers highlights the benefit of "lean software" that SpringSource would bring to VMware, enabling faster delivery of business applications in the cloud. For a detailed rationale here is what VMW CTO Steve Herrod and SpringSource CEO Ron Johnson have to say. This acquisition is in line with the consolidation trend highlighted by Oracle's intention to own the entire hardware/software stack with SUN.

A particularly interesting fact about the deal is that no advisors were used in this scant tech M&A environment; a missed $5-$10 m fee opportunity. Dare I say that with all the lay-offs, perhaps there are not enough bankers left to cover the likes of VMware...

IBM adds predictive analytics with $1.2bn SPSS deal; Software M&A intensifies

On 7/28/09 IBM announced its acquisition of SPSS for $50/share ($1.2 bn equity value and $1.0 bn enterprise value) representing a 42% 1-day equity premium. The predictive analytics offerings of SPSS is expected to reside in IBM's Information Management segment. Transaction represents IBM's continued execution on its Information Agenda strategy which began as data on demand for decision support and is blossoming into real-time trend forecasting and optimization capability for businesses. The deal illustrates large software vendors' interest and ability to pay up for strategic and competitive assets.

While the 42% single day premium, which is also well above the 52-week high, seems significant in today's depressed equity markets, the transaction is in line on a revenue multiple basis (3.3x EV/NTM Revenue) and is at a discount to its BI transaction comps on a maintenance revenue basis (7.7x EV/TTM Maint Rev)

SPSS has sophisticated statistical and data mining tools for structured and unstructured data, and predictive applications for enterprise business users. These products utilize algorithmic techniques to forecast potential outcomes or generate a call to action. With the proliferation of data, software vendors are trying to capitalize on opportunity to use data not just to support static decisions, but rather to leverage the data to present precise and relevant analysis that can help enterprises execute on future business opportunities. IDC estimates Business Analytics as a $25 bn market growing at 4% cagr and IBM is looking to establish its leadership. The transaction builds on earlier Analytics acquisitions including Cognos which presented general analytics and business intelligence on historical data. Wall Street expects revenue synergies from selling SPSS solutions through the enormous IBM global distribution network and expense synergies from consolidating operations into IBM's software infrastructure.

As regards Software M&A, more will follow in the footsteps of IBM/SPSS, Oracle/SUN, EMC/Data Domain. Gone indeed, are the bull market excuses of richly valued stocks and inflated private company valuations. The market today supports some of the lowest relative valuations we have seen in a long time; so why has deal flow been muted? Confidence, surprisingly is one often overlooked attribute. Confidence as defined by public market valuations of one's own stock price and, on a related note, inability to estimate revenue and earnings. How can the corporate development team credibly present target company forecasted financials and potential synergy assumptions to the Board when the CFO's office is having a hard time signing off on the company's own next year and next quarter financials. There is a lot of uncertainty in forecasting financials and since valuations in the tech world are driven by multiples on future revenue and earnings, the current market valuations and expectation of valuations remain depressed. This is true for the acquiring company as well as the potential target and this lack of confidence in self valuation drives the hesitation in pulling the "buy" trigger. We are now seeing large software vendors build up their confidence as they sit on large cash reserves and have stronger support for public market valuations. This increase in self-confidence will spark active M&A dialogue from others who have been siting on the sidelines and potentially lead to a robust Software M&A environment.