Infrastructure software 2011 2012

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Infrastructure software 2011 2012

  1. 1. Joel Strauch Signal Hill Managing Director (571) 612-2202 jstrauch@signalhill.com Signal Hill Sector Update: Infrastructure Software 2011-2012M&A activity in the infrastructure software Figure 1: Infrastructure Software Deal Volume, 2011sector has witnessed significant growthover the past two years. Signal Hill tracked Source: Signal Hill142 transactions in 2011 - double the number 2007 2008 2009 2010 2011of deals announced in 2009 - representing Total Number of Deals 83 65 71 121 142four years of consecutive deal growth in Percent change over prior year - -21.7% 9.2% 70.4% 17.4%the sector. This growth has been driven by Total Announced Enterprise Value ($M) $7,900.4 $11,894.6 $11,928.7 $18,767.4 $6,704.5 Percent change over prior year - 50.6% 0.3% 57.3% -64.3%a number of factors, several of which are Median Deal Size $53.8 $107.0 $42.0 $100.0 $69.2directly related to the rapid emergence Percent change over prior year - 98.9% -60.7% 138.1% -30.8%and adoption of cloud computing. In Median EV/TTM Revenue Multiple 3.9x 1.5x 2.6x 4.4x 4.5xaddition, the infrastructure software sector Percent change over prior year - -61.5% 73.3% 69.2% 2.3%has witnessed some of the highest multiplesacross the range of IT sectors that Signal Hill has tracked over the last few years. Median revenue multiple for 2011 tickedup to its highest point that Signal Hill has tracked, indicating that buyers have been willing to pay premium values on highly-sought, strategic acquisitions in the space.The single biggest trend impacting the infrastructure software sector has been cloud computing. Forrester forecasts that theglobal market for cloud computing will grow from $40.7 billion in 2011 to more than $241 billion in 2020. This fundamentaland rapid change in IT spending has created opportunities for start-ups to grow rapidly and has forced incumbent vendorsacross the whole spectrum of IT infrastructure to revisit their strategic plans. Large vendors have made their presenceknown in the market over the past year as they fill out the offerings with cloud, virtualization and data-related acquisitions.BMC Software, CA, Cisco, Citrix, Oracle and VMware all made at least three acquisitions during 2011, while acquisitionsby Dell, HP and IBM all came with significant price tags. Transactions from this small handful of acquirers alone representednearly 30% of total EV for the year.Despite the growth in deal volume and participation in the sector from the largest strategic buyers, the sector lacked themultiple, billion-dollar mega deals that significantly boosted sector EV in the past, such as in 2010 when EMC acquiredFigure 2: Largest Infrastructure Software Transactions by Enterprise Value, 2011 Source: Signal Hill EV/TTM Date Enterprise Revenue Announced Seller Buyer Value ($M) Multiple Description Subsector 20-Jul-11 Force10 Dell, Inc. $700.0 4.0x Develops high-performance datacenter  Data Centers Networks, Inc. networking software for portal operators, cloud and hosting providers, enterprise and special- purpose datacenter customers. 07-Sep-11 BlueArc Hitachi Data $591.4 6.5x Provides network attached storage (NAS)  Data Corporation Systems systems and software for use in storing Management Corporation unstructured data across a broad range of Tools markets and is tightly focused on solving the challenges faced by unstructured data at scale. 09-Mar-11 LSI Corp. / NetApp $480.0 0.7x Engenio external storage systems business of Storage Engenio LSI Corporation. Software 16-May-11 Iron Mountain / Autonomy $380.0 2.8x Iron Mountains online backup & recovery,  E-Discovery Select Digital Corporation plc digital archiving and eDiscovery solutions. Businesses 14-Feb-11 Vertica Systems Hewlett-Packard $375.0 5.4x Provider of next-generation analytics platforms Data (HP) enabling companies to monetize their data via Management data management solutions for storing and Tools querying databases.Infrastructure Software Sector Update 2011-2012 www.signalhill.com
  2. 2. Infrastructure Software Sector Update 2011-2012Isilon Systems ($2.1 billion), HP acquired 3PAR ($2.3 billion) and IBM acquired Netezza ($1.7 billion) all in the final fourmonths of the year. The lack of large deals can partly be attributed to the relative youth of many innovative cloud-relatedcompanies. Out of the 142 acquisitions in 2011, more than 63% did not disclose deal size. This indicates that active buyersin the sector are willing to acquire younger companies to meet their strategic objectives.Figure 3: Largest Infrastructure Software Transactions by Revenue Multiple, 2011Source: Signal Hill EV/TTMDate Enterprise RevenueAnnounced Seller Buyer Value ($M) Multiple Description Subsector25-Aug-11 CloudSwitch, Inc. Verizon $80.0 80.0x Maker of software that enables enterprises to more Application Communications easily and securely move applications, or workloads, Delivery Inc. between company data centers and the cloud  without changing the application or the  infrastructure layer.12-Jul-11 Cloud.com Citrix Systems Inc. $158.8 26.5x Provides cloud computing environment deployment Application and and management software and Software-as-a- Web Server Service (SaaS) used to launch both private and public cloud environments for businesses.19-Jan-11 Hyper9, Inc. SolarWinds, Inc. $30.0 15.0x Provider of Virtual Environment Optimization (VEO) Virtualization software. Management03-Mar-11 Aster Data Teradata $295.0 14.8x Provider of data management and complex  Data Systems, Inc. Corporation analytics for diverse and big data, enabling the Management powerful combination of cost-effective storage and Tools ultra-fast analysis of relational and non-relational data.4-Oct-11 Gluster Inc. Red Hat, Inc. $136.0 14.3x Provides open-source, non-hardware vendor- Storage  specific network attached storage (NAS) software Software and systems for use in both on-premise and cloud computing storage environments.2
  3. 3. Signal HillPublic Equity PerformanceSignal Hill’s infrastructure software stock indices followed the public equity market’s decline at the end of 2011, with IToperations & management and storage software taking the largest hits. Performance over the last few months, however,has shown significant improvement, with the NASDAQ Composite rising over 18% since the beginning of 2012.With the equity markets gaining steam, the initial public offering market for infrastructure software companies is startingto open up as well. Splunk, a provider of software that enables large scale data collection and analysis, filed for a $125 millionIPO in January. Infoblox, a maker of data center optimization software, filed for a $125 million IPO in January as well.Figure 4: Infrastructure Software Public Equity Indices vs NASDAQ Composite, 2011 Source: FactSet. Prices and exchange rates calculated as of 12/31/11, index weighted by market cap. Note: Analysis includes 28 companies tracked in Signal Hill’s Infrastructure Universe; Application Infrastructure includes: CARB, CVLT, EMC, FALC, NTAP, RVBD and SYMC; IT Operations & Management includes: BMC, CA, CPWR, CTXS, IFV, KEYN, LOGM, NTCT, OPNT, QSFT, SWI and VMW; Storage Software includes: IBM, INFA, MSFT, ORCL, PEGA, PRGS, RHT and SOW. 3
  4. 4. Infrastructure Software Sector Update 2011-2012Drivers of M&A Activity in Infrastructure SoftwareThe growth in M&A activity in the infrastructure software sector over the past few years has been driven by a number offactors including the impact of cloud adoption on the following key areas:• Application Performance Monitoring & Management: As enterprises and service providers seek to leverage cloud architectures to deliver applications to end-users, the underlying IT infrastructure is becoming increasingly distributed and complex. This is driving demand for solutions that allow developers of these applications to test their performance in these new environments prior to deploying them, as well as monitor and effectively trouble shoot the performance of applications post deployment. The testing, monitoring and trouble shooting products offered by the large infrastructure management software vendors for traditional enterprise IT environments do not adequately support these new cloud architectures. As a result, during 2011, these vendors have been actively acquiring new technology to meet these emerging market needs.Figure 5: Select Application Performance Monitoring & Management Transactions, 2011 Source: Signal Hill EV/TTM Date Enterprise Revenue Announced Seller Buyer Value ($M) Revenues Multiple 22-Dec-11 Cotendo, Inc. Akamai Technologies, Inc. $268.0 $30.0 8.9x 26-Oct-11 App-DNA Group Limited Citrix Systems Inc. $92.0 $14.1 6.5x 24-Oct-11 ChangeBASE Limited Quest Software, Inc. - - NA 29-Jul-11 Watchmouse B.V. CA Technologies - - NA 06-Jul-11 dynaTrace Software Inc. Compuware Corporation $256.0 $26.0 9.8x 29-Jun-11 Interactive TKO, Inc. CA Technologies $330.0 $39.0 8.5x 28-Apr-11 Coradiant Inc. BMC Software $120.0 $25.0 4.8x 04-Apr-11 AlertSite Inc. SmartBear Software - - NA• Infrastructure Management: Similarly, as enterprises extend the virtualization of their IT infrastructure, deploy internal clouds and leverage external private and public clouds, demand for solutions to provision, monitor and manage the underlying IT resources in these types of environments is growing as well. Just as with APM, the existing solutions are not designed for these dynamic, self-service and highly automated environments. As a result, during 2011, incumbent vendors have continued making acquisitions to modernize their product portfolios. In addition, during 2011, the large service providers (i.e. Verizon) that will be major providers of cloud services began acquiring IP to deliver these services. We expect both of these trends to continue for some time.Figure 6: Select Infrastructure Management Transactions, 2011 Source: Signal Hill EV/TTM Date Enterprise Revenue Announced Seller Buyer Value ($M) Revenues Multiple 16-Nov-11 Vkernel Quest Software, Inc. - - NA 25-Oct-11 Monitis GFI Software - - NA 11-Oct-11 Platform Computing Corporation IBM Corporation $300.0 $80.0 3.8x 25-Aug-11 CloudSwitch, Inc. Verizon Communications Inc. $80.0 $1.0 80.0x 12-Jul-11 Cloud.com Citrix Systems Inc. $158.8 $6.0 26.5x 13-Jun-11 Digital Fuel Technologies, Inc. VMware, Inc. $85.0 - NA 29-Mar-11 newScale, Inc. Cisco Systems - $25.0 NA 19-Jan-11 Hyper9, Inc. SolarWinds, Inc. $30.0 $2.0 15.0x 12-Jan-11 Akorri Networks, Inc. NetApp $60.0 $6.0 10.0x4
  5. 5. Signal Hill• Storage and Data Access: Cloud services are also driving demand for new approaches to storage that are highly scalable, highly available and able to support widely-distributed and high-volume access. This trend has led to several transactions during 2011 involving targets with technology designed to deliver these types of capabilities. Another storage related trend that emerged during 2011 was file sharing and synchronization, or the “DropBox” effect. DropBox, a simple and effective way to store files in the cloud and synchronize and share them across multiple devices and users, has experienced extraordinary growth in users, in part due to the rapid adoption of mobile devices (see “Enterprise Mobility” below). Enterprise-focused vendors have been scrambling to deliver this type of functionality to their customers and we have begun to see related M&A activity.Figure 7: Select Storage and Data Access Transactions, 2011 Source: Signal Hill EV/TTM Date Enterprise Revenue Announced Seller Buyer Value ($M) Revenues Multiple 13-Oct-11 ShareFile Citrix Systems $54.2 $12.0 4.5x 04-Oct-11 Gluster Inc. Red Hat, Inc. $136.0 $9.5 14.3x 07-Sep-11 BlueArc Corporation Hitachi Data Systems Corporation $591.4 $91.7 6.5x 04-Aug-11 IO Turbine, Inc. Fusion-io, Inc. $95.0 - NA 29-Jun-11 Pillar Data Systems Oracle Corporation - - NA• Enterprise Mobility: During 2011, enterprise mobility transitioned from a niche, project-oriented market to a deep, rapidly growing opportunity. The primary catalyst has been the introduction and rapid adoption of smartphones and tablets and acknowledgement by enterprises that they will need to support and integrate these devices into the enterprise infrastructure. In addition, mobile devices are ideal endpoints for cloud services and their use and adoption is closely correlated to the emergence and growth in cloud computing. During 2011, incumbent vendors began acquiring mobility focused targets to extend existing offerings to establish a foothold in this rapidly developing market.Figure 8: Select Enterprise Mobility Transactions, 2011 Source: Signal Hill EV/TTM Date Enterprise Revenue Announced Seller Buyer Value ($M) Revenues Multiple Mobile Complete, Inc. 11-Oct-11 Keynote Systems, Inc. $90.0 $20.0 4.5x (DeviceAnywhere) 10-Oct-11 Rhomobile Motorola Solutions - - NA 07-Jul-11 Aeroprise, Inc. BMC Software, Inc. - - NA 31-May-11 Metismo Ltd. Software AG $15.0 - NA 25-Jan-11 Torokina Networks CA Technologies - - NA 5
  6. 6. IT Security Sector Update 2012About Signal HillSignal Hill is a privately-held investment banking partnership with a sole focus on growth companies. Ourprofessionals have deep expertise in Information Technology, Media & Internet, Telecom Services & InternetInfrastructure, Communications, Education & Business Services, and Healthcare Services. Signal Hill has morethan 50 professionals across five offices in Baltimore, Nashville, New York, Reston and San Francisco (San Bruno).Scott Wieler Ira D. Cohen Greg Ager Justin BalciunasChairman Managing Director Managing Director Managing Directorswieler@signalhill.com icohen@signalhill.com gager@signalhill.com jbalciunas@signalhill.comMathew Dahl J. Adam Hitt Howard Loewenberg John MacDonaldManaging Director Managing Director Managing Director Managing Directormdahl@signalhill.com ahitt@signalhill.com hloewenberg@signalhill.com jmacdonald@signalhill.comDon More Jeff Nahley Michael Parent Henry SageManaging Director Managing Director Managing Director Managing Directordmore@signalhill.com jnahley@signalhill.com mparent@signalhill.com hsage@signalhill.comChase Sanders Matthew Shilling Joel Strauch Douglas WebsterManaging Director Managing Director Managing Director Managing Directorcsanders@signalhill.com mshilling@signalhill.com jstrauch@signalhill.com dwebster@signalhill.comBart Shaeffer Franklin E.W. Staley David Dolan Matt FioreDirector Director Vice President Vice Presidentbshaeffer@signalhill.com fstaley@signalhill.com ddolan@signalhill.com mfiore@signalhill.comJustin PuccioVice Presidentjpuccio@signalhill.com Baltimore • Nashville • N e w Yo r k • Reston • San FranciscoSignal Hill DisclaimerThe information in this report has been obtained from sources believed to be reliable, but Signal Hill makes no representation as to the accuracy or completeness of suchinformation or any opinions expressed herein. Signal Hill may provide, or may seek to provide advisory services to one or more companies mentioned herein. In addition,employees of Signal Hill may own or may purchase securities in one or more companies mentioned in this report. Signal Hill has no obligation and will not undertake toupdate, modify or amend this report for any reason, including for errors subsequently discovered. This report is not to be construed as an offer to buy or sell or a solicitationof an offer to buy or sell any securities.©2012 Signal Hill. All rights reserved.6
  7. 7. March 2012 January 2012 January 2012 December 2011 $100 million December 2011 has merged with has been acquired by received a strategic has received equity funding has been acquired by investment from from a portfolio company of November 2011 November 2011 October 2011 September 2011 September 2011 Private Placement has been acquired by has been acquired by a company has been acquired by has been acquired by September 2011 August 2011 $97.5 Million August 2010 July 2011 July 2011 Mid-Atlantic Skilled Nursing Group (“Sellers”) has been acquired by has been acquired by has been acquired in a sale- Series B Private Placement has been acquired by leaseback transaction byGreater Outcomes®Signal Hill strategic M&A advisory services achieve greater outcomes for our clients. Our team of experiencedbankers and former technology company executives has created billions of dollars in aggregate transaction value forthe information technology industry. Let us help you maximize your companys value through guiding and timingan acquisition growth path or liquidity event. Signal Hill©2012 Signal Hill. All rights reserved. All trademarks are property of their owners. www.signalhill.com
  8. 8. Signal Hill w w w . s i g n a l h i l l . c o mBaltimore • Nashville • N e w Yo r k • Re s t o n • S a n Fr a n c i s c o

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