1. Joel Strauch
Signal Hill Managing Director
(571) 612-2202
jstrauch@signalhill.com
Signal Hill Sector Update: Infrastructure Software 2011-2012
M&A activity in the infrastructure software Figure 1: Infrastructure Software Deal Volume, 2011
sector has witnessed significant growth
over the past two years. Signal Hill tracked Source: Signal Hill
142 transactions in 2011 - double the number 2007 2008 2009 2010 2011
of deals announced in 2009 - representing Total Number of Deals 83 65 71 121 142
four 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 $69.2
directly 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 4.5x
addition, the infrastructure software sector Percent change over prior year - -61.5% 73.3% 69.2% 2.3%
has witnessed some of the highest multiples
across the range of IT sectors that Signal Hill has tracked over the last few years. Median revenue multiple for 2011 ticked
up 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 the
global market for cloud computing will grow from $40.7 billion in 2011 to more than $241 billion in 2020. This fundamental
and rapid change in IT spending has created opportunities for start-ups to grow rapidly and has forced incumbent vendors
across the whole spectrum of IT infrastructure to revisit their strategic plans. Large vendors have made their presence
known in the market over the past year as they fill out the offerings with cloud, virtualization and data-related acquisitions.
BMC Software, CA, Cisco, Citrix, Oracle and VMware all made at least three acquisitions during 2011, while acquisitions
by Dell, HP and IBM all came with significant price tags. Transactions from this small handful of acquirers alone represented
nearly 30% of total EV for the year.
Despite the growth in deal volume and participation in the sector from the largest strategic buyers, the sector lacked the
multiple, billion-dollar mega deals that significantly boosted sector EV in the past, such as in 2010 when EMC acquired
Figure 2: Largest Infrastructure Software Transactions by Enterprise Value, 2011
Source: Signal Hill
EV/TTM
Date Enterprise Revenue
Announced Seller Buyer Value ($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 Mountain's 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. Infrastructure Software Sector Update 2011-2012
Isilon Systems ($2.1 billion), HP acquired 3PAR ($2.3 billion) and IBM acquired Netezza ($1.7 billion) all in the final four
months of the year. The lack of large deals can partly be attributed to the relative youth of many innovative cloud-related
companies. Out of the 142 acquisitions in 2011, more than 63% did not disclose deal size. This indicates that active buyers
in the sector are willing to acquire younger companies to meet their strategic objectives.
Figure 3: Largest Infrastructure Software Transactions by Revenue Multiple, 2011
Source: Signal Hill
EV/TTM
Date Enterprise Revenue
Announced Seller Buyer Value ($M) Multiple Description Subsector
25-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. Management
03-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.
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3. Signal Hill
Public Equity Performance
Signal Hill’s infrastructure software stock indices followed the public equity market’s decline at the end of 2011, with IT
operations & 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 starting
to open up as well. Splunk, a provider of software that enables large scale data collection and analysis, filed for a $125 million
IPO in January. Infoblox, a maker of data center optimization software, filed for a $125 million IPO in January as well.
Figure 4: Infrastructure Software Public Equity Indices vs NASDAQ Composite, 2011
Source: FactSet. Prices and exchange rates calculated as of 12/31/11, index weighted by market cap.
Note: Analysis includes 28 companies tracked in Signal Hill’s Infrastructure Universe; Application Infrastructure includes: CARB, CVLT, EMC, FALC,
NTAP, RVBD and SYMC; IT Operations & Management includes: BMC, CA, CPWR, CTXS, IFV, KEYN, LOGM, NTCT, OPNT, QSFT, SWI and VMW;
Storage Software includes: IBM, INFA, MSFT, ORCL, PEGA, PRGS, RHT and SOW.
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4. Infrastructure Software Sector Update 2011-2012
Drivers of M&A Activity in Infrastructure Software
The growth in M&A activity in the infrastructure software sector over the past few years has been driven by a number of
factors including the impact of cloud adoption on the following key areas:
• Application Performance Monitoring & Management: As enterprises and service providers seek to leverage cloud
architectures to deliver applications to end-users, the underlying IT infrastructure is becoming increasingly distributed
and complex. This is driving demand for solutions that allow developers of these applications to test their performance
in these new environments prior to deploying them, as well as monitor and effectively trouble shoot the performance
of applications post deployment. The testing, monitoring and trouble shooting products offered by the large infrastructure
management software vendors for traditional enterprise IT environments do not adequately support these new cloud
architectures. As a result, during 2011, these vendors have been actively acquiring new technology to meet these emerging
market needs.
Figure 5: Select Application Performance Monitoring & Management Transactions, 2011
Source: Signal Hill
EV/TTM
Date Enterprise Revenue
Announced Seller Buyer Value ($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 $6.0 10.0x
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5. Signal Hill
• Storage and Data Access: Cloud services are also driving demand for new approaches to storage that are highly scalable,
highly available and able to support widely-distributed and high-volume access. This trend has led to several transactions
during 2011 involving targets with technology designed to deliver these types of capabilities. Another storage related
trend that emerged during 2011 was file sharing and synchronization, or the “DropBox” effect. DropBox, a simple and
effective way to store files in the cloud and synchronize and share them across multiple devices and users, has experienced
extraordinary growth in users, in part due to the rapid adoption of mobile devices (see “Enterprise Mobility” below).
Enterprise-focused vendors have been scrambling to deliver this type of functionality to their customers and we have
begun to see related M&A activity.
Figure 7: Select Storage and Data Access Transactions, 2011
Source: Signal Hill
EV/TTM
Date Enterprise Revenue
Announced Seller Buyer Value ($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
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