Quest and SonicWall to operate independenly once divested from Dell

After Dell Software’s expected sale is completed this fall, its new private-equity owners will separate some of the divisions — including Quest Software and SonicWall — into independent companies.

This is similar to how Novell was divided up under Attachmate.

Related, see this summary of comments around the plans for VMware in Dell Technologies.

Source: Quest Software, One Identity To Operate Separately From SonicWall After Dell Software Sale

Rackspace goes private for $4.3bn

  • Apollo Global Management paying $4.3bn to acquire Rackspace, $32 a share in cash, a 38 percent premium (Bloomberg)
  • Competing against AWS is hard, plus the other mega public cloud plays: “Google’s parent, Alphabet Inc., Amazon and Microsoft have combined cash holdings of more than $200 billion compared to Rackspace’s less than $1 billion.”
  • Brenon at 451 points out that Rackspace throws off a good amount of cash, “$674m of EBITDA over the past year,” and concludes:
  • More from Brenon: “While we could imagine that focus on customer service as competitive differentiator might set up some tension under PE ownership (people are expensive and tend not to scale very well), Rackspace has the advantage of having built that into a profitable business. In short, Rackspace is just the sort of business that should fit comfortably in a PE portfolio.”
  • Meanwhile, as we discuss on Software Defined Talk (#70, “No one wants to eat a finger-pie”), AWS is at a run-rate of ~$10-11bn and growing.
  • In the recent Gartner IaaS Magic Quadrant, Racksapce is in the dread lower left hand corner. To be fair, a whole other MQ, “Cloud Enabled Managed Hosting,” which maps closer to what Rackspace says is their core strategy in cloud, has Rackspace leading. But, back to that “normal IaaS” MQ:
  • The MQ says “Rackspace has successfully pivoted from its ‘Open Cloud Company,’ OpenStack-oriented strategy, and returned to its roots as “a company of experts emphasizing its managed service expertise and superior support experience.”
  • Also: “Rackspace will continue to divert investment from its Public Cloud to other areas of its business, rather than try to compete directly for self-managed public cloud IaaS against market-leading providers that can rapidly deliver innovative capabilities at very low cost, or against established IT vendors that have much greater resources and global sales reach.”
  • See also Rachel’s analysis over at RedMonk.

img_0102

Finally, check out a tad of commentary on the deal in #32 of Pivotal Conversations.

Pinterest Instapaper

I’ll finally be a heavy Pinterest user:

People use Pinterest and Instapaper for similar reasons. The similarity is almost too close for the deal to make sense. Pinterest started out as a way for people to collect content from around the web for themselves and others to check out later. At first, people were mainly saving images, but they’ve also started saving articles, to the point that Pinterest considers that “a core use case.” But saving articles is the same reason people use Instapaper — its “core use case,” if you will. So why would Pinterest buy a company whose product largely duplicates its own?

Because Instapaper stores the actual content, removing the need for people to leave its app to view it. And because eight-year-old Instapaper brings with it a bunch of insight into the articles that people save and read, which translates into data six-year-old Pinterest can use to get a better idea of what content it should recommend to its audience. That data could be combined with the data Pinterest already has on what content people like to post to and view on its service. And it could give Pinterest a way to try to rival Facebook as a popular place people go to find things to check out, be it wardrobe ideas, tattoo designs, how-to videos or news articles.

Source: How buying Instapaper could help Pinterest become a media portal like Facebook

The first time blogging won

Since The Huffington Post was founded 11 years ago, it has become one of the biggest online media organizations, known for its all-caps headlines. In 2011, the publication was acquired by AOL for $315 million, a hefty price tag that signaled the rise of digital media.

The publication won a Pulitzer Prize in 2012 and has expanded globally in the last several years. It has a robust staff that writes original articles, but it is also known for aggressive aggregation, a practice that has at times caused tension in the media industry.

The “HuffPo” and others (many in the AOL/Verizon empire now) formed a sort of apex of blogging, akin to that big wave Hunter Thompson saw out his Vegas hotel window. We don’t really even think of “blogging” much anymore, just publishing.

Source: How the Arab World Came Apart
Arianna Huffington Stepping Down as Huffington Post Editor in Chief

Verizon buying Yahoo!’s core businesses for $4.83bn, a third place .com contender?

Verizon is acquiring most of Yahoo! $4.83bn in cash, to be combined with their AOL purchase. As a wet finger in the wind reckoning, this feels like it’ll put Verizon as a distant third place in eyeballs and ad revenue: that’s probably what the business case is targeting.

  • Yahoo! was at ~$4bn runrate (based on $1.09bn in revenue last reported quarter). Revenue has been declining steeply, down 11% q/q.
  • Valuation here is tricky, since Verizon is only buying “core assets.” One back of the envelop analysis put the “core assets” at $1.7bn, suggesting a valuation of ~2.8x.
  • Combined with AOL and other Verizon properties, the company says this will result in “global audience of more than 1 billion monthly active users — including 600 million monthly active mobile users.”
  • There’s fierce competition from Facebook and Google: “According to data from e-marketer in March, Yahoo’s worldwide net digital ad revenues will fall nearly 14% this year to $2.83 billion, from $3.28 billion in 2015. In contrast, Google will see a 9% increase while Facebook will be up by nearly a third year-on-year (31%).”
  • Despite this small pot of marketshare-by-revenue, at least in the US, the combined company will be in the top three of marketshare-by-eyeballs. If you were an i-banker looking at that in your spreadsheet, you’d think: we just need to increase eyeball-to-cash conversion productivity and – POW! – synergies!
  • As a reminder, AOL includes “The Huffington Post, TechCrunch, Engadget, MAKERS and AOL.com.” Yahoo! Mail has 225m monthly active users.
  • It keeps getting described as an “assets sale,” because Yahoo’s stake in Yahoo! Japan and Alibaba will stay with Yahol! As the NY Times puts it: “a 15 percent stake, worth about $32 billion based on its recent share price, in the Chinese internet company Alibaba and a 35.5 percent stake, worth about $8.7 billion, in Yahoo Japan.”
  • This will create some interesting post-deal structure for the numbers. The entire Yahoo! company is much bigger than that 1.1x valuation: “Yahoo! stock, which is up 18% this year, had a total market value of $37.4 billion at its close on Friday of $39.38.”
  • It’s pretty clear that the company wants to sell the remaining assets.
  • Rival bidders: “Suitors included Quicken Loans founder Dan Gilbert, communications giant AT&T and private equity firms Vector Capital Management and TPG.” AT&T seems to have been the main competitor. More from Kat Hall: “The telco was one of 40 suitors rumoured earlier this year to be interested, including Google parent Alphabet, Time and even Daily Mail parent DMG.”
  • It increases Verizon/AOL’s advertising marketing share, but Facebook and Google still dominate: “Verizon with AOL currently holds 1.8 per cent of the $69bn US digital ad market, according to The Wall Street Journal. Yahoo controls about 3.4 per cent, while Google and Facebook combined make up half of the total.”
  • Timing the sale of a declining asset is everything: “back in 2008, it turned down a $44 billion offer from Microsoft”
  • See some in-depth history and analysis from Timothy Lee over at Vox. The thesis seems to be: the company could adapt beyond it’s initial success in the 90s and never found a new identity beyond being a “media company.”

Devaluing shaving

the tech community is celebrating the massive return for Dollar Shave Club’s investors, but $1 billion for a 16% unit share of a market dominated by a brand that cost $57 billion is startlingly small. Indeed, that’s why buying Dollar Shave Club was never an option for P&G: even if their model is superior P&G’s shareholders would never permit the abandonment of what made the company so successful for so long; a company so intently focused on growing revenue is incapable of slicing one of their most profitable lines by half or more.

The point being: that’s a really low valuation and could cause all sorts of annoying and “value destructing” side effects in the spreadsheet.

Source: Dollar Shave Club and The Disruption of Everything

Mercury’s decline in HPE

One former Mercury man’s write-up of what went wrong with the high-flying tech company once it was acquired:

In the case of HP and Mercury, the slow-down was particularly unfortunate because the acquisition came just as enterprise application development was moving from proprietary protocols and GUIs to web applications talking HTTP. Mercury’s powerful and extremely customisable products were arguably overkill for simple web applications, and a new generation of tools was beginning to emerge that was dedicated for that purpose. Given its singular focus on testing, and based on what I know of the company culture pre-acquisition, I am quite certain that an independent Mercury would have addressed the challenge head on and remade itself for that new world. After all, Mercury was fully aware of web applications, offering services that would simulate user access from locations around the world to have a continuous view on sites’ performance as experienced around the world.
Continue reading “Mercury’s decline in HPE”

ARM deal analysis from RedMonk Rachel & 451

There’s some proper, and surprisingly concise deal analysis over there:

While growth has come from the IoT, ARM’s resurgence in recent years – and Intel’s opposite trajectory – have been the result of the London company’s dominance in mobile devices. (In 2015, “45% of the ARM-based chips went into mobile devices.”) The so-called Wintel monopoly carried both of those parties to valuations that ARM never approached, but as mobile steadily eroded PC spend ARM’s low power designs found success on both of the most successful mobile platforms. Both Apple’s iOS devices and Android’s array of hardware are either exclusively or nearly so ARM-based.

Check out the rest!

Meanwhile, from John Abbott at 451 Research:

  • ARM “generated less than $1.5bn in revenue last year and has only 3,300 employee”
  • “SoftBank will pay 20.9x trailing revenue for ARM. That’s the first time any company has cracked the 20x mark in a $1bn-plus chip acquisition.”
  • ARM “holds a 40% share in consumer goods, 30% in embedded intelligence, 15% in network infrastructure and 10% in automotive.”
  • “Revenue reached $1.49bn in 2015, up 15% from the previous year, with a net profit of $360.7m.”
  • Read more for his overall sentiment, which is basically: SoftBanks’ money and reach can fuel faster marketshare growth in these convert all the toasters to IoT grills times. checks out.

Tumblr not working out for Yahoo!

Originally purchased for $1bn in 2013, after failing to meet the $100m 2015 revenue goal, written down:

A bit of simple arithmetic puts Tumblr’s value after these writedowns at about $290 million. This is not only less than a third of its purchase price, but it’s also less than the value of Tumblr’s assets when it was acquired two years ago.

Source: Marissa Mayer promised “not to screw up” Tumblr, but she totally has

The media doesn’t know what they’re talking about w/r/t Yahoo, a study in i-banker rhetoric

The notion that some in the media – who usually have no specific knowledge about Yahoo – have recklessly put forward that Yahoo is “unfixable” and that it should be simply “chopped up” and handed over for nothing to private equity or strategies is insulting to all long-term public shareholders.

This presentation is an example of many things we discuss on Software Defined Talk around large, struggling companies and the way they’re covered. Among other rhetorical highlights:

  • Check out how they make their case
  • Use visuals and charts
  • The informal nature of their language, e.g., they use the word “stuff” frequently
  • Their citations, e.g., citing themselves (I always love a good “Source: Me!”) and citing “Google Images”

These things, in my view, are neither good or bad: I’m more interested in the study of the rhetoric which I find fascinating for investment banker documents/presentations like this.

Not only that, it’s a classic “Word doc accidentally printed in landscape.” The investment community can’t help themselves.

As another note, no need to be such a parenthetical dick, below, to prove the point of a poor M&A history, just let the outcomes speak for themselves, not the people who do them.

img_4051

They actually do a better job in the very next slide, but that kind to pettiness doesn’t really help their argument. (Their argument is: she’s acquiring her friends.)

This is a type of reverse halo effect: we assume that tree standing goofiness has something to do with the business: an ad hominem attack. But, I think most billionaires probably have picture of themselves in trees, wearing those silly glove shoes, roasting their own coffee, only eating meat they kill themselves, or any number of other affectations that have nothing to do with profit-making, good or bad.

So you want to become a software company?

Hey, I’ve not only seen this movie before, I’ve did some script treatments:

Chief Executive Officer John Chambers is aggressively pursuing software takeovers as he seeks to turn a company once known for Internet plumbing products such as routers into the world’s No. 1 information-technology company.

Cisco is primarily targeting developers of security, data-analysis and collaboration tools, as well as cloud-related technology, Chambers said in an interview last month.

Good for them. Cisco has consistinly done a good job to fill out its portfolio and is far from the one-trick pony people think it is (last I checked, they do well with converged infrastructure, or integrated systems, or whatever we’re supposed to call it now). They actually have a (clearly from lack of mention in this piece) little known about software portfolio already.

In case anyone’s interested, here’s some tips:

  1. Don’t buy already successful companies, they’ll soon be old tired companeis – software follows a strange loop. Unlike hardware where (more or less) we keep making the same products better, in softare we like to re-write the same old things every five years or so, throwing out any “winners” from the previous regime. Examples here are APM, middleware, analytics, CRM, web browsers…well…every category except maybe Microsoft Office (even that is going bonkers in the email and calendaring space, and you can see Microsoft “re-writing” there as well [at last, thankfully]). You want to buy, likely, mid-stage startups that have proven that their product works and is needed in the market. They’ve found the new job to be done (or the old one and are re-writing the code for it!) and have a solid code-base, go-to-market, and essentially just need access to your massive resources (money, people, access to customers, and time) to grow revenue. Buy new things (which implies you can spot old vs. new things).

  2. Get ready to pay huge multipules – when you identify a “new thing” you’re going to pay a huge multipile 5x, 10x, 20x, even more. You’re going to think that’s absurd and that you can find a better deal (TIBCO, Magic, Actuate, etc.). Trust me, in software there are no “good deals” (except once in a lifetime buys like the firesale fro Remedy). You don’t walk into Tiffany’s and think you’re going to get a good deal, you think you’re going to make your spouse happy.

  3. “Drag” and “Synergies” – not gonna happen on any scale that helps make the business case, move on. The effort it takes to “integrate” products and, more importantly, strategy and go-to-market, together to enabled these dreams of a “portfolio” is massive and often doesn’t pan out. Are the products written in the exactly the same programming language, using exactly the same frameworks and runtimes? Unless you’re Microsoft buying a .Net-based company, the answer is usually “hell no!” Any business “synergies” are equally troublesome: unless they already exist (IBM is good at buying small and mid-companies who have proven out synergies by being long-time partners), it’s a long-shot that you’re going to create any synergies. Evaluate software assets on their own, stand-alone, not as fitting into a portfolio. You’ve been warned.

  4. Educate your sales force. No, really. REALLY! – you’re thinking your sales force is going to help you sell these new products. They “go up the elevator” instead of down so will easily move these new SKUs. Yeah, good luck, buddy. Sales people aren’t that quick to learn (not because they’re dumb, at all, but because that’s not what you pay and train them for). You’ll need to spend a lot of time educating them and also your field engineers. Your sales force will be one of your biggest assets (something the aquired company didn’t have) so baby them and treat them well. Train them.

  5. Start working, now, on creating a software culture, not aquiring one – the business and processes (“culture”) of software is very different and particular. Do you have free coffee? Better get it. (And if that seems absurd to you, my point is proven.) Do you get excited about ideas like “fail fast”? Study and understand how software businesses run and what they do to attract and retain talent. We still don’t really understand how it all works after all these years and that’s the point: it’s weird. There are great people (like my friend Israel Gat) who can help you, there’s good philosophy too: go read all of Joel’s early writing of Joel’s as a start, don’t let yourself get too distracted by Paul Graham (his is more about software culture for startups, who you are not – Graham-think is about creating large valuations, not extracting large profits), and just keep learning. I still don’t know how it works or I’d be pointing you to the right URL. Just like with the software itself, we completly forget and re-write the culture of software canon about every five years. Good on us. Andrew has a good check-point from a few years ago that’s worth watching a few times.

  6. Read and understand Escape Velocity – this is the only book I’ve ever read that describes what it’s like to be an “old” technology company and actually has practical advice on how to survive. Understand how the cash-cow cycle works and, more importantly for software, how to get senior leadership to support a cycle/culture of business reneweal.

There’s more, of course, but that’s a good start.

Finally, I spotted a reference to Stall Points in one of Chambers’ talks the other day which is encouraging. Here’s one of the better charts you can print out and put on your wall to look at between meetings:

That charts all types of companies. It’s hard to renew yourself, it’s not going to be easy. Good luck!

Coté Memo #036: HP buys Eucalyptus, mind-mapping-aaS

Meta-data

Hello again, welcome to #036. Today we have 42 subscribers, so we’re +/0. Steady as she goes! I’d love to hear what you like, dislike, your feedback, etc.: memo@cote.io. (If you’re reading this on the web, you should subscribe to get the daily email.)

See past newsletters in the archives, and, as always, see things as they come at Cote.io and @cote.

Sponsors

Tech & Work World

Quick Hits

HP buys Eucalyptus

The addition of Marten to HP’s world-class Cloud leadership team will strengthen and accelerate the strategy we’ve had in place for more than three years, which is to help businesses build, consume and manage open source hybrid clouds,“ said Whitman. "Marten will enhance HP’s outstanding bench of Cloud executives and expand HP Helion capabilities, giving customers more choice and greater control of private and hybrid cloud solutions.

We cover this in Software Defined Talk today. I start with some context on HP, Eucalyptus, OpenStack, and "AWS compatibility.” It’s nice to have three different perspectives.

As you can conclude from the discussion, I find it both perplexing and exciting. As we say in SDT, from a customer perspective “I want an AWS-compatible cloud that just works (as much as a private cloud can)” it makes sense; from a portfolio perspective (“which HP cloud did you want buy?”) it seems to add confusion. I suggest giving them some time to explain their plans. Should be fun in Paris at the upcoming OpenStack Summit.

We have a 451 Deal Analysis report on this in the works and it’ll hopefully be out tomorrow. In the mean time, check out Barb Darrow’s quick coverage.

MindMeister

I signed up for a paid account at MindMeister today. I think I like it. I’m eager to see how the mobile part works.

Also, it was cool that it has 2FA and uses the Google Authenticator. I poked around and it turns out Evernote does as well. For some reason, I love that!

Fun & IRL

No fun today, just work.

Coté Memo #29: vRealize almost explained, Compuware gets bought, 1 year at 451

(I cross post my week-daily newsletter here, but also feel free to subscribe to it directly if you’d don’t want to follow CoteIndustries.com regularly.)

Meta-data

Hello again, welcome to #29. Today we have 36 subscribers, so we’re +3 – good job, subscribers! I’d love to hear what you like, dislike, your feedback, etc.: memo@cote.io. (If you’re reading this on the web, you should subscribe to get the daily email.)

See past newsletters in the archives, and, as always, see things as they come at Cote.io and @cote.

Sponsors

  • You can still get $200 off your 451 cloud conference registration with the code MC200 when you register. We’ve been going over the agenda and presentations internally and they should be fun. Also, if you attend you can schedule 1:1’s with 451 analysts, whether you’re a client or not (I believe), including me.

  • This month, if you’re in Chicago on Sep 23rd you can come see my talk on DevOps for free. I’ll have it updated with some new market numbers and cloud survey data. Registration is free (there’s vendor pitches), so sign up if you’re interested. I’ll be doing the same in Toronto on Nov 18th.

Follow-up

Tech & Work World

1 year at 451

Today marks my one year anniversary at 451. I’d just come off sucking down two weeks of left over vacation at Dell, and go all setup to start analyzing. Over the past year it’s been great to re-engage with my old industry friends and new ones, and get back to writing regularly, something I’d been sorely missing while I did strategy and M&A at Dell…which doesn’t really reward speaking about what you think publicly too much.

Along with the other teams in 451, my team re-organized our coverage areas into new practices: Development, DevOps, and Middleware and Enterprise Platforms.

We’ve also done a good job stoking the fire of our DevOps research, which I really enjoy; you may recall that Jay Lyman, on my team, published one of the first analyst pieces on DevOps in 2010!

Anyhow, enough self-aggrandizing. If you’re not a client – or at least have a trial – you should check it out. If you end up not wanting to fork over some cash to get behind our paywall, I’d be interested in hearing why so we can noodle on fixing that.

vRealize

VMware vRealize

After last week at #VMworld, I’m forcing myself to write a 1,500-2,000 word report on vRealize. The issue, as I discussed in our Software Defined Tech podcast recoding today, is that I have a mixture of NDA and public knowledge, so sorting through an already confusing pile is difficult.

To that end, there’s actually a good PDF that VMware has explaining the new portfolio (vendors usually are bad at this), and even a an install guide which looks like tasty.

Also, on that page, you can see a 2012 IDC market-sizing and vendor overview of cloud management and a 451 paper on cloud management and automation from Nov 2013 (these types of 451 reports ain’t cheap, so enjoy the freebie).

Finally, it’ll be posted as a proper episode tomorrowish, but Matt Ray does a good job explaining “the VMware cloud” in the Software Defined Talk episode we recorded today.

Also, this plea for VMware to fix up its APIs from Matt Wrock is good reading. Remind you of anything?

Thoma Bravo buys Compuware

Compuware revenue
Compuware revenue by product area

Thoma Bravo is adding Compuware to it’s portfolio (pending closure of the deal, I believe). Dennis Callaghan on my team is writing up a 451 Deal Analysis that I’ll link once it’s published. We discussed it in a “bonus episode” of Software Defined Talk today, esp. as it related to the full life-cycle of software companies, where PE companies figure in at the end to either strip mine (or more likely in this case) try to pull the old fountain of youth trick.

It’s also interesting to look at the rest of the Thoma Bravo portfolio and think how Compuware would co-existing and integrate with them, and look at how Attachmate broke up Novell as a possible model for Compuware. Thoma Bravo is invested in Attachmate, you see, so they no doubt have some staff and strategy-think cross-over.

If you really want to dig deep, check out the FY2013 annual report and the most recent quarterly presentation, for FY2015Q1.

Fun & IRL

No fun today, just work. I made a pitcher of sangria yesterday and I need to go polish it off:

Untitled

Building a Great Team (Dell buys Enstratius)

With the Enstratius acquisition, Dell is getting a group of people with deep influence in the community. Founder George Reese is an O’Reilly author and a cloud pioneer. He is supported by James Urquhart, Bernard Golden and John Willis, all recognized as influencers in the cloud community.
Alex Williams, TechCruch

This is the part I’m most excited about. I’ve worked with and known the team at Enstratius for many years, esp. John Willis who you may recall from the salad days of The IT Management & Cloud Podcast. The talent at Enstratius up and down the org is phenomenal and I can’t wait to start working with them in continuing to build Dell’s cloud portfolio. I’ve had a great time being part of the industry heavy-weights at Dell, and it’ll be a privilege to be part of the combined team.

In a coincidental note, check out Barton’s interview with John Willis on culture and DevOps, from last week’s DevOpsDays Austin.