Tech Industry Analysis

Convio (CNVO) gets acquired by Blackbaud (BLKB) for $16/share - MGI Analyst Blog

Convio (CNVO) gets acquired by Blackbaud (BLKB) for $16/share - MGI Analyst Blog.

New Research: MGI Scorecard - Large Systems Vendors Oct 2011

New research published: "Large Systems Vendors Scorecard: October 2011"  @mgiresearch #IBM, #CSCO, #ORCL, #EMC, #Dell, #HPQ, #VMW, #BRCD, #NTAP, #JNPR

Our current, October 2011 vendor scorecard provides a qualitative rating for large systems vendors such as Hewlett-Packard, Oracle, Dell, IBM, EMC and Cisco. The note contrasts these ratings with quantitative MGI Index scores measuring business model efficiency and with growth and valuation parameters. The recent upheaval at HP provides an interesting backdrop to our rating scores. With a drop in HP stock, a number of analysts and investors have been turning positive on the company. We think that such enthusiasm is a bit premature. HP’s stock is cheap for a reason. In a related research note: “Who Benefits from HP Disarray?” we analyze the opportunities and threats for HP and its peer group.

Other recent MGI Research reports include:

Is Manhattan Associates an Acquisition Target?

Getting the Right IT Deal: A 20 Questions Interview with a leading IT contracts guru

CIO Critical Success Factors: Conversation with Martha Heller, a noted CIO recruiter

 Visit www.mgiresearch.com for additional information. To schedule analyst appointments, call +1 (888) 801-3644

New Research: Who Benefits from Disarray at HP?

New research published: "Who Benefits from the Disarray at HP?"

@mgiresearch #HPQ, #Dell, #IBM, #ORCL, #EMC, #VMW, #CSCO #Cloud

HP customers, investors and business partners are beginning to feel like they are stuck in a bad remake of the movie "Groundhog Day". In the film, Bill Murray's character is stuck in time and keeps waking up to face the very same day, with the same challenges and problems.

Three of the last HP CEOs were forced out under some sort of a cloud (not the computing kind). After expelling Carly, Mark and Leo (these sound like hurricane names), the board rushed to hire Meg Whitman as CEO and appointed Ray Lane as the executive Chairman. The new team has a big mess to clean up.  The Personal Systems division decision is likely to be reversed. The idea to get out of the PC business was probably not a bad one, but HP is totally unprepared for such a non-linear move. The Autonomy deal will likely go forward, but the acquisition better work, - HP has had a terrible track record of absorbing companies. The EDS purchase caused serious indigestion, and HP inherited a number of contractual issues with it. The list of HP acquisition orphans is long and unmemorable (except for high purchase prices).

In the meantime, competitors are circling the weakened HP turf. We believe, the company still has some time and room for maneuver, but a recovery will require signs of sure-footed, thoughtful, strategic decisions, - so far we have not seen any evidence of that, but one can hope...

In the new research report on HP, we dissect HP's current situation, assess chances for a sustained recovery and risks of market share loss to competitors in key areas such as processors, storage, software and services. 

Other recent MGI Research reports include:

Is Manhattan Associates an Acquisition Target?

Getting the Right IT Deal: A 20 Questions Interview with a leading IT contracts guru

CIO Critical Success Factors: Conversation with Martha Heller, a noted CIO recruiter

 Visit www.mgiresearch.com for additional information.

New Research: Is Manhattan Associates an Acquisition Target?

New research report: Is Manhattan Associates an Acquisition Target? @mgiresearch #MANH

Despite the huge cash hoard sitting on software companies balance sheets, perennial predictions of a massive wave of 2011 industry consolidation have not materialized. SaaS company mergers are few and far between while enterprise software companies have been cautious to avoid any non-accretive deals. We believe that amongst several possible industry merger transactions, Manhattan Associates, a provider of supply chain execution software is now themost likely acquisition target. Among the short-list of potential acquirers are SAP, Oracle, Infor, and JDA Software as well as a few private equity firms. 

New Research - Google Buys Motorola Mobility - Bullet Train or a Train Wreck?

Google Buys Motorola Mobility: Bullet Train or Train Wreck?

New Research: Three Key Trends Shaping Cloud Computing

In a new research report "Three Key Trends Shaping Cloud Computing" we examine both the drivers as well as the barriers to cloud computing adoption. Several recent cyber security incidents spotlighted Cloud Computing vulnerabilities, generating questions about the durability of the overall adoption trend for the Cloud. The focus of the report is on the current intersection of cloud strategies of LOB users, central IT and cloud vendors and how pragmatic economic and technological factors are shaping their decisions with regard to Cloud adoption. We expect the pace of adoption for cloud computing to accelerate. The recent shift from confrontation to collaboration between central IT and the cloud providers, signals a removal of a significant road-block to cloud adoption. The focus of internal IT on virtualization first has now come into question as more users are looking at pursuing both mega-trends but not at the same speed and not for the same portions of their applications portfolio. The challenges posed by cloud security and management issues are serious, but are not the insurmountable barriers to broader adoption of cloud computing. Both the cloud as well as virtualization are driving a redefinition of the requirements landscape for security and management tools. This disruption creates a growth opportunity for cloud start-ups and a challenge for incumbent vendors of software and security tools such as CA, BMC, HPQ and IBM. We expect the re-acceleration in this space to benefit RAX, AMZN, CRM, CNQR, TLEO, KNXA, as well as the cybersecurity vendor group. This report is a must read for anyone interested in gaining an in-depth insight of the current business and technical trends that are shaping the opportunity for cloud computing.

 

New Research Report: Is #RIM Done?

Analysts are of two distinct minds on Research in Motion (RIM) - one is that RIM is done, another - that current problems are temporary and that RIM stock is a screaming buy.

RIM (NASDAQ:RIMM, MGI Index= 2,396) shares continue to be under pressure, while Apple, (NASDAQ:AAPL, MGI Index =8,327), continues to gain market share in what used to be RIM's core marketplace - the enterprise. Apple's iPhone has become the new "CrackBerry" and apps have become the new currency of the mobile computing world.

We believe the key questions are the ones of relevance and leadership:

• Can RIM retain a meaningful leadership position in the new mobile computing landscape?  
• Does the company have a realistic vision of the overall mobile opportunity? 

A new, in-depth, MGI Research report - Is RIM Done? analyzes RIM stock scenarios by going deep into RIM's strengths, weaknesses, opportunities and threats. The report examines RIM's operating and R&D efficiency relative to its peers and explores RIM's strategic options.

Available immediately to MGI Research subscribers at the MGI Research website, a single copy can be purchased from the MGI Research Store or via Bloomberg.

Key issues covered:
- Can RIM defend its position in the consumer markets and successfully penetrate the tablet space? 
- Will RIM become a niche provider of mobile access solutions for secure enterprise-class e-mail? 
- Will RIM be forced to redesign the PlayBook tablet?
- Will apps developers write code for RIM product?
- What are RIM's real strengths?
- What interesting new markets are open to RIM? 
- How long will the recovery process take? 
- Do the RIM board and current management team have the right combination of skills to translate the vision into action?

The report was written by the MGI Research analyst team in collaboration with the leading mobile computing expert and industry analyst Bob Egan of the Sepharim Group, LLC.  Many of us at MGI have in the past worked with Bob at Gartner and we are delighted to be able to collaborate with him again. 

 

 

Microsoft to Buy Skype: So This is Your Big Move?

Investors have been watching Microsoft for some time wondering what the company will do with its growing cash hoard that has reached some $50 billion.  As company observers know, Microsoft has been relatively conservative with regard to its acquisition strategy, that with the exception of the failed bid to acquire Yahoo, has until now, focused on comparatively small companies.  The pending acquisition of Skype is certainly large (particularly in price @ $8.5 billion), the immediate reaction of the investment community has been largely critical.

In developing our thoughts on the acquisition, our initial bias was toward being contrarian.  However, as we look at the various pros and cons behind the deal, we find ourselves siding with the generally critical view.   In fairness to Microsoft, the company has done an excellent job improving its MGI-X score, reflecting improving efficiency relative to its growth and investment in R&D.  For a variety of reasons, management has struggled to effectively communicate these changes.  

Our key observations are as follows:

 1)   As a strategic deal, there is no apparent or compelling vision as to how Skype visibly moves the needle in terms of revenue growth or profitability for Microsoft.  In watching the interviews of Microsoft CEO Steve Ballmer, we were thoroughly underwhelmed by the rationale cited for the deal.   If Microsoft wanted to integrate Skype into various product lines such as Microsoft Office, or Microsoft Phone, it certainly did not need to buy the company to achieve that goal. On the surface, it appears to be a defensive move to hold on to the SOHO/SMB markets vs Google (Google Apps + voice vs MSFT Office365 + Skype). On the positive side for MSFT, wireless networks to date have largely been built from the outside in. To MSFT’s credit, the next ten years may deliver a reversal. This means wi-fi and other micro-cell technology, combined with VOIP, could become a really big deal. Based on Ballmer’s presentation of the deal, this outcome would be accidental, rather than premeditated, but a shareholder plus nonetheless.

2)   As an economic transaction, aside from the fact that Microsoft will be able to acquire Skype on a tax efficient basis using offshore cash, the high valuation of the company in terms of price/sales, price to EBITDA, in our view more than offset the positive of the tax efficiency.

3)   Why didn’t Microsoft buy eBay, Research in Motion, or even SAP?  Any one of these transactions represents a more interesting opportunity than that of Skype.  In particular, Microsoft could have bought eBay and gotten as a bonus a 30% ownership stake in Skype.

4)   Buying Skype lessens the likelihood of any other large deals in the short term (six-to-nine months) – not due to any financial limitation, but rather given Microsoft’s conservative and uninspired acquisition strategy, or lack thereof.

5)   Deal appears to be almost more of a defensive move to protect existing revenue streams, rather than a means to increase revenues.

 Has Microsoft Missed its Window?  

 Please excuse the pun, but Microsoft transitioned from a rapidly growing company to a mature business (albeit with double digit revenue growth in many of its businesses) and may have missed the point-in-time opportunity to really leverage its scale and financial power by failing to move aggressively on non-linear acquisitions (or even a series of incremental strategic buys).   In fairness, Microsoft’s conservatism may be a hold over from the years in which they were battling anti-trust claims.

The company has failed to realize that good or great ideas can come from outside, and perhaps remains too focused on protecting Windows – a franchise that is likely to remain very durable regardless of strategic missteps or investor apathy.

 

Breakthrough Analysis of SaaS and Enterprise Software Valuations Released

Are SaaS Valuations Sustainable? MGI Research Announces Breakthrough SaaS Valuation Report

March 22nd, 2011 - San Francisco, CA - Today MGI Research LLC announced the latest update to its widely popular "SaaS Valuation - What Price is Right?" research report. With data on more than 100 SaaS and Enterprise Software companies, this in-depth analysis addresses many of the questions facing technology executives, investors, and entrepreneurs. 

"The question is - are we at the peak of inflated expectations for SaaS or are we in in the very early stages of what can be potentially a $50Bil+ market?" said Igor Stenmark, Managing Director of MGI Research. "Software-as-a-Service (SaaS) has become the dominant deployment architecture and business model for software, and valuation multiples of SaaS companies are near all-time highs. Yet, our field research shows that production adoption of SaaS solutions amongst large organizations still represents only a small fraction of their application portfolio." he continued.

The new MGI Research report provides an in-depth analysis of what drives valuation multiples and market performance for SaaS companies and provides a simple formula for estiamting valuation of SaaS companies. The report examines the following key questions:

• How do SaaS and Enterprise Software firms compare in terms of valuation and performance?
• What is the valuation outlook for SaaS companies?
• Should SaaS companies be focused on growth or profitability?
• Does size matter for SaaS valuation?
• Are current SaaS valuation multiples sustainable?
• Which companies and segments of the SaaS sector are under/over valued, and why?

The report contains data on  software firms such as Salesforce, SuccessFactors, Taleo, Concur, Intuit, and many others.

This research report is available immediately to MGI Research subscribers. Individual copies may be purchased in the MGI Research Store. For additional information, visit www.mgiresearch.com

About MGI Research LLC

MGI Research specializes in quantitative research and benchmark data and provides clients with confidential, partner-only strategic advisory services. Founded in 2008, MGI Research counts some of the largest and smallest tech companies, institutional investors, and Fortune 500 CIOs among its clientele. 

Contact: 

Andrew Dailey, Managing Director, MGI Research, LLC

O +1 415 381-1042 
M +1 415 419-6253 
adailey@mgiresearch.com

This research report contains data on the following companies:

ACI WORLDWIDE, INC. ADOBE SYSTEMS INCORPORATED AUTODESK, INC. ADVENT SOFTWARE, INC., ANSYS, INC., Ariba, Inc., Asiainfo-Linkage, Inc., ATHENAHEALTH, INC., ASPEN TECHNOLOGY, INC., BLACKBOARD INC., ACTUATE CORPORATION, BLACKBAUD, INC., BMC SOFTWARE, INC., BSQUARE CORPORATION, BROADVISION, INC., CA, INC., CALLIDUS SOFTWARE INC., CADENCE DESIGN SYSTEMS, INC., CERNER CORPORATION, CLICKSOFTWARE TECHNOLOGIES LTD., CONCUR TECHNOLOGIES, INC., CONVIO, INC., COMPUWARE CORPORATION, SALESFORCE.COM, INC., CSG SYSTEMS INTERNATIONAL, INC., Constellation Software Inc., CONSTANT CONTACT, INC., CITRIX SYSTEMS, INC., COMMVAULT SYSTEMS, INC., DEMANDTEC, INC., DIGIMARC CORPORATION, Amdocs Limited, BOTTOMLINE TECHNOLOGIES (DE), INC., EPICOR SOFTWARE CORPORATION, SOURCEFIRE, INC. FORTINET, INC., GUIDANCE SOFTWARE, INC., HEALTHSTREAM, INC., INTRALINKS HOLDINGS, INC., INFORMATICA CORPORATION, INTERACTIVE INTELLIGENCE, INC., INTUIT INC., JDA SOFTWARE GROUP, INC., KENEXA CORPORATION, MAGMA DESIGN AUTOMATION, INC., LIVEPERSON, INC., LAWSON SOFTWARE, INC., MANHATTAN ASSOCIATES, INC., MEDASSETS, INC., MEDIWARE INFORMATION SYSTEMS, INC., MENTOR GRAPHICS CORPORATION, Merge Healthcare Incorporated, MICROSOFT CORPORATION, MICROSTRATEGY INCORPORATED, NETSUITE INC., NOVELL, INC., NETSCOUT SYSTEMS, INC., NUANCE COMMUNICATIONS, INC., OPNET TECHNOLOGIES, INC., OPENWAVE SYSTEMS INC., ORACLE CORPORATION, OPEN TEXT CORPORATION, PDF SOLUTIONS, INC., PARAMETRIC TECHNOLOGY CORPORATION, PROGRESS SOFTWARE CORPORATION, PROS HOLDINGS, INC., DELTEK, INC., PERVASIVE SOFTWARE INC., QLIK TECHNOLOGIES INC., QUEST SOFTWARE, INC., QUALITY SYSTEMS, INC., RADIANT SYSTEMS, INC., RED HAT, INC., RENAISSANCE LEARNING, INC., RIGHTNOW TECHNOLOGIES, INC., RADISYS CORPORATION, SABA SOFTWARE, INC., SAP AG, SCIENTIFIC LEARNING CORPORATION, SOUNDBITE COMMUNICATIONS, INC., SUCCESSFACTORS, INC., SMITH MICRO SOFTWARE, INC., SYNCHRONOSS TECHNOLOGIES, INC., SYNOPSYS, INC., SUPPORT.COM, INC., SPS COMMERCE, INC., SciQuest, Inc., SRS LABS, INC., SS&C TECHNOLOGIES HOLDINGS, INC., SOLARWINDS, INC., SXC Health Solutions Corp., SYMANTEC CORPORATION, TALEO CORPORATION, TELENAV, INC., DEALERTRACK HOLDINGS, INC., MONOTYPE IMAGING HOLDINGS INC., THE ULTIMATE SOFTWARE GROUP, INC., VASCO DATA SECURITY INTERNATIONAL, INC., VMWARE, INC., VOCUS, INC., Vital Images, Inc., XATA Corporation, ZIX CORPORATION

 

MGI Research, MGI Index, MGI-X, and MGI-Change Vector are trademarks of MGI Research LLC. All other company and product names may be trademarks of the respective companies with which they are associated. This is not an offer to buy or sell securities. All information is provided on a strictly AS-IS basis.

AOL - HuffPo Deal: Can AOL Make It Matter?

February 9, 2011                                                                                © 2011 MGI RESEARCH, LLC

For a relatively modestly sized deal, the AOL acquisition of Huffington Post generated a disproportionately audible media and investor response. It seems the attention often bestowed on the highly visible and sometimes controversial Huffington Post co-founder, Arianna Huffington, has obscured the obvious fact that this is not about HuffPo, - it is all about AOL. HuffPo was destined to be sold. After Newsweek acquired Tina Brown's The Daily Beast, the writing was on the wall, and it was just a matter of time. News Blogging, especially politically focused, has become a real business. For AOL, the stakes are much larger - this deal is a bet-your-farm kind of transaction. Under different market conditions, AOL would have probably ended up going for a more meaningful target like The New York Times. On the heels of the deal, many investors were doing a double take on many traditional media companies (e.g. Gannett)  with digital revenue streams.

Lots of attention has been devoted to the price at which HuffPo is being bought. In reality, any informed banker or active Internet company buyer will tell you that the price is rich but not exactly off the wall. At 6X projected revenues, and 10X projected EBITDA, the purchase price is dear, but not over the top when compared to similar high-growth companies with attractive demographics. Still, the deal will consume a large proportion of AOL cash position of about $800 Million. The transaction will take an even greater proportion of management attention as Tim Armstrong (AOL's CEO) is likely to be hounded at every interview and investor meeting for the next year or two with questions about HuffPo integration. The key issue this deal highlights is one of strategy - does AOL have a real strategy and a plan for realistic growth. Buying companies is not a strategy, usually it is an excuse for not having one. Armstrong and his team still have some time to articulate their approach - beyond just playing for time with acquisitions and hoping to reverse the revenue decline. At the very least AOL executive crew deserve short-term credit by clearly framing AOL's focus on content for discrete audiences. By paying out roughly 40%+ of the cash reserves of the company, Armstrong is making a large bet that HuffPo's team can lead the merged entity to content, page view, and ad-sales nirvana.  One can question the "strategy", but the conviction of direction is clear and in stark contrast to a similar situation of woe - namely Yahoo! Unlike Yahoo!'s tough-talking, but slow-acting CEO Carol Bartz, Armstrong is going to live or die based on this content-driven strategy.

MGI Research does not rate AOL. However, we find the deal to be illustrative from several perspectives. First, the price of the deal assumes HuffPo can continue to fire on all cylinders. It also assumes a lossless transition of HuffPo traffic, content and human talent to AOL and then some synergistic growth and savings as a result of the combination. Against the backdrop of a $2B+ company whose revenues are dropping annually by over 20%, it is hard to see how HuffPo $50Mill in revenue and potential cost synergies of $10Mil can really make a huge difference even under the best scenario. The shelf-life of HuffPo content, still mainly focused on news and commentary is probably not as durable as some other companies with heavy Web presence. HuffPo began to generate local and non-news oriented content but its effort in this area are still embryonic. For this deal to pay-off for AOL shareholders, one would prefer to see a little more cushion.

We expect the management challenges of this deal to be intense, but not insurmountable. Executive teams that are successful in high-growth mode rarely find success in turn-around mode. With revenues dropping precipitously, AOL is clearly a turnaround case if there ever was one. In this context, the executive to watch is not the eponymous Arianna Huffington, but the HuffPo co-founder Kenny Lerer. He is an experienced operating executive with a long stint in the previous (successful) incarnation of AOL. Beyond PR headlines, it is not clear how committed is Ken Lerer's participation in the newly merged entity. All too often, acquirers focus too much energy on the lead singer of the band, so to speak, and neglect the real talent that made the business successful.  Beyond this, it is logical to expect attrition amongst HuffPo leadership and technical/marketing talent, especially those that have been there since the start. Even if the remaining HuffPo team is exceptional (and we have no reason to believe otherwise), their daily schedules can quickly get disrupted by endless meetings characteristic of large companies like AOL.

Finally, for all the ra-ra talk of a vision match and a unique combination, the terms of the deal say everything.  When one side opts for cash, vision and commitment usually go by the wayside once the spotlight fades and the nitty-gritty of operating the newco takes center stage. Nothing says "Bye-Bye" to a business partner like a cash payout. If the HuffPo owners truly believed in the potential to create long-term value, they would have taken a greater than 25% of their payout in AOL shares.