January 24, 2014
2014 Outlook: Tech M&A Expected to Heat Up
The tech M&A machine is humming once again and we expect consolidation to
continue across various segments in the year ahead.
The announcement in the middle of last month that Oracle (ORCL) would pay a 38%
premium to acquire Responsys (MKTG, $26.99) in a $1.5-billion, all-cash deal at
$27 a share renewed chatter that Marketo (MKTO, $41.22), a competitor in the
cloud-based marketing automation space, could be scooped up by a larger vendor as
well. See last issue (Tech-Stock Prospector--#142) for more on both companies.
Since the Responsys acquisition was announced, Marketo shares have jumped 25%
and hit a new all-time high. Responsys shares at one point even traded slightly
above Oracle’s offer price on speculation that SAP (SAP) could make a rival bid.
With all of this excitement comes frothiness, with Marketo now sporting a forward
price-to-sales (P/S) ratio of 12.5, vs. 5.7 for Responsys at the acquisition price.
Constant Contact (CTCT, $29.32), a provider of cloud-based B2C marketing tools
used mainly by smaller businesses, has seen its shares rebound 149% from the April
low of $11.75. The company isn’t as sexy as the B2B players (the 2014 consensus
revenue estimate of $321.4 million indicates growth of less than 13%), but Constant
Contact is profitable (2014 EPS is expected to be up 28% to 94 cents) and the
forward P/S multiple is just 2.8.
Over in the IT security segment, FireEye (FEYE, $69.52), one of our 7 TSP Tech
Disruptors for 2014, caused a lot of disruption just two days into January when it
announced the $1.05-billion purchase of privately held Mandiant, a cybersecurity
While shares of the acquiring company don’t usually jump in a buyout, FireEye’s
surged 38% in one session (adding $1.9 billion in market cap), as investors
applauded the strategically sound nature of the deal.
Since the Mandiant purchase was announced, FireEye shares have gained as much
as 83%, recently hitting a new post-IPO high of $75.24.
Mandiant, with revenue growth of nearly 60%, provides FireEye with a beefed-up
advanced threat protection portfolio at the endpoint. With Mandiant, FireEye’s 2014
revenue guidance range was ratcheted up: $400 million to $410 million (growth of
50% at the midpoint) from $200 million to $240 million previously. Billings
guidance went to $540 million to $560 million (42% growth at the midpoint) from
$350 million to $370 million for FireEye standalone.
For more on our latest thoughts on the current tech M&A scene and likely takeover
candidates, check out the January 2014 issue of Tech-Stock Prospector.
Download the latest issue of Tech-Stock Prospector to your Amazon Kindle or
Kindle for iPad/iPhone reading app here:
Here are some of the topics covered in the January 2014 issue:
*Top potential takeover targets in tech for 2014
*An update on the continued land grab in marketing automation
*How FireEye could spur more cybersecurity M&A
*Might Cisco Systems make a sizable acquisition to help jumpstart growth?
*A small-cap name that’s big in enterprise vulnerability management
*Proofpoint builds its targeted attack prevention business
*New growth drivers for ServiceNow in cloud-based IT management
*Digital-advertising play: Marin Software
*Cornerstone OnDemand stays competitive in talent management
*Qlik Technologies is ready to ride the data visualization wave
*Aruba Networks looks well positioned for the WiFi upgrade cycle
*Adobe Systems continues its move to the cloud
*Behind the big sales force reorganization at Symantec
*Demandware brings the cloud to digital commerce
*Why some savvy money managers like SolarWinds
*Nimble Storage is ready to take on the big legacy vendors
*Wall Street analysts keep boosting their Yahoo price targets
*Is Fortinet primed to execute again after naming a new CFO?
*Deal Report: RetailMeNot sees growth in digital coupons
Order the January 2014 issue of TSP here:
Tech-Stock Prospector Managing Editor Rob DeFrancesco has more than 20
years of experience covering the tech sector. He is a former senior writer with
Louis Rukeyser’s Wall Street.
TechStockProspector.com, launched in 2003, is an investment-research service
focused primarily on the networking, storage, security, wireless and software
sectors. For more information or to sign up for the service (includes intraday
research/analysis/commentary via the website and a monthly PDF newsletter),
call TSP Customer Support: 800-392-0998.