Financial Technology, Data, and Analytics

Dear Clients and Friends,

The report found below gives our sense of the current m&a trends, values and deals in the four segments of the Enterprise Data and Analytics sector that we follow and sometimes lead. Please see below for detailed m&a statistics and deals.

A recent BCG study analyzed 37,000+ tech m&a deals over the past few years and concluded that only about half of them generated positive “Cumulative Abnormal Returns” (“CAR”). To us, that implies that acquirers are victims of chance. We beg to differ. Marines know that “luck” has little to do with success. Acquirers have the clear ability to materially increase the probability that their deals add value. They just need to follow some of the guidance in my book. Here are five rules:

Take the long view. The first chapter in my book is about having clear long-term strategic goals and aligning all tactics with that goal. It’s easy to say “buy the right company.” But how do you know? Picking a battle or targeting acquisitions is a science. It’s not just about what’s available. Picking a target that advances your firm towards that clear strategic goal is critical.

Know how to value what you are getting. A simplistic reason a company’s CAR may not be positive is that the buyer paid too much. But how do you know what is too much? Marines have their own way to value territory. It has nothing to do with “comparables” or “multiples”. The strategic value and cultural fit are worth more for some than for others. If it advances your strategy, it may be worth paying more – just not too much. It’s an art.

Plan for the integration. For bankers, the closing of a deal is usually the end of a process. For principals it’s a phase point. Detailed “backwards” planning is key to success. Marines know where they need to be and how they intend to get there. Too many buyers give short shrift to creating detailed post-acquisition plans. That’s dangerous.

Motivate the right people. Marines’ successes and those of successful Tech acquirers derive in large part from selecting and motivating the right people, not about cost synergies. Lose your key customer-facing people (enemy-facing) and disaster may loom; lose your leadership and your chance of success drops even more precipitously.

Execute with discipline. Marines know that successful execution requires clear assignment of roles and responsibilities; establishing measurable milestones and following up. Those who “wing it” are playing the lotto.

We don’t particularly like the CAR method – it relies too much on short term stock price movements. For us, the measure of success for tech m&a transactions is all about aligning tactics with strategy, executing with discipline and building long-term sustainable businesses. Those who do it right have a much higher probability of positive results. Don’t be a victim of chance.

A few of the more interesting deals this month include:

• Private equity funds managed by The Blackstone Group (NYSE:BX), Canada Pension Plan Investment Board and GIC agreed to acquire a 55% stake in the Financial & Risk business of Thomson Reuters, valuing the business unit at $20bn,
• SAP (DB:SAP) agreed to acquire Callidus for $2.4bn, valuing the company at an implied 10x LTM revenue,
• Igloo (Ontario, Canada) raised $47mm in a Growth Equity funding round led by Frontier Capital,
• Rubikloud Technologies (Toronto, Canada) raised $37mm in a Series B funding round led by Intel Capital,
• Usermind (Seattle, WA) raised $24mm in a Series C funding round led by Northgate Capital.

Please see our February Enterprise Data & Analytics Market Update below.