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M&A Update

|Includes:Novell, Inc. (NOVL), VOLT



We’ve had two transaction-hits in the past couple of weeks:


  1. NOVL – The long drawn-out affair appears to be coming to a finale. Attachmate will likely acquire the company for $6.10 in cash.

    Of our 25 Financial M&A Candidates for 2010 (based largely on our proprietary EV-to-Maintenance calculations), 3 transactions have closed, with NOVL in queue to be the fourth. This makes for a much lower hit-rate than our 30%+ average of the past 3-years.

    However, the basket has returned 27.6% year-to-date, more than double the 13% YTD return for the NASDAQ. On a market-cap weighted basis, the return is 35.2%, as the larger (and presumably more strategic) names continue to be the bigger winners. We would also note that TIBX, which grew itself right out of Financial M&A Candidacy, is now up 109% YTD (not included in our performance figures).

  1. VOLT – MLNX has announced its intentions to acquire VOLT for $8.75 in cash. We had VOLT as a key target for IBM or HP. As such, we find it interesting that MLNX pulled the trigger (particularly after having just announced ORCL’s strategic investment in the company). Not coincidentally, we added MLNX as a target for ORCL before either of these events.

    This makes the 12th acquisition from our list of 34 Strategic M&A Candidates since the initial list of 15 was released on 6/30/09. As a reminder, we creates this list in response to our belief that IT’s mega-giants would move toward becoming one-stop shops for data center infrastructure. Less than 18-months later, we’re seeing this thesis reaching critical mass. As such, we expect the M&A pace to continue.

    Performance-wise, the average holding period of our Strategic Candidates has been 359 days. The basket is up 65.5% on an annualized basis. The annualized transaction hit-rate is currently a robust 36%.

    As for the MLNX/VOLT transaction, analyst firm The 451 Group had this to say about it…

    “The move represents a consolidation of the two major players in the niche InfiniBand datacenter and HPC connectivity sector, though both companies have also been building out 10-Gigabit Ethernet product portfolios. It's likely that the deal was prompted behind the scenes by prominent Voltaire customer Oracle (Nasdaq: ORCL), which took a 10% stake in Mellanox worth about $70M at the end of October. Oracle uses Voltaire switches within its Exadata Database Machine, and may have been uneasy about the stability of Voltaire, which despite its well-regarded technology has posted losses for the past five years.

    QLogic remains Mellanox's primary rival, providing alternative silicon, switches and adapters, and gaining OEM traction with vendors – including Dell, HP, IBM and SGI – for quad-data-rate technology. However, InfiniBand represents only a small part of QLogic's business. Its main concern is 10GigE, for which it supplies converged network adapters and switches. The much larger opportunity for interconnects comes from 10GigE, where companies such as Arista Networks, BLADE Network Technologies (acquired by IBM in September for an undisclosed amount), Extreme Networks (Nasdaq: EXTR), Force10 Networks and Foundry Networks (picked up by Brocade (Nasdaq: BRCD) in July 2008 for $2.6bn) are all challengers to Cisco and Intel as datacenter shipments start to take off.”

It's been another great year for my M&A picks. You can find some more in my last portfolio update, here: