Topics of Interest Archives: Private Equity

Informatica, Permira, Canada, and $5.3 Billion Dollars

OhCanadaToday, Informatica announced a definitive agreement to be acquired by a company controlled by the Canada Pension Plan Investment Board and the Permira funds for about $5.3 billion. This agreement has been hinted at for the last couple of months as rumors abounded about Informatica as a private equity target.

As the market leader in data integration and a company that Blue Hill has covered closely, the Informatica acquisition is interesting as a key event in the data integration and data management markets. Although Blue Hill is not a financial analysis firm, we believe that the potential valuation of Informatica is an important marker for the perceived value of Big Data and the Cloud. In that regard, we’re interested in how this works out.

So, what kind of a valuation does Informatica deserve in a fair and just world? First, we’ll note that Nomura Securities recently gave a downgrade to Informatica yesterday under the assumption that Informatica has met the target price based on reaching a target price of $45. However, the acquisition offer prices Informatica at about $48.75 per share. Is this justified by the current state of Informatica as a business?

We’ll start with the technology, where we actually spend our time. Over the past several years, Informatica has truly turned over a new leaf with the development of self-service enabler Rev, data security product Secure@Source to accompany data masking acquisitions, the acquisition of product information management vendor Heiler, and a significant internal investment in cloud services that has resulted in a roughly 50% growth in software subscription revenue year over year. Between these products and Informatica’s other substantial investments in its data integration and management products (adding up to a total of 17% of revenues being reinvested into R&D), Blue Hill believes that Informatica’s product investments are significant and keeping pace in a highly competitive and evolutionary Big Data world.

In contrast, Blue Hill believes that TIBCO has made a variety of smart acquisitions over the past three years including

* LogLogic for log and security intelligence
* Maporama for geographic intelligence
* Streambase for high performance event processing
* Extended Results for mobile business intelligence and
* Jaspersoft for cloud-based business intelligence

Informatica’s intended purchase is for $5.3 billion whereas TIBCO, a competitor similarly acquired by private equity, ended up being acquired for $4.3 billion despite being similarly sized. To figure out why, Blue Hill took a quick look at an apples-to-apples comparison of recent revenue.

TIBCO and INFA revenues

TIBCO and Informatica had a one month difference in measuring quarterly results as public companies, but their performance as this summer shows a starting point for comparison. Both companies saw challenges growing software revenue from 2013 to 2014 due to European currency challenges, but Informatica showed more consistent revenues across all of their categories from 2013 to 2014. The one big anomaly would seen to be in TIBCO’s rapid subscription revenue growth from 2013 to 2014, but this can largely be explained through TIBCO’s acquisition of SaaS BI provider Jaspersoft in April 2014.

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In this head-to-head comparison, Informatica is making greater strides in moving to a subscription revenue model, growing service revenues, and maintaining existing software license revenue from year to year. Again, with the caveat that Blue Hill is a technology analyst firm and not a financial analyst firm, the numbers seem fairly clear that Informatica was executing well on its evolution to the cloud and to maintaining client subscription revenue and loyalty.

Ultimately, Blue Hill believes that the Informatica acquisition is an interesting opportunity for private investors to treat Informatica like Dell: a company free to grow and innovate without the quarter-to-quarter pressures of dealing with specific revenue targets. Given the innovation across both Informatica’s cloud delivery and product launch efforts over the past several years, Blue Hill hopes that Informatica’s new overlords see the wisdom of allowing Informatica to continue along its current path of transformation from traditional enterprise application provider to the future of cloud-based information management and integration.

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