Industry News – August 2016

A Little History of August in previous years

Five years ago, in August 2011, Hurricane Irene hit the US coast, there was a mini-market crash and the world’s economies continued to struggle. Google paid $12.5 billion for Motorola Mobility and IBM paid $387 million to add Algorithmics to its analytics portfolio, they also bought UK-based analytics company i2. Skype which was in the process of being merged into Microsoft, bought GroupMe, Bitly bought Twitterfeed and Citrix bought Ringcube. August 2012 was slow in the M&A space with IBM busiest, paying $1.3 billion for HR solutions and services company Kenexa, plus they bought flash memory developer, Texas Memory Systems. The other "big name" deal was Google’s purchase of social media marketing company Wildfire Interactive, reputedly for $250 million. Three years ago in August 2013, IBM paid $1 billion for Trusteer, a cybersecurity company specialized in the financial services sector; Qualcomm sold its fleet management software unit for $800 million to private equity firm Vista Equity Partners; and the other big dollar buy was AOL paying $405 million for online video company Adap.tv. Facebook bought speech recognition company Mobile Technology; Software AG bought analytics firm Jackbe; Opentext paid $33 million for cloud-based software company Cordys; and SAP bought ecommerce company Hybris. August 2014 saw no blockbuster deals; however, a number of big name companies were out with their cheque books. Intel paid $650 million for the LSI Axxia networking chip business; VMware bought application delivery provider CloudVolumes; IBM bought Lighthouse Security Group to bolster its cloud-based identity and access management capabilities; Google bought two startups, Emu to boost its messaging capabilities and Directr for its video advertising business; Facebook bought a security startup Privatecore, and the last BIG name saw Yahoo buying app company Zofari. Last year, in August 2015 there were two billion dollar deals. Symantec sold Veritas (which it paid $13.5 billion dollars for 10 years ago) to a group of investors for $8 billion. IBM also paid "big bucks", shelling out $1 billion for Merge Healthcare. Smaller deals saw Calgary-based Above Security bought by Hitachi; Transcomos bought 30% of Vietnamese daily deals site Hotdeal; Freshdesk bought live-chat company 1Click; and PLDT bought ecommerce startup Paywhere.

Which brings us back to the present

August 2016 saw a fair bit of M&A activity, although there were no billion dollar deals. The largest deal saw global staffing company Randstad buy one of the larger job boards, Monster for $429 million. A similar sized deal saw Intel shell out $408 million for artificial intelligence company Nervana. Hewlett Packard Enterprises paid $275 million for SGI (what was left of Silicon Graphics); Apple paid $200 million for artificial intelligence company (there is a pattern here), Turi; Salesforce bought business analytics company Beyondcore for $100 million; and ScanSource paid $83.6 million for telecom cloud services company Intelisys Communications.

Other acquisitions saw Microsoft snap up two companies, artificial intelligence scheduling software company Genee in addition to their XBox division buying interactive livestreaming company Beam. Nutanix is buying two companies to bolster its Enterprise Cloud Platform, Calm.io, a DevOps automation company and PernixData, which offers data analytics and acceleration capabilities. Other smaller deals saw Palantir, an analytics and consulting company buy data visualization startup, Silk; and Magnitude software is buying Vancouver-based, data access and analytics company Simba.

Cisco was in the news for more layoffs, announcing 5,500 people, approximately 7% of their workforce, will lose their jobs as the company switches its focus from hardware to software.

Economic indicators around the globe were not too bad, with the US still talking growth, albeit slightly slower than previously expected. Other markets generally saw positive numbers on employment, except perhaps Mexico and Canada (which lost 31,000 jobs in July).

A number of reports looking at emerging tech markets suggest that IoT, Cloud services and Video as a Service are all areas of growth and thus possible areas for investment.

In this Issue:

> General Interest
> Company News
> Merger & Acquisition Activity
> Primary Sources


> GENERAL INTEREST

General

The IoT Market Could Top $3 trillion by 2025, according to Machina Research’s annual report on the global growth of the IoT market. The total number of internet of things (IoT) connections is expected to grow from 6 billion in 2015 to 27 billion in 2025, a compound annual growth rate (CAGR) of 16%. The report is based on data extracted from the research firm’s IoT forecast database in August, finding total IoT revenue opportunity will be $3 trillion in 2025, a significant increase from the $750 billion in revenue the market saw in 2015. By 2025, IoT will generate over 2 zettabytes of data (1 zettabyte is equal to about 1 billion terabytes), mostly generated by consumer electronics devices, but it will account for less than 1% of cellular data traffic

Between now and 2020, worldwide spending on public cloud services is expected to soar to more than $195 billion, essentially doubling the revenue the industry is expected to generate by the end of this year, according to a new report from IDC. The report is an update to IDC’s "Worldwide Semiannual Public Cloud Services Spending Guide," originally published in January. The updated numbers show that the global compound annual growth rate of public cloud services spending will climb 20.4% from 2015 to 2020. For 2016, public cloud revenue is expected to reach $96.5 billion.

The video platform as a service (PaaS) market is forecast to grow from $60 million in 2016 to $1.7 billion in 2020, a 130% compound annual growth rate (CAGR), according to IDC. PaaS is a category of cloud computing services that provides a platform allowing customers to develop, run, and manage applications without the complexity of building and maintaining the infrastructure typically associated with developing and launching an app.

With the need to capture and analyze data growing at a phenomenal rate, the global big data management solutions market is expected to soar at a compounded annual growth rate (CAGR) of 12.8% between now and 2021, according to a Forrester Research report.

Canadians are among those who have fallen victim to a global ransomware-as-a-service scheme which targeted tens of thousands of users in 201 countries and territories in July alone, according to security researchers. The researchers at Check Point Software and InSights Cyber Intelligence of Israel released a report saying the service, which it calls Cerber, is currently running 161 active campaigns with a total estimated profit of US$195,000 last month alone. In July, an estimated 150,000 devices were infected. Each day, an average of eight new campaigns are launched, Check Point says.

The job indicators in Canada

Employment in Canada fell by 31,200 jobs in July from June, a 0.2% decrease, on a seasonally adjusted basis, Statistics Canada reported. Canada added 40,200 part-time jobs, but that was more than offset by a loss of 71,400 full-time jobs. And the unemployment rate rose to 6.9% in July from 6.8% in June.

The Canadian staffing index fell in July, continuing a trend of moderate year-over-year declines. The index, which measures staffing activity in Canada, fell to a reading of 103, down 4% from July 2015.

The job indicators in the US

Optimism about the US economy among certified public accountants who hold leadership positions in their companies — such as CEO, CFO or controller — rose since the last quarter, according to the third-quarter Economic Outlook Survey released by the American Institute of CPAs. Business executives are predicting an increase in corporate expansion for the coming year, but some remain cautious with hiring plans. The number of CPA executives who are optimistic about the US economy increased a point, to 38% from 37%, in the third quarter after declining to 28% in the first quarter of 2016.

US private-sector employment rose by 177,000 jobs in August from July, according to the ADP national employment report.

The US Conference Board’s consumer confidence index rose in August following a slight decrease in July. The index rose to a reading of 101.1 (1985=100) from a reading of 96.7 in July.

US real gross domestic product grew at an annual rate of 1.1% in the second quarter, according to the second estimate of GDP growth by the US Commerce Department. The new estimate is down from an "advance" estimate that pegged growth at 1.2%.In the first quarter, real GDP edged up 0.8%.

The four-week moving average for the ASA Staffing Index was 94.99, the highest four-week moving average so far this year, and was 0.52% lower than the comparable period of last year.

The Conference Board’s Leading Economic index for the US rose 0.4% in July to a level of 124.3 (2010 = 100) after rising 0.3% in June. "The US [Leading Economic Index] picked up again in July, suggesting moderate economic growth should continue through the end of 2016," said The Conference Board.

Forecasters lowered their estimate for US economic growth in the new third-quarter survey of professional forecasters. The forecast for employment growth also receded. US gross domestic product is now expected to grow 1.5% in 2016, down from a projection made by forecasters in the second-quarter report that called for growth of 1.7%. The forecasters also lowered their estimate of job growth in 2016. They now estimate the US will add 204,600 jobs a month in 2016, down from the previous forecast of 212,400 jobs per month.

The number of IT jobs in the US rose 0.2% in July from June to more than 5.1 million, reported the TechServe Alliance. On a year-over-year basis, IT employment increased by 3.5%, adding 173,900 IT workers. Growth for IT employment fell below 10,000 jobs for the first time this year, adding only 9,400 jobs during the month of July.

TechServe Alliance reported that engineering employment posted its best month since January, rising 0.2% in July from June to more than 2.5 million jobs. However, the year-over-year increase remains lackluster at 0.65%, adding only 16,500 engineering workers since July 2015.

The job indicators outside North America

Growth in real gross domestic product slowed to 0.3% in the OECD area in the second quarter from 0.4% in the first quarter. Five of the seven major economies tracked by the OECD slowed, the exceptions were the United Kingdom (pre-Brexit) and the US. Second-quarter GDP growth in the UK rose to 0.6% while growth in the US rose 0.3% compared with 0.4% and 0.2%, respectively, in the previous quarter. GDP growth in Japan fell to 0.0% in the second-quarter from growth of 0.5% in the previous quarter. In Germany, GDP growth fell to 0.4% from 0.7% in the previous quarter, and GDP growth in Italy fell to 0.0% from 0.3% in the previous quarter. In France, GDP growth fell to 0.0% from 0.7% in the previous quarter. 

Business confidence in Germany fell in August, according to the Ifo Business Climate index. The index declined to a reading of 106.2 in August from a reading of 108.3 in July.

Mexico’s economic output declined in the second quarter from the first three months of 2016, the first contraction in three years. The Latin American country’s gross domestic product contracted at a 0.2 per cent quarter-on-quarter pace, according to the country’s national statistics institute, slightly better than economists’ expectations and an earlier estimate of a 0.3 per cent decline. GDP was up by 2.5 per cent on a year-on-year basis, also slightly rosier than the prior reading of a 2.4 per cent rise. The Mexican peso was recently down by 0.5 per cent against the US dollar, adding slightly to its losses after the report’s release.

The Mexican economy shrank for the first time in three years in the second quarter, CNN reports. However, on an annual basis, Mexico’s economy still grew 2.5%, ahead of about 1% growth in the US.

The unemployment rate in Australia for the month of July fell to 5.7% from 5.8% in June, driven by a rise in part-time work, according to the Australian Bureau of Statistics. The total number of people with jobs rose by 26,200 in July, as the economy added 71,600 part-time jobs, which offset the loss of 45,400 full-time jobs, on a month-to-month basis.

Labour Market figures released by the Office of National Statistics (ONS) show the employment rate from the period of April to June 2016 was 74.5%, the highest since records began in 1971. There were 31.75 million people in work in the UK from the period of April to June 2016, 606,000 more than for a year earlier and 172,000 more than for the previous period January to March 2016. The statistics also showed that the unemployment rate was 4.9%, down from 5.6% a year earlier, its best showing since 2005.

The registered unemployment rate in Latvia for July remained unchanged from the previous month and was 8.3%, according to the State Employment Agency.

The unemployment rate in Spain has dropped for the fifth consecutive month in July and has reached its lowest level in 7 years as the tourist sector helped cut the number of jobless by nearly 84,000. The number of unemployed decreased by 83,993 persons to 3.68 million persons, the lowest figure since August 2009. The decline was the biggest for July since 1997. A year ago, the number of unemployed was 4.05 million.

The euro area (EA19) seasonally-adjusted unemployment rate was 10.1% in June 2016, stable compared to May 2016 and down from 11.0% in June 2015. This remains the lowest rate recorded in the euro area since July 2011.


> COMPANY NEWS

Cisco Systems announced layoffs of 5,500 people from its worldwide work base as it looks toward a future more focused on software and services. Cisco’s CEO Chuck Robbins will accelerate the company’s shift from being a hardware maker to becoming one that focuses on software and services. The restructuring allows Cisco to optimize its cost base in lower growth areas of its portfolio and further investment in key priority areas, such as security, IoT, collaboration cloud and the next generation data center.


> MERGER & ACQUISITION ACTIVITY

Randstad Buys Monster for $429M

Randstad Holdings, an Amsterdam-based human resources and recruitment specialist, announced that it would acquire job hunting portal Monster Worldwide, for $429 million in cash. Monster will keep its brand and will operate as a separate entity, but the bigger idea here is to consolidate different aspects of the recruitment and employment industry for better economies of scale and a "portfolio of HR services," in the words of Randstad. Monster is active in 40 countries, and had around 50,000 employers in its database according to its Q1 report.

Palantir Buys Silk

Analytics software and consulting provider Palantir has acquired Silk, a data visualization startup. Silk’s platform will continue to operate unsupported as the company’s team will join Palantir. Palantir, the privately-held data and analytics software and consulting company co-created by PayPal cofounder Peter Theil, is filling out its data visualization development team with the acquisition of startup Silk. Silk has dual headquarters in Amsterdam and San Francisco, and according to Crunchbase currently operates with between 11 and 50 employees.
Gartner’s Magic Quadrant for Business Intelligence and Analytics 2015 report described Palantir’s as "a next-generation analytical platform that blends machine learning with human intuition, enabling end users to intuitively ask questions of the data using their own mental model."

Microsoft Buys Beam

Microsoft’s Xbox division is acquiring Beam, an interactive livestreaming service, for an undisclosed amount. Beam’s service is unique because not only does it livestream games as they are being played, but it contains infrastructure that allows spectators to interact with players inside the game itself. Under the Beam system, spectators watching Minecraft, for example, can give players specific challenges or direct them to certain areas where the spectator has found an object the player was looking for. In other words, spectators can participate in the game play. The technology surpasses systems from competitors like Twitch, where spectators have to rely on a chat room to make suggestions and otherwise interact with the player.

Salesforce Pays $110 million for BeyondCore

Business analytics platform BeyondCore will be officially joining Salesforce, according to a blog post by BeyondCore CEO Arijit Sengupta. BeyondCore is an enterprise analytics tool that bolsters business intelligence with computational and statistical analysis. While Salesforce could have gone fishing and come up with a number of business intelligence companies to buy, BeyondCore was already integrated with the Salesforce platform. Sengupta founded BeyondCore back in 2004 and raised a cumulative $9 million in financing from Menlo Ventures in a Series A back in 2014.

ScanSource Pays $83.6 Million for Intelisys Communications, Inc.

Imaging solution provider ScanSource has announced its acquisition of Intelisys Communications, Inc. The deal is valued at $83.6 million plus earn-out payments based on EBITDA (earnings before interest expense, taxes, depreciation and amortization) over four years. With the acquisition, ScanSource expands into the telecom and cloud services market. It plans to build more tools to enable recurring revenue streams.
Intelisys was founded in 1994 and based in Petaluma, California, and its management team will remain in place, the companies announced.

HPE Pays $275 Million for SGI

Hewlett Packard Enterprise (HPE) has struck an acquisition deal that could boost its presence in the high-performance computing (HPC) and big data analytics markets. The vendor signed a definitive agreement to acquire SGI for approximately US$275 million. Silicon Graphics Inc., known for its HPC hardware and software products, ran into hard times a few years ago and filed for Chapter 11 bankruptcy protection in 2009. Many of its assets were sold to Rackable Systems, which renamed itself Silicon Graphics Corp. (it kept the SGI moniker). Currently, SGI has approximately 1,100 employees worldwide and had US$533 million in revenue during fiscal 2016. The new SGI built revenue back up following the acquisition, but as noted by a Business Insider article, its annual revenue has taken a hit in the last few years. Contrast its current revenue to its reported US$767 million in 2013, it’s a significant decrease.

Magnitude Software Buying Simba Technologies

Burlington, Mass.-based Magnitude Software is acquiring data access and analytics solution provider Simba Technologies of Vancouver, B.C. Simba is best known for developing the first standards based ODBC driver for Microsoft Windows all the way back in 1992. It was used first in Windows 3.1. Today Simba focuses on solutions for relational databases along with data connectivity not just for Windows but also the Mac platform and Linux.

Microsoft Buys Genee

Microsoft will soon be beefing up the scheduling capabilities of Office 365. The company signed an agreement this week to acquire Genee, an AI-powered scheduling service that a Microsoft blog noted is useful for large groups. With the acquisition, Genee co-founders Ben Cheung and Charles Lee will join the Microsoft team. Founded in 2014, Genee was designed to simplify scheduling and rescheduling efforts by applying artificial intelligence to the process. One way Genee customers currently use the service is to set up meetings even when they don’t have access to someone’s calendar.

Nutanix Buys Calm.io and PernixData

Nutanix plans to beef up its Enterprise Cloud Platform offering through the strategic acquisition of two companies. Nutanix completed the acquisition of Calm.io and has executed a definitive agreement to acquire PernixData.
Calm.io plays in the DevOps automation space, so Nutanix’s acquisition of the company will add new cloud automation and management capabilities to the Nutanix Enterprise Cloud Platform. The acquisition of PernixData, which is subject to customary closing conditions, will add new scale-out data acceleration and analytics capabilities to the Nutanix’s cloud offering. With PernixData on board, Nutanix plans to develop an advanced data stack to replace traditional storage silos and high-latency networks. The expected result is new storage-class memory and advanced interconnects.

Intel Pays $408 Million for Nervana

Intel announced plans to acquire Nervana Systems, a deep learning company based in San Diego, Calif. Financial terms for the deal were not disclosed, but Recode reports the deal is valued at around $408 million, citing "a source with knowledge of the deal." The chipmaker says it will use Nervana Systems’ expertise in accelerating deep learning algorithms to expand Intel’s capabilities in the field of artificial intelligence. Intel is getting serious about artificial intelligence, specifically as a driver of chip sales.

Apple Pays $200 Million for Turi

Seattle-based startup, Turi, is Apple’s latest purchase in a string of acquisitions aimed at bolstering its machine learning and artificial intelligence capabilities. Turi, offers a selection of tools aimed at helping developers easily scale machine learning applications, including Predictive Services, a server product for hosting and managing machine learning models, and GraphLab Create, an extensible machine learning framework that enables developers and data scientists to build and deploy intelligent applications and services.