IT Industry News – January 2016

January 2016 saw the continued challenges in the Canadian economy stemming from low oil prices, a weak dollar and relatively high unemployment, particularly in the oil patch. Canada did add 23,000 jobs in December but the unemployment rate remained at 7.1%. The US continues to add jobs, a record 257,000 private sector jobs in December, although there are also some signs that the growth is slowing down.

On the M&A front there were no huge deals, but there was plenty of activity with some of the household names out shopping. IBM bought video service provider Ustream; Microsoft bought game-based learning tool MinecraftEdu; Apple bought "emotion recognition" company Emotient; and Oracle bought media web tracking firm AddThis. Toshiba bought an ERP solutions company Ignify, and a number of smaller deals included Juniper Networks buying BTISystems Inc.; Fireeye bought iSight partners; Acceo Solutions bought Groupe Techna and Smartprint bought LaserCorp’s Toronto-based managed print services business.

There were a number of interesting funding announcements with IoT company Foresight Technologies raising $76 million; Cybersecurity firm Malwarebytes raised $50 million; SaaS security company EiQ Networks raised $30 million and several other up and comers raised between $7 million and $25 million.

In other news Xerox announced it would be following a trend, and splitting into two separate public companies; Microsoft announced a one billion dollar philanthropic endeavor donating cloud services to non-profits, and worldwide IT spending took a bit of a dive in 2015 and it is expected that it will be 2019 before we see 2014 levels of spending again.

In this Issue:

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


> GENERAL INTEREST

General

After a sluggish year of information technology spending in 2015, worldwide IT investment is likely to grow 0.6% this year to reach $3.54 trillion dollars, according to a report from Gartner. Gartner researchers concluded that that it will take to 2019 to reach the IT spending levels the world saw in 2014. Last year saw the largest US dollar drop in IT spending since Gartner began tracking IT spending, with a $216 billion spending drop from 2014 to 2015.

The United States ranked fourth internationally for the second consecutive year in producing, retaining and attracting talent, according to the third edition of the Global Talent Competitiveness Index. Canada ranked ninth. The index features 109 countries and measures a nation’s competitiveness based on quality of developed and acquired talent combined along with the range and strength of skills available within the labor market. It is published by INSEAD and based on research in partnership with the Adecco Group and the Human Capital Leadership Institute of Singapore. The top three countries, Switzerland, Singapore and Luxembourg remained the same as in 2014. European countries dominated the rankings, as they did in the prior two reports, taking seven of the top 10 spots:

The economy – Canada

Statistics Canada reported the employment edged up 23,000 (+0.1%) in December and the unemployment rate was 7.1%, unchanged from the previous month. Following employment growth of 0.4% in the first quarter of 2015, the pace of growth slowed to 0.2% for each of the subsequent three quarters. In the 12 months to December, employment gains totaled 158,000 or 0.9%, slightly above the growth rate of 0.7% in both 2013 and 2014.

The Royal Bank of Canada’s Canadian manufacturing purchasing managers’ index fell to a reading of 47.5 in December, below the neutral 50.0 value in December for the fifth consecutive month, reflecting the sharpest deterioration in overall conditions since October 2010. The index fell to a reading of 47.5 in December from 48.6 in November. The latest PMI reading was the lowest in more than five years of data collection, largely reflecting weaker contributions from the output, new orders and employment components. "Business conditions in the Canadian manufacturing sector fell at a survey-record pace in December as weaker domestic demand and ongoing uncertainty in the energy sector continues to take its toll."

The Canadian staffing index fell in December, continuing a trend of moderate year-over-year declines. The index, which measures staffing activity in Canada, fell to a reading of 100 in December, down from a reading of 101 in December 2014. The index value of 100 corresponds to the size of the industry in July 2008, when the index began.  "Throughout 2015 we have observed a trend of moderate year-over-year declines in the Canadian Staffing Index," said David Francis, research analyst at Staffing Industry Analysts. "This trend continued in the month of December, while the number of working days remained constant year over year."

The economy – USA

The US manufacturing sector contracted for the second consecutive month in December, according to the Institute for Supply Management’s purchasing managers’ index for US manufacturing. The index fell to a reading of 48.2 in December, down from November’s reading of 48.6. Readings above 50.0 indicate expansion. Bloomberg reports the reading fell below the median forecast of 49 in its survey of 72 economists. Factories, hobbled by sluggish global growth, cut staff at the end of 2015. "As the impact of the strong dollar and weak global demand continues to play out, it’s no surprise that we’re seeing these kinds of sub-par prints in manufacturing," said Millan Mulraine, deputy head of US research and strategy at TD Securities LLC in New York, whose projection tied for the closest in the survey. "As low energy prices continue to have an impact on the energy sector, then we’re likely to see a weak showing in manufacturing for a long time." The employment portion of the index fell to a reading of 48.1 in December from 51.3 in November, also reflecting contracting employment levels.

US private sector employment rose by 257,000 jobs in December from November, the largest monthly increase for the year, according to the ADP national employment report. December’s jobs gain is an increase from November’s 211,000 additions. Overall, the average monthly employment growth was just under 200,000 for the year compared to almost 240,000 jobs per month in 2014. Weakness in the energy and manufacturing sectors was mostly responsible for the drop off.

The Conference Board’s US employment trends index rose in December to a reading of 129.33 from November’s reading of 128.27, which was revised slightly downward. The December reading is up 2.6% from the same month a year ago.  "The employment trends Index rebounded sharply in December, nearly erasing November’s entire decline," said Gad Levanon, managing director of macroeconomic and labor market research at The Conference Board. "However, the slowdown in the [economic trends index] growth rate in recent months, combined with weak GDP growth in the fourth quarter, suggests that the pace of job growth is likely to slow in the coming months." December’s increase in the economic trends index was driven by positive contributions from seven of the eight components, with temporary employees the largest positive contributor.

The Conference Board’s US leading economic index edged down in December but continues to suggest moderate growth in the near-term. The index fell 0.2% in December to a reading of 123.7 (2010 = 100), following increases of 0.5% in both November and October. "The US [leading economic index] fell slightly in December, led by a drop in housing permits and weak new orders in manufacturing," said Ataman Ozyildirim, director of business cycles and growth research at The Conference Board. "However, the index continues to suggest moderate growth in the near-term despite the economy losing some momentum at the end of 2015. While the [leading economic index’s] growth rate has been on the decline, it’s too early to interpret this as a substantial rise in the risk of recession."

The National Association for Business Economics’ January 2016 business conditions survey indicates employment conditions remain stable and pay hikes have spread to more firms, despite stagnant growth in sales and profit. "Wage and salary increases are becoming more widespread, according to panelists in the January 2016 NABE Business Conditions Survey, even as sales growth and hiring at their firms flatten and they trim their expectations for expansion in the overall economy," said NABE President Lisa Emsbo-Mattingly, director of research, global asset allocation at Fidelity Investments. "Nearly half of respondents — the largest share in over a decade — say their firms had increased pay in the past three months, and an even higher share anticipates pay to go up in the first quarter of 2016. Meanwhile, there was little change in the percentage of respondents whose firms experienced — or expect — a quarterly increase in sales or employment. For the first time in three years, more than a quarter of panelists expect real gross domestic product to increase by just 2% or less in the next four quarters."

The American Staffing Association’s index measuring employment in the US staffing industry for the week of Jan. 11 to Jan. 17 rose 1.16% from the previous week. However, the index was down 2.50% from the same week last year. The index value was 93.78. In 2015, the index had 19 consecutive record high weeks out of the first 20 weeks of the year. While the index’s growth slowed in the second quarter, values remained relatively strong in the third quarter and rose to 103.29 in week 50 — the highest value for the year.

The outlook among American workers as measured by Randstad’s US employee confidence index was little changed and remained high in the fourth quarter. The index edged down slightly to a reading of 61.6 in the fourth quarter from 61.8 in the third quarter, remaining near record high since the survey’s inception in 2004. The index measures workers’ confidence in their personal employment situation and optimism about the economic environment. It’s based on a survey of 2,024 employed US workers conducted in October and December. Randstad reported 34% of workers believe more jobs are available and 55% indicate they are confident in their ability to find a new job.

US real GDP ended 2015 on a weak note. It increased at an annual rate of 0.7% in the fourth quarter, down from 2.0% in the third quarter, according to an advance estimate from the US Bureau of Economic Analysis.


> COMPANY NEWS

Microsoft’s newly-formed unit, Microsoft Philanthropies, says it will donate $1 billion worth of cloud services to non-profits and university researchers over the next three years. "Microsoft is empowering mission-driven organizations around the planet with a donation of cloud computing services — the most transformative technologies of our generation," said Microsoft. "Now more than 70,000 organizations will have access to technology that will help them solve our greatest societal challenges and ultimately improve the human condition and drive new growth equally."

Facebook announced that it plans to open its second European data center in Clonee, Ireland. The town, which sits right outside of Dublin will play host to Facebook’s sixth data center overall. Construction will start soon and the new facility will go online sometime in late 2017 or early 2018.

Parse, a set of tools for mobile developers that Facebook acquired for $85 million in April 2013, announced it’s winding down its services and will be fully retired by January of next year. "We know that many of you have come to rely on Parse, and we are striving to make this transition as straightforward as possible," Kevin Lacker, co-founder of Parse, said. "We enjoyed working with each of you, and we have deep admiration for the things you’ve built. Thank you for using Parse." Developers used Parse thanks to its cloud-based scalable cross-platform services and tools for building apps for both iOS and Android. Since Parse was acquired, it has added an analytics dashboard measuring custom-designated events, new cloud modules for facilitating the integration of a Parse-made app with third-party services, and a library of low-level code dubbed "Bolts" for speeding up the design and development of mobile apps. Big names that use the service include Quip, a productivity app, and Expedia’s Orbitz travel website. Facebook has apparently had a change of heart about offering services outside of its bread and butter ad sales, which generated record profit last quarter.

Xerox confirmed reports that it would split its services business and legacy hardware operations into two separate, publicly-traded companies. Xerox said the separation will create an $11 billion document technology company with 40,000 employees, and $7 billion Business Process Outsourcing (BPO) company. Xerox and the new BPO company will also initiate a three-year restructuring plan in an aim to produce $700 million in annual savings in 2016 and save $2.4 billion across all segments. "Today Xerox is taking further affirmative steps to drive shareholder value by announcing it will separate into two strong, independent, publicly traded companies," said Xerox chairman and CEO Ursula Burns, in a statement. "These two companies will be well positioned to lead in their respective rapidly evolving markets and capitalize on the opportunities that now exist to expand margins and increase market share." The spinoff is in part the result of pressure from billionaire investor Carl Icahn. Icahn acquired 8.13 percent stake in Xerox at the end of last year, positing that the shares were grossly undervalued. As part of the spinoff deal, Icahn has bartered himself the ability to select three board members for the BPO business. The activist investor will also select someone to "observe and advise" the search committee for the next chief executive of the new company. The spinoff puts Xerox alongside a bevy of other legacy corporations that have succumbed to pressure to split up or pare their operations. Icahn notoriously led the charge to break eBay and PayPal into two companies. That split came to fruition last July. Xerox held a strategic review of its business portfolio last October, and at the time Burns favored keeping the company together. But Xerox has seen revenue decline for multiple quarters, likely making the pressure from investors and the company’s sinking bottom line too much to bear.


> MERGER & ACQUISITION ACTIVITY

IBM has acquired video service provider Ustream to form a new Cloud Video Unit. Ustream, a San Francisco-based company of over 180 employees with offices also in Los Angeles and Budapest, is well-known in the video industry. It is, perhaps, best known for providing live game streaming services for Sony’s PlayStation 4. "Today’s news marks a big bet for IBM’s Cloud business, as it launches a new Cloud Video Unit to address the exploding cloud-based video market." With the deal, IBM will acquire clients including HBO, the NFL and the Discovery Channel.

SmartPrint Inc. has purchased LaserCorp’s Toronto managed print services practice for an undisclosed amount. LaserCorp is an HP managed print advanced specialist solution provider. The company has been servicing the Toronto and Montreal areas since 1990 standardizing on HP LaserJet equipment. LaserCorp has more than 100 mid-market professional services clients in industries such as legal, finance and accounting. The integration plan now will see the technical service team at LaserCorp join SmartPrint.

Montreal IT provider Acceo Solutions Inc. has acquired Groupe Techna Inc. (GTechna) and GTechna USA. The latter, based in St-Laurent, QC develops automation systems for municipal organizations including parking management, law enforcement, police, public works, and has clients in North America, Mexico, Australia and Malaysia. "As part of a shift toward digital court processes, Acceo aims to extend its municipal services to other sectors, such as justice," the company said. "The acquisition of GTechna is an important step forward in the field of law enforcement and public safety." The company said that the acquisition would help it grow in markets including Quebec and elsewhere in North America as well as in the municipal sector. As it stands, the solution provider claims to have about 1,000 employees in offices in Montreal, Dorval, Quebec City, Sherbrooke, St-Hyacinthe, Toronto and Winnipeg.

Juniper Networks has purchase Ottawa-based BTI Systems Inc., a provider of cloud along with metro networking solutions. According to Juniper, this acquisition will enable the company to further its open and automated packet optical transport solutions. These solutions are integrated into the NorthStar Controller product. With BTI in the fold, Juniper plans to position themselves as the go-to vendor for data centre interconnect (DCI) and metro networking customers.

Microsoft is acquiring a learning tool called MinecraftEdu from Teacher Gaming LLC.  Microsoft is not buying Teacher Gaming itself, but only the MinecraftEdu line from Teacher Gaming, which will continue to do business in Finland and New York City. The MinecraftEdu acquisition is a follow-up to Microsoft’s acquisition of the Swedish-based Mojang, the maker of Minecraft, for $2.5 billion in September 2014. Minecarft has been the the highest-selling paid app on iOS and Android. MinecraftEdu is a learning tool in game form. It’s a version of Minecraft specifically tuned for classroom use. Teacher Gaming’s site describes the software as made by teachers, for teachers. Microsoft plans to build out Minecraft Education Edition, based on MinecraftEdu, and launch a free trial of the product this summer. The Microsoft Ventures accelerator program hunts for fast-growing startups in need of mentoring, software and support.

Cybersecurity technology developer FireEye has bought global cyberthreat researcher iSight Partners. Based in Dallas, iSight brings under FireEye’s roof a threat-intelligence platform that monitors cybercriminals in all corners of the world with the aim of warning customers before debilitating attacks are even launched. Dave DeWalt, FireEye’s CEO, said on an investor call discussing the acquisition that iSight gives FireEye an "attacker view" of cybercrime. That complements the "victim view" delivered by subsidiary Mandiant, and its own "machine view" of cybercrime — a combination that adds up to "nation-state-grade intelligence infrastructure" for stopping cyberattacks. FireEye, based in Milpitas, Calif., paid $200 million in cash, with an additional $75 million in performance-based earn-out value for iSight shareholders — $41 million in cash and 1.8 million shares of FireEye stock.

Hitachi has taken another step in its quest to becoming a top Microsoft Dynamics Partner. The Japanese company, whose American branch has offices in North York, ON, has acquired Ignify, a solution provider for the ERP platform based in Long Beach, CA. According to Hitachi, the acquisition expands its "global delivery model in Asia Pacific, deepens IP portfolio, strengthens retail and other industry solutions, and furthers Microsoft strategic partnership." Ignify is a multinational solution provider that specializes in Dynamics AX, CRM, and AX for Retail Point of Sale solutions. It has offices in the U.S., India, Philippines, Singapore, Thailand and Japan. Among its core products are B2B and B2C e-commerce platforms.  The acquisition, effective immediately, will see Ignify operate under Hitachi’s Business Solutions Group.

Redwood City-based hardware and enterprise systems giant Oracle Corp. has signed an agreement to purchase Virginia-based media web-tracking firm AddThis. AddThis CEO Richard Harris said that the "proposed acquisition will help us turbocharge our mission to make the web more personal, and we couldn’t be more excited." "All kudos go to our talented employees, who have developed amazing website marketing products used by more than 15 million websites around the globe," Harris wrote. Since AddThis was founded in 2004, its orange plus logo has become a fixture throughout the web, allowing people to share content across their various social networks. In acquiring the company Oracle plans to incorporate AddThis into Oracle Data Cloud, its Data as a Service (DaaS) business which allows marketers to measure consumer behavior across media channels, then harness the data collected for targeted, personalized campaigns.

Apple has acquired San Diego-based startup Emotient, which specializes in emotion recognition products. Apple declined to elaborate on the deal or what Apple’s future plans for Emotient might be. However, this Apple acquisition does fit in with several other moves the company has made in the last several months that point to a larger strategy that will bring more artificial intelligence into everyday life. In November, Apple quietly bought Faceshift, a specialist in facial recognition and rendering technology, which fits in with the Emotient deal. Earlier, in October, Apple acquired Perceptio, which has developed deep learning and AI capabilities, which could be added to Siri. Emotient provides an application programming interface (API) that enables real-time emotional analysis and offers highly accurate readings of positive, negative, and neutral emotions based on cognitive science, machine learning, and computer vision. This API measures 28 facial action units, including eyebrow raises, nose wrinkles, lip curls, and jaw drops, according to Emotient’s website. In addition to wide smiles and angry nostril flares, the company’s flagship service, Emotient Analytics, detects "microexpressions" like flashes of disgust or contempt.

Malwarebytes has secured $50 million in funding from investment firm Fidelity Management and Research. The cash injection was raised in a Series B funding round. Malwarebytes intends to use the cash to hire new engineers and security specialists, enhance research into the cybersecurity threat landscape, and as a means to advance sales and product initiatives. The fresh investment follows sales figures released by Malwarebytes last year. In December, the antivirus provider said the company had reached over 100 percent growth in 2015 annual revenue, and enterprise product sales had doubled. In addition, the company is currently enjoying its 31st consecutive positive cash flow quarter. At the time of the announcement, Marcin Kleczynski, CEO of Malwarebytes, said that while the company is best known for consumer products, the fastest growth was experienced in the enterprise realm, where "companies have realized that ‘removal and remediation’ must be a part of your security arsenal." It is likely that at least part of the new funding round will go towards enhancing these enterprise sales.

Network security startup Fireglass just announced the close of a $20 million Series A funding round led by Lightspeed Ventures and FireEye investor Norwest Venture Partners. Fireglass is one of a bevy of cybersecurity upstarts with roots in Israel. The region has become a hotbed for next-gen security technology, and an apparent go-to spot for M&A prospects. A few Israeli tech deals with the last year the Microsoft acquisitions of Secure Islands and Adallom, the ARM acquisition of Sansa Security, and PayPal’s acquisition of CyActive. As for Fireglass, the startup has offices in New York but runs its research and development operations out of Israel. The firm plans to use the funding to expand its R&D efforts, as well as its sales and marketing teams in North America and Europe. Fireglass claims to use "no-compromise military approach" to enterprise security, with a focus on cyber attack prevention and risk management. The company was founded by former Check Point Software exec Guy Guzner, and Dan Amiga, who comes from a background in Israeli military intelligence.

ForeScout Technologies raised $76 million in a late­state funding round that valued the Campbell, Calif.­based security vendor at more than $1 billion. The funding round was led by Wellington Management Co. LLP and adds to the $80 million the company had raised to date. ForeScout has been averaging 50% year­over­year growth annually and exceeding that in 2015, with 77% revenue growth, to $125 million, according to the company. The company’s technology looks to capitalize on the exploding Internet of Things market, providing an agent­less visibility and enforcement security solution for all connected devices

EiQ Networks is the latest startup to benefit from a flow of funding entering the security industry, landing $9.55 million in Series C funding that it says it will put toward growing its channel efforts around midmarket partners. The new funding, led by Arrowroot Capital, brings the company’s total funds raised to around $30 million. Based in Boston, EiQ Networks offers a series of hybrid Software-as-a-Service security solutions aimed at helping midmarket customers get their security posture up to par with larger, better funded enterprises. The SaaS service includes critical security controls auditing, co-managed SIEM and log management, continuous vulnerability management, 24/7 security monitoring, incident analysis and remediation guidance, and compliance reporting.

Shape Security has raised $25 million in additional venture capital as it preps to expand into China. The security company, which specializes in thwarting automated Web and mobile attacks, came out of stealth mode two years ago with a Shape Shifter appliance. Shape now protects 355 million user accounts across Fortune 500 companies. The company also announced a mobile version of its Botwall Service. According to Shape, which has raised $91 million in funding to date, the plan is to expand in China with an initial focus on protecting e-commerce. One of the participants in the most recent funding round for Shape is Beijing-based Northern Light Venture Capital. Shape counts airlines, financial services companies, retailers and government entities as customers. As for the Shape Botwall Service for Mobile, the company said it is deployed and protecting more than 10 million users for one of the top 5 mobile commerce apps.

MindTouch, which provides optimization for help and customer product content, said it has raised $12 million in its first round of outside funding from PeakSpan Capital, SK Ventures and SAP. The startup, which to date was bootstrapped by founders Steve Bjorg and Aaron Fulkerson, said it will use the funds to develop its products, build out its marketing, sales and engineering teams and integrate with partners Salesforce, SAP and Zendesk. In a nutshell, MindTouch aims to unify content to get customers answers faster whether they come in via phone, search or a store location. Often customers have to navigate everything from user guides to reviews to FAQs and knowledge bases. MindTouch counts Whirlpool, MakerBot, Remington and Docker as customers. The concept behind MindTouch is interesting given that it aims to turn product content into selling assets. According to MindTouch’s Fulkerson, help content can be used as a customer engagement tool.