Q1 2014 Storage M&A and Venture Funding Review

Q1 M&A was virtually non-existent with just two announced deals.  Both deals were smaller, cloud/SaaS consolidation deals with modest valuations.  There are a couple of factors worth mentioning that can be attributed to the dearth of M&A in Q1.   

  • Fundamental valuation disconnect between what strategic acquirers are willing to pay and the high funding valuations being won by storage start-ups.  Large incumbents are closely tracking disruptive start-ups and have M&A as a key part of their growth strategy.  They want to do deals but are finding it hard to match their valuation outcomes with what start-up management or investors think they are worth.  
  • Too early for many start-ups to consider M&A – Flush with new rounds of funding with product launches just occurring or soon to occurring
  • Buyers taking a wait and see approach – a storage “Bubble” in venture funding and planned IPO’s has led some buyers to take a wait and see approach

M&A will likely improve in Q2 and for the remainder of 2014 but will be below 2013 which had 25 deals worth $9.5B in consideration.  We do see some solid exits occurring in 2014 but expect things to really heat up in 2015 as many start-ups will approach an inflection point of going for the IPO “home run” or taking an early M&A exit.   

Storage related venture funding rolls on with $333M across 8 rounds with an average of $41.6M per round.  The quarter was dominated by Actifio, Nutanix and Tintri combining for $276M in funding, representing over 80% of the total funding for the quarter.    

2014 could easily be another billion dollar venture year, following 2013 and 2012, each with roughly a billion dollars in storage venture funding.  However, VCs will be closely watching the planned IPO’s for 2014 and also M&A exits to see if the market will support record setting later stage large rounds with record setting post-money valuations.   

For comments and questions, please contact John Rotchford, Managing Director at 760-944-3522 or john@sasillc.com.

2013 Storage Highlights

2013 M&A deal volume of 25 equals 2012 while total consideration jumps up to $9.5B, primarily driven by Avago’s Q4 purchase of LSI for $6.6B, representing 69% of the consideration for 2013.  In Q4 we also had Xyratex finding a home at Seagate for $374M and the “Hail Mary” merger of Tandberg and Overland. 

For the 25 transactions in 2013, the median deal size was $110M with a Price to Revenue Median of 5.0X.  There were 17 technology focused transactions with a median deal size of $98M and a Price to Revenue Multiple of 6.0X.  The remaining 8 transactions were business focused with a median deal size of $214M and a price to revenue multiple of 1.0X. 

In 2013 storage related venture funding was strong at $955M, a slight decline from 2012’s $978M.  The 43 rounds of funding had an average round size of $22.2M, similar to 2012’s $20.8M average round size for the 49 rounds.  2013 ended with two strong quarters of funding, $339M in Q3 and $249M in Q4, accounting for more than 60% of the year’s funding, which was driven by the Software and Systems segments. 

For the full report please contact John Rotchford, Managing Director, Strategic Advisory Services International, at john@sasillc.com.