In our ongoing "Foolish Dealbook" series, we take a look at various SEC filings relating to Wall Street's biggest deals. Though the filings can be cumbersome and arcane, they do provide some great insights into the deal-making process.
So let's take a look at one of tech's biggest deals of the year: Hewlett-Packard's (NYSE:HPQ) $1.65 billion acquisition of Opsware (NASDAQ:OPSW), a provider of automation software for data centers.
How the deal got done
- Jan. 30-May 22: Opsware talked to five parties that wanted to buy. Company No. 1 (the name was not disclosed because of a confidentiality agreement) made a preliminary offer of $11 per share. At the time, Opsware was trading at $7.97 a share. However, Opsware thought the valuation should be at least $14 and, as a result, stopped the acquisition process.
- June 21: Company No. 1 came back to the table and offered $13.25. After further discussion, the company agreed to increase the offer to $14.
- July 6: To help with the process, Opsware hired Goldman Sachs as its financial advisor. In all, the firm would talk with 10 potential buyers.
- July 11: HP made an offer for $14.05. A week later, the bid went to $14.25. Despite further negotiation, there was no increase in the final offer price.
Valuation
Goldman's valuation analysis included two groups of companies. First, there were systems-management companies, which included BMC Software (NYSE:BMC), CA, Compuware, Novell (NASDAQ:NOVL), and Quest Software (NASDAQ:QSFT). Next, there were high-growth companies, including Akamai Technologies (NASDAQ:AKAM), Commvault Systems, Red Hat (NYSE:RHT), and Salesforce.com.
Let's look at the numbers.
| Metric |
Enterprise Value/Sales Multiples, 2007 Estimates |
|---|---|
|
Systems-management companies' range | 1.7-3.6 |
|
Systems-management companies' median |
2.6 |
|
High-growth companies' range | 4.6-14.5 |
|
High-growth companies' median |
7.3 |
Based on Opsware's 2007 estimates, the acquisition valuation stood at 7.6 times sales. That's far ahead of the systems players -- and pretty much in line with high-growth software companies. In other words, it looks as though Opsware got a competitive valuation.
The dealbook lowdown
I think HP's acquisition is smart. After all, Opsware is targeting a large market opportunity, which involves $120 billion in annual expenditures. With Opsware's technologies, companies can reduce their costs of managing data centers and should experience less downtime. The company is growing at more than 60% per year, has a strong technology platform, and boasts a roster of more than 350 customers. And with HP's large distribution platform, the company should be able to crank out a good amount of revenue from the deal.
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