HP today announced that they will acquire data warehouse and analytics platform provider Vertica of Billerica, MA. Cowen and Company estimated the price at 5x revenues, estimating that Vertica did $40M in 2010 revenues, suggesting a valuation of $200M which I find low. Frankly, I wouldn’t be surprised if it were twice that given the hotness of the space, the gradual opening of the IPO window, and the opportunity cost for Vertica of forgoing independent growth. See the bottom of the post for more math fun and guessing.
[Update: I have now heard valuation guestimates including “over $300M” and “north of $500M” so at this point I’m starting to get confused — rumors around valuation usually converge, not diverge. Yesterday, the 451 Group said they believed the price was $275M up-front with up to a $100M earn-out that can be earned over time through performance. This makes sense to me both in terms of valuation range and in terms of the confusion about valuation.]
This move follows on EMC’s July acquistion of Greenplum, rumored to be in the $400M range.
The move marks Leo Apotheker’s first big move as CEO of HP and — finally — gets HP into the data warehousing and analytics market in a real way. (Let’s not talk about NeoView which, for whatever reason, was never taken seriously in the market.)
Many folks, including me, thought HP missed their big chance to enter the DBMS and data warehousing markets by failing to scoop up Sybase back in May, which SAP did for $5.8B.
The move is probably a change in direction for HP’s software head, Bill Veghte, who joined HP in May from Microsoft, where he had spent his entire career after graduating from Harvard, and where he was most recently responsible for shipping Windows 7. Based on his background, I suspect that Veghte was going to head into data center, security, and infrastructure (a la the $1.5B acquisition of ArcSight in September). Perhaps Leo’s moves into data warehousing, analytics and presumably one day — enterprise applications — will complement, rather than replace, that more infrastructure-oriented strategy.
Yesterday, The Mercury News ran an interesting piece on HP’s new non-executive chairman of the board, Ray Lane, who was appointed at the same time as Apotheker, and who has already taken major steps to reshape HP’s board. Lane was instrumental in steering Oracle out of a financial crisis in the early 1990s and driving their growth throughout that decade.
I suspect this is HP’s opening move. There will be many more to come.
Guessing Vertica’s Size: $25 to $35M-ish
LinkedIn says Vertica has 96 employees. For West Coast companies this figure is usually quite accurate; let’s assume it is for Vertica. “Normal” productivity of $250K to $300K/head implies revenues of $24M to $33M. LinkedIn says Vertica has 36 employees in sales. If one of three of those are quota carriers, then you have 12 quota-carriers at “normal” productivity of $2M implying $24M. Alternatively, if you assume 15% of a enterprise software company’s headcount is quota-carrying that implies 15 quota carriers at $2M each yielding $30M. All of this is very back-of-the-envelop and breaks under high-growth rates.
Nevertheless, I’ll guess they are $25 to $35M in revenues, suggesting that a $200M exit would be 6-8x revenues and a $375M exit would be 11-15x, basically validating the possibility of $200M+ up-front price with a performance-based earn-out.
Wouldn’t be at all surprise if it was closer to 3X revenues. No way Vertica was going to be able to scale on their own (limited by go-to-market abilities), and I have my doubts if HP will be able to multiply it that rapidly. In any case, I think it was more of a firesale than you think.
My anecdotal data from folks who know the company well say they were doing “very well.” When you look at that supposed performance, combined with the Greenplum exit, combined with a generally hot space, combined with an explosion in data, I dunno — I don’t get firesale. But so far nobody really knows the numbers.
Gotta give Stonebraker credit for selling another one.
And congratulations as well. I meant to congratulate him in the post and didn’t. He has truly been a visionary in databases for the past 3 decades.
“Cowen and Company estimated the price at 5x revenues, estimating that Vertica did $40M in 2010 revenues, suggesting a valuation of $200M which I find low”
Our understanding is that your back-of-the-envelop calculation is more accurate and that the Cowen revenue estimate is high and valuation is low.
More details in our formal report later today. I’ll post the link when it is published.
Thanks Matt. I look forward to seeing your report. I have heard from others that the Cowan $200M is low and, as I mentioned, I wouldn’t be surprised if it were twice that. Splitting the difference suggests $300M which, by the way, I also heard from another source. Look forward to seeing your analysis. And we should all set alerts on the HP 10-Q because once in a while this kind of information, while undisclosed at deal time, slips into the filings.
The link to Matt’s report is available here: http://www.the451group.com/report_view/report_view.php?entity_id=66474
Sorry, forgot to post link. Glad you saw it anyway
I heard from a reader indicating that they thought Vertica was plus or minus $20M in revenue and who had a friend had heard a similar figure. Not miles off my $25M to $35M guestimated range and most of the feedback I’ve heard tends to suggest that my original $20M to $30M estimate was better.