It’s not often that integration vendors make major headlines, but Informatica did just that Tuesday when it became the largest buyout of the year, accepting a $5.3 billion offer from Canadian Pension Plan Investment Board and private equity firm Permira Funds. The deal will shift Informatica from a publicly traded company back to being private.
The deal comes out to $48.75 cash for each share of Informatica. Not surprisingly, the company’s stock prices rose 4.3 percent Tuesday to $47.79, Reuters reported.
Besides the fact that this is the biggest buyout of the year — easily topping the $2.8 billion acquisition of Life Time Fitness — this is big news for the financial sector for two reasons. First, the buyers were outside the U.S., leading some to criticize that financial regulations are essentially locking U.S. banks out of these deals.
“The buyout of the enterprise software firm Informatica is the biggest private equity deal of 2015 and the latest in a string of deals dominated by international investors that are turning U.S. private-equity firms green with envy,” Business Insider reports. “That's because U.S. investors have been sidelined by leverage regulations on U.S. banks. The banks helped raise capital for these deals, but now there's a limit on how much debt they can underwrite.”
As a result, U.S.-based private equity firms are banished from “the Garden of Leverage,” the piece opines, while international banks and foreign buyers reap the big deals. On the other hand, Forbes notes that this was a club deal — a method of deploying capital popular in the 2007 private equity deal boom that lead to lawsuits against some equity firms in the aftermath.
Second, the Informatica acquisition represents private equity’s new interest in technology companies, “a sector that buyout firms traditionally have avoided,” Forbes reports. So that’s why this is big news for financial markets.
For CIOs and other data-minded business leaders, it leaves other questions. What does this mean for the data management market as a whole? And will anything change for Informatica’s customers? One opinion is that Informatica’s acquisition, coupled with last year’s leveraged $4.3 billion buyout of TIBCO, is a sign of the times — specifically, the shift from on-premise to cloud-based infrastructure.
“Informatica and TIBCO were leaders in the on-premise integration market, but they have struggled to develop true cloud-focused solutions that deliver the scale, speed and reliability that companies need to conduct business in real time,” said George Gallegos, CEO of cloud integration vendor Jitterbit, via email. “It will be interesting to see how TIBCO and Informatica adapt under new ownership, which of their many disparate products they will focus on, and how that will affect their customers.
“Whatever their plans, it’s become clear that the integration landscape has already undergone a massive shift toward cloud-focused solutions."
When asked if Jitterbit is being courted, a press person responded, “Jitterbit is fully focused on building a strong, independent business and serving its customers with cutting-edge integration solutions.”
Still, if Gallegos is right, this may be just the beginning of the acquisitions. Although he doesn’t specify a cause, Ovum Information Management Principal Analyst Tony Baer indicates that this is a general software trend in a tweet stating that equity is “becoming increasingly common exit strategy for mature ISVs where growth isn't hyper.”
Informatica has delivered less-than-expected growth in recent earnings reports, leading some analysts to downgrade its value — including CLSA just before the acquisition news.
Meanwhile, Informatica is certainly sending a “business as usual” message. A press contact said the company is refusing to comment on the deal beyond the official press release. That leaves us with this widely quoted statement from Sohaib Abbasi, chairman and CEO, Informatica:
“After careful consideration and deliberation of strategic alternatives, our Board of Directors unanimously concluded that the sale of Informatica to the Permira funds and CPPIB is in the best interest of all Informatica stakeholders. While delivering immediate compelling value to our shareholders, we remain committed to the long-term success of our customers, partners and employees. Permira and CPPIB share both our vision for Informatica to power the data-ready enterprise and our conviction in sustained long-term growth.”
In another sign that it was “business as usual,” Informatica announced the general availability of a new product: Informatica Secure@source, a security solution that focuses on data-in-motion and identifying and tracking data at the file level. It addresses a pain point I’ve been ranting about for years, extending security beyond the perimeter to the data level.
So, it’ll be interesting to see what happens next. It’s worth noting that, at one time, Informatica stood alone and evolved when all other pure-play ETL vendors fell to buyouts. And in my nearly 10 years of covering integration, I’ve never seen an integration analyst report where Informatica didn’t rank near the top, including Gartner’s recent report on enterprise cloud integration Platform as a Service providers and Forrester’s 2014 Hybrid Integration wave. For eight years, it’s ranked as a leader in the annual Gartner Data Integration Magic Quadrant report.
Loraine Lawson is a veteran technology reporter and blogger. She currently writes the Integration blog for IT Business Edge, which covers all aspects of integration technology, including data governance and best practices. She has also covered IT/Business Alignment and IT Security for IT Business Edge. Before becoming a freelance writer, Lawson worked at TechRepublic as a site editor and writer, covering mobile, IT management, IT security and other technology trends. Previously, she was a webmaster at the Kentucky Transportation Cabinet and a newspaper journalist. Follow Lawson at Google+ and on Twitter.