Jive Software Inc. has every reason to lift its initial public offering price after billion-dollar cloud-computing acquisitions led by SAP AG and Oracle Corp.
Jive, a social-networking software maker, said last week it aims to raise as much as $117 million in an IPO that would value it at up to $573 million. That was before SAP’s (SAP) agreement Dec. 3 to buy SuccessFactors Inc. for $3.4 billion, or 52 percent more than its value before the offer. Six weeks earlier, rival Oracle snagged RightNow Technologies Inc. for $1.5 billion.
SAP is paying 11.7 times SuccessFactors’ sales over the past 12 months. At a similar ratio, Jive would be valued at more than $800 million. Software makers are paying up for targets that charge fees to access applications online, rather than licensing programs for desktops. Jive’s IPO may get a boost as investors try to benefit from a shift to cloud services, a market that Gartner Inc. says may reach $148.8 billion in 2014.
“Everybody is looking around and saying, ‘Where can I play that trend?’” said Jeff Richards, a partner at GGV Capital in Menlo Park, California, which was a venture investor in SuccessFactors. (SFSF) “Jive has achieved some scale and is an up-and- coming area.”
Jive’s software lets company employees collaborate on projects and communicate with customers. The company counts NetApp Inc., Avon Products Inc., Yum! Brands Inc. and Nike Inc. among its clients. Revenue has surged in the past three years as workers seek the kind of social-networking features they get from Facebook Inc. and Twitter Inc. for corporate use.
Some of the world’s biggest technology companies, including Microsoft Corp., Hewlett-Packard Co. and International Business Machines Corp., are moving to the so-called cloud, where customers can save money by renting software delivered over the Web and accessing it anywhere, instead of installing it on their own machines. The global market for cloud services was about $68.3 billion in 2010, according to Gartner.
Jive began offering its product on a subscription basis starting in 2007. The company lets customers install software on their own premises or have it hosted offsite. In its prospectus, the company said that its subscription model “provides financial visibility through renewable revenues and cash flows.”
Jive, based in Palo Alto, California, plans to sell 8.33 million shares for $8 to $10 apiece, with stockholders offering an additional 3.37 million shares, according to the Nov. 30 filing. The final pricing is expected on Dec. 13.
If Jive were to seek a valuation of $800 million, it would have to sell shares at about $14 apiece.
Crop of IPOs
At least three other U.S. companies that sell software as a service have registered for IPOs since August. ExactTarget Inc., a provider of e-mail marketing services, filed in November, three months after rival Eloqua Ltd. Bazaarvoice Inc., whose software helps companies communicate with their customers, announced IPO plans in August.
SuccessFactors, which makes software used to manage employee performance, has more than 3,500 customers and 15 million subscribers in 168 countries.
Jive’s sales in the nine months through September climbed 73 percent from the same period a year earlier to $54.8 million.
Still, like SuccessFactors, Jive is losing money as it invests in growth. Sales and marketing costs rose 55 percent in the first three quarters from a year earlier, and the company’s net loss almost doubled to $38.1 million.
Investors will put up with losses as long as Jive and other cloud companies keep expanding and meet analysts’ revenue predictions, said Brenon Daly, an analyst at research firm The 451 Group in San Francisco. Responsys Inc., a provider of marketing software, forecast fourth-quarter sales last month that trailed estimates, pushing the stock down 24 percent the next day.
“The investment community is saying, ‘We will help underwrite your business with the understanding that you’re going to make all your numbers,’” Daly said.
Ana Andreescu, a spokeswoman for Jive, declined to comment, citing the pre-IPO quiet period.
The global market for social customer-relationship management software, where Jive competes with companies such as Salesforce.com Inc. (CRM), will jump to $1 billion in 2012 from $625 million last year, according to Gartner. Other rivals include software giants Microsoft and IBM, as well as Lithium Technologies Inc., a startup based in Emeryville, California.
‘Very Nice Exits’
Sequoia Capital, which profited earlier this year from Linkedin Corp.’s IPO, stands to benefit the most if Jive’s value rises. The Menlo Park-based venture firm paid $57 million for a stake that would be worth about $170 million at the high end of the expected offering. Kleiner Perkins Caufield & Byers paid $40 million for a stake worth about $67 million at that price.
The acquisitions by Oracle (ORCL) and SAP, the largest maker of business-management software, may also help other cloud-based startups fetch higher prices, said Kris Duggan, chief executive officer of business-software startup Badgeville Inc., also based in Menlo Park. Until recently, Salesforce was the only acquirer, he said.
“People thought for a long time Salesforce.com was the only game in town,” Duggan said. “Now it’s everybody. You can create some very nice exits.”
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