TECH DEALS: A great Fairfax trade

Tech Deals is a weekly column covering the latest deals in one of the busiest sectors for M&A. To read previous articles go to our Tech Deals page.

Fairfax Media, Trade Me

Former Fairfax Media boss David Kirk is set to return to the spotlight after the media company finally decided to spin off its New Zealand-based online auctions and classified business Trade Me. The idea that was first flagged in April this year has finally been given the green light by Fairfax after UBS concluded its strategic review of its portfolio of assets. It looks like Kirk, who was the man behind the $650 million acquisition of the site in 2006, has agreed to be the non-executive chairman of Trade Me, which will be listed on the New Zealand Exchange. Fairfax intends to sell between 30 and 35 per cent of Trade Me through the IPO with the funds raised to be used to reduce debt and possibly lift dividends at some point for Fairfax's ailing shareholders. UBS has been appointed the sole lead manager for the float the timing of which still needs to be finalised. It will be quite a comeback for the man who led the All Blacks to World Cup glory in1987 who was drummed out of Fairfax in 2008 after losing the support of one of its largest shareholder John B Fairfax. It will also reunite Kirk with Trade Me's founder and current Fairfax director, Sam Morgan, the two deal makers behind the 2006 transaction. One wonders if either the men had any idea back then of just how important Trade Me would become to Fairfax's digital strategy. Trade Me has more than 2.3 million active members and is one of the few companies that has been able to give eBay a run for its money. According to Morgan Stanley analysts, the business could be worth up to $1.3 billion. We will wait and see just how much money Fairfax makes from the spinoff but Kirk's bet on building a digital footprint certainly looks to have been vindicated. He recently mused that at the time of the deal there were quite a few naysayers who were appalled by the princely sum paid for a small New-Zealand business. According to Kirk, the same people pointed to Rupert Murdoch's MySpace deal as a far more worthwhile preposition. I guess we all know now who made the better deal.  

Melbourne IT's takeover tremors

A strong Australian dollar, softer trading conditions and commoditisation of the domain name industry have all made a hefty dent in Melbourne IT's first half numbers. The company posted a 29 per cent drop in net profit with revenue down 11 per cent and shareholders were not pleased, sending the stock tumbling to a 12-month low last week. The precipitous fall has obviously got some alarm bells ringing with chief executive Theo Hnarakis admitting that the web hosting and domain name registration company was dangerously exposed to opportunistic suitors. While the first half numbers are poor some of Hnarakis' alarm will stem from the fact that the domain registry space has been very active in terms of M&A. The world's largest domain name registrar, GoDaddy, was picked up by private equity firms KKR, Silver Lake and Technology Crossover Ventures for $2.25 billion in July while another major US outfit Network Solutions was acquired by online marketer Web.com for $560 million earlier this month. Local accounting software vendor Reckon, which has been buoyed by the $1.2 billion acquisition of rival MYOB, has an existing partnership with Melbourne IT and has flagged its designs on the company's small business division. The management's focus will undoubtedly be on ensuring that the company's full year results look a lot healthier but they should now also keep an eye out for possible approaches.

iSoft, Garry Cohen, Marcel Equity

The acquisition of MYOB has certainly put a spring in the step of investors looking to put their money into local tech outfits, keen to emulate the success of Archer Capital. Reaping a $1.2 billion reward for a $450 million investment are what investment dreams are made of and it looks like iSoft founder and former chairman Gary Cohen wants a piece of that action. Cohen, who failed to prevent the sale of his healthcare software company to US giant Computer Sciences Corporation (CSC) earlier this year, is now reportedly poised to return to the sector with his own investment company Marcel Equity. According to The Australian Financial Review, the company will be run by Cohen and his older brother Brian, who cut his teeth developing products for iSoft. Cohen has no doubt learnt some lessons from the argy-bargy surrounding the sale of iSoft and he told the AFR that the experience has shown him that the local investment community often doesn't recognise the long-term value of local tech firms and are prone to knee-jerk reactions when things go sour in the short-term. It's a scenario that Cohen hopes to rectify with Marcel Equity.

Local wrap (Computershare, Eftel, Pisces Group)

With the regulatory clearance on its planned $550 million acquisition of Bank of New York Mellon's (BNY Mellon) share-owner services business still hanging in the balance Computershare has splashed out around $163 million to buy two new businesses. The company will buy Melbourne-based Serviceworks Group for an initial consideration of $54.3 million and Colorado based Specialized Loan Servicing for an initial $109.5 million. Serviceworks is linked to the Australian utilities sector and provides specialist home moving utility connection service across Australia and New Zealand and an online price comparison service for retail energy customers. Specialized Loan is in the business of monitoring, billing, and processing mortgage payments, managing communications with borrowers where payments are late and providing call services. Meanwhile, Eftel has bought wholesale telecommunications service provider Platform Networks for an undisclosed sum. Platform is one of the first telcos to sign up to resell NBN Co services as a wholesaler while Eftel recently merged with ISP ClubTelco in a deal that valuing the combined entity at about $12.8m. Elsewhere, local financial services and mortgage software company Pisces Group's mortgage service and Newsnet messaging business have been acquired by investment firm Santapau Limited for an undisclosed sum. According to Pisces, the acquisition is backed by clients of Gleneagle Securities and will enable the launch of a range of new financial products to the Australian market. Both the Pisces and Newsnet businesses will be rebranded. In other news, Australian application developer Skitch has been acquired by US online note-taking specialist Evernote. Skitch has developed a Mac app designed for annotating photos and editing images and founders Cris Pearson and Keith Lang are set to leave Australia to join Evernote in California. Finally, Vodafone New Zealand has signed on as submarine cable venture Pacific Fibre's new bandwidth partner in an undisclosed multi-million dollar 10-year deal.

Overseas wrap

As the tech world still comes to grips with the end of the Steve Jobs era at Apple, it should be business as usual for the tech giant when it comes to M&A. Jobs may have rescued the company from the brink of oblivion and be the force behind the iPhone, iPad and iPhone but his résumé is remarkably lightweight when it comes to deal. According to the New York Times, since his return in 1997, after Apple bought NeXT Inc, the company has only bought 18 companies and most of them have been pretty small. Apple has a war chest of $US76.1 billion, enough firepower to buy pretty much whatever it wants but with Tom Cook now set to take charge it's unlikely that he is going to embark on an acquisition spree anytime soon. In other overseas deals, Verizon is buying cloud computing startup CloudSwitch for an undisclosed sum, Cisco is set to acquire UK's Axiom Systems, along with its Axioss software and an unspecified number of staff, from Comptel for $31 million and speculation that San Francisco-based enterprise cloud computing company Salesforce has either already bought or is about to buy Israeli cloud encryption firm Navajo Systems. Finally, while HP makes up its mind about what it intends to do with its PC business Samsung Electronics has flatly denied any interest in taking the business off HP's hands.