Over just the past two months, the two largest stand-alone human capital management (HCM) providers have been gobbled up by two of the largest software vendors. Back in December, it was SAP reaching across the Atlantic for SuccessFactors, while just yesterday Oracle announced its plan to take home Taleo. Both of the software giants paid the highest-ever stock price for their HCM targets, which will serve as key components of their cloud strategies.

But the valuations – both on an absolute and a relative basis – are strikingly different, with SAP valuing its HCM property almost twice as richly as Oracle. The specifics: SAP is paying $3.6bn for SuccessFactors, which works out to more than 11 times trailing sales, while Oracle is handing over $2bn, or slightly more than 6x trailing sales, for Taleo.

Why the disparity in the pricing of the two comparable deals? Well, for all of their similarities, there is one crucial difference between SuccessFactors and Taleo. Last year, SuccessFactors increased revenue by about 60%, twice the rate of growth at Taleo in 2011.

Oracle today announced the $2bn acquisition of Taleo, and SAP is getting closer to completing its $3.6bn purchase of SuccessFactors. Both announcements come less than a month after Oracle closed its $1.5bn RightNow Technologies buy. These transactions are the largest we’ve seen in the SaaS sector. However, we doubt they represent the end of the acquisition spree of these companies, with their highly disruptive business models. Although SaaS M&A has been playing out for some time now – and even set new records in 2011 – dealmaking in this sector is far from over.

If the growing use of SaaS and public cloud is any indication of deal flow, we expect volume to continue to rise. According to a report by ChangeWave Research, 22% of respondents currently use applications that run on public cloud services, up from 17% a year earlier. We’ve been beating the drums on cloud and SaaS M&A for a while now. The reason is simple: customer demand is pushing IT vendors to change the way IT services are delivered.

As businesses increasingly adopt cloud services, as opposed to packaged software maintained on-premises, the largest IT firms are increasingly looking to break into this industry. Oracle’s RightNow and Taleo acquisitions alone represent a total of $3.5bn invested in cloud services in less than a half-year. SAP spent that much on SuccessFactors alone. And there’s undoubtedly more to come. We’ll take a deeper look at the Taleo buy, as well as provide information on SaaS valuations, in a longer report in tonight’s Daily 451.

Source: Corporate Cloud Computing Trends, January 2012. ChangeWave Research, a service of 451 Research

In this era of disruptive technologies, what does the future hold for enterprise IT? What new innovations are expected to reshape software, networking and even the datacenter itself in the coming year? For a look ahead, join us for a special webinar on Thursday, February 9 at 9:00am PST/12:00pm EST. (Click here to register.) The heads of several practice areas at 451 Research will highlight a number of key trends in their sectors, and what impact that will have on the broader IT landscape.

Topics we will cover in the hour-long webinar include the emergence of truly virtualized infrastructure, the rise of software-defined networks and the trend toward modularity inside the new datacenters. We will also cover some of the financial implications of those trends, both in terms of capital raising and M&A valuations. To join the webinar on Thursday, simply register here.

Rather than buy into Facebook after it debuts on the open market, many companies may consider selling to the social networking giant after its IPO. Facebook is already rich with cash, and is about to become much richer. Meanwhile, its M&A strategy has so far focused on acquiring smaller startups for their IP and engineering talent, but the company has said it may do bigger deals in the future.

According to The 451 M&A KnowledgeBase, Facebook has so far bought 25 companies, mostly for their specialized employees such as software engineers and product designers, but also for complementary technology. The company has been fairly cash conscious in its transactions, preferring to motivate acquired personnel with stock options rather than upfront cash payouts – in fact, Facebook spent just $24m in cash, net of cash acquired, on the deals it closed in 2011.

While innovative startups with skilled personnel, particularly those in the collaboration and social networking sectors, should still consider selling to Facebook a viable exit, midmarket and larger technology firms should also consider Facebook a potential suitor. In both public reports and in its IPO prospectus, the company has said it could put its treasury to work on larger deals. And it will certainly have the fire power – adding proceeds from its $5bn public offering to its treasury would bring its total spending power to nearly $9bn (including cash and marketable securities).

Facebook could apply some of its rationale for buying smaller vendors to larger acquisitions. For complementary technology, it could target a larger mobile advertising network (it picked up development-stage rel8tion in January 2011). The lack of a mobile ad platform is a gaping hole in Facebook’s portfolio, especially considering it had 425 million mobile monthly active users at the end of 2011. A company similar to AdMob (which sold to Google) or Quattro Wireless (acquired by Apple) such as Millennial Media or Jumptap would go some way toward filling that gap. For regional expansion and consolidation, Facebook could make a move for any of a number of international competitors, including Cyworld in Korea, Mixi in Japan, Vkontakte in Russia or Renren in China. As the trend toward consumerization in the enterprise continues in the form of social networking and collaboration (salesforce.com’s Chatter or Oracle’s Social Network come to mind), Facebook could look at an enterprise offering as well. The leading candidate in this sector would be Jive Software, one of the most prized properties in the social enterprise space with a market valuation of about $1bn.

J2 Global continues to diversify its business through M&A, this time with the acquisition of Landslide Technologies. The company’s latest deal, its second in as many weeks, is j2′s first CRM purchase – a stark contrast from its recent M&A plays, which have focused primarily on propping up its managed messaging business at home and abroad.

We’ve previously covered j2′s dealmaking, noting that the company has expanded via M&A from its core fax offering to now include a number of services for small businesses such as email, Web-based collaboration and even marketing. Landslide provides Web-based CRM SaaS, including online, social and mobile CRM applications, to SMBs.

Terms of the deal weren’t disclosed, but the majority of j2′s transactions have gone off for less than $15m. We see no reason why this acquisition would significantly diverge from this path. The company was likely cautious in its first move into the CRM market, meaning j2 likely paid at or below market valuations. And even with a possible premium given to the business because of its SaaS delivery model, we still doubt that the price was too high, considering an SEC report filed in December 2010 noted that Landslide’s revenue was $1m-5m.

After a streak of batting in the majors, Big Blue recently took a swing in the minor leagues. The company’s recently announced pickup of Worklight is one of the smallest deals it has announced in more than two years. (In fact, Worklight’s $70m price tag is a fraction of the estimated $475m that IBM has spent on average for its acquisitions since the beginning of 2010.) Nonetheless, it’s a handsome price for a small company, and is indicative of the premium that acquirers are willing to pay for technologies that cover the entire scope of mobile app lifecycle development and management.

According to our understanding, Big Blue’s offer gives Worklight a boisterous valuation of 20-30x trailing sales. Why the sky-high valuation? Basically, as the PC era diminishes, IBM felt pressure to prop up its existing enterprise offerings for mobile clients. Faced with the extent of fragmentation, both on the client and back-end services side, IBM saw Worklight as key to the missing pieces in its puzzle. Worklight completes Big Blue’s coverage of HTML5 frameworks, brings single-code-based development, and provides encrypted local device storage as well as cross-platform publishing and packing capabilities.

Beyond its implications for IBM, the transaction is another example of a longer-term trend we’re seeing in mobile app lifecycle management. In our 2012 M&A Outlook – Mobility, we noted that enterprises need a platform that can manage their entire app development life cycle right from development and through to deployment and maintenance. Larger enterprises that have typically used mobile enterprise application platforms will eye app development firms or agencies in their quest to take control of mobile app development. These acquisitions would be similar to ones closed by Antenna Software, Deloitte, Financial Times, VeriFone and Wal-Mart in 2011.

As the new year starts, tech acquirers have yet to really reach deep to do any deals. In January, aggregate spending on all tech transactions across the globe plummeted to just $3.5bn – the lowest monthly level since the bottom of the recession in February 2009. Compared to the January 2011 total of $11.8bn, the value of deals announced in the just-completed month fell by a whopping 70%. The number of transactions, however, was unchanged, year-over-year, at roughly 325.

A key point to make about deal flow in the just-completed month is that not a single transaction topped a half-billion dollars. In fact, the largest deal in January 2012 (Semtech’s all-cash $494m reach for semiconductor vendor Gennum) would only be the sixth-largest transaction of January 2011. Last year, January featured deals including Qualcomm’s $3.6bn purchase of Atheros Communications – which, at the time, stood as the largest chip transaction in four years – as well as Verizon’s big bet on cloud services with its $1.4bn acquisition of Terremark Worldwide.

The January totals extend a slump that has seen M&A spending sink dramatically below average in four of the past five months. Since peaking at a post-recession monthly record of $40.2bn last August, spending levels have plunged to $8.9bn in September, $14bn in October, just $4.3bn in November and $19.7bn in December.

Traditional IT service providers, accustomed to an on-premises model of delivering products and services, have been rapidly buying into the SaaS sector to fulfill enterprises’ demand for SaaS offerings. The result has been a rapid increase in both the volume and value of SaaS deals announced. The most notable are Oracle’s RightNow Technologies purchase, which just closed, and SAP’s highly valued SuccessFactors buy, which is expected to close very soon.

As businesses increasingly adopt cloud services, as opposed to packaged software maintained on-premises, the largest IT firms are increasingly looking to break into this industry. We’ve seen a record number of acquisitions of private cloud providers, but now public firms are attracting additional attention as well. In 2011, we recorded 200 announced SaaS transactions in The 451 M&A KnowledgeBase – just a baker’s dozen shy of the all-time record set in 2007. However, total spending on SaaS targets came in at a record $9.7bn, shattering the previous record set in 2008. True, the RightNow and SuccessFactors deals accounted for more than half of total SaaS M&A spending in 2011, but the overall volume of large acquisitions is on the rise as well. For example, last year we saw a dozen SaaS transactions announced valued at least at $100m – a steady uptick in big-ticket deal volume since 2008.

Driving these acquisitions, in addition to customer demand, is the SaaS sector’s enviable revenue growth rates. While IBM, for example, grew total revenue just 7% in 2011, our 451 Market Monitor colleagues projected that the global SaaS sector grew 22%. And according to ChangeWave Research, a service of 451 Research, SaaS remains the most popular cloud service. In a ChangeWave report, a whopping 61% of respondents said they were using some SaaS product. The report also noted that 28% of respondents expect to increase their SaaS spending over the next six months, more than any other cloud service ChangeWave covered in the report.

Acquisitions of SaaS vendors, 2005-2011

The 451 M&A KnowledgeBase

Intel has announced the acquisition of 190 patents, 170 patent applications and video codec software from RealNetworks for $120m. The transaction comes just eight months after Intel bought SiPort, a Santa Clara, California-based company that made audio-processing semiconductors. We see these moves as an indication that Intel wants to integrate more media and graphics capabilities into its chips, which these purchases should help with.

Barely three days ago, Intel inked a deal with QLogic to buy its InfiniBand business for $125m. That already makes Intel’s M&A spending for 2012 more than 60% of its full-year 2011 spending. What’s more, Intel was reportedly one of the bidders for InterDigital Communications, whose patent sale was called off earlier this week due to a gap in valuation expectations (InterDigital was reportedly looking for $3bn).

Patent sales have become one of the overarching themes of recent M&A activity, and one that we expect to continue throughout the year (see our 2012 M&A Outlook – Introduction for a full report). The reason for this is partly for offense (to expand a vendor’s existing product portfolio, like this Intel transaction) and partly for defense (as a hedge against a lawsuit, as is the case in Google’s reach for Motorola Mobility). The importance of these deals also registers on the other side of the transaction, the seller of the IP. Consider the contrast: Wall Street sent shares of RealNetworks soaring (up about 34%) on word that it had struck its deal with Intel, while it punished shares of InterDigital for not getting a sale done. InterDigital is currently trading at just half the level it was last summer.

Intel’s M&A activity

Source: The 451 M&A KnowledgeBase

There’s no denying that behavior in the equity markets is one of the main influencers on big-ticket M&A. Stock market stability provides a vote of confidence for corporate acquirers to pursue large, game-changing deals. Without stable markets, the valuation gap between buyers and sellers becomes too wide for potential sellers to accept. As a result, when the equity markets dip, so too does deal volume.

Nearly every drop in the tech-heavy Nasdaq Composite stock index coincided with a drop in both the volume and value of acquisitions of publicly traded technology companies. (Note: we’ve limited the scope of this research to the acquisition of Nasdaq- and NYSE-listed companies valued at more than $250m.) The number of acquisitions of large public companies tracks the stock market so closely that while the Nasdaq ended 2011 basically flat from the prior year, so too did the number of large tech transactions.

Public company acquisitions relative to Nasdaq activity

Source: The 451 M&A KnowledgeBase, 451 Research

By early 2012, the Nasdaq had effectively regained the level it held before the credit crisis. Despite this bull run, however, there’s very little certainty or stability in the equity markets. Although not a flawless metric, we can use predictions for the IPO market as a gauge of 2012 activity. A stable stock market is desired before a private company hits the public stage. According to our 2011 Tech Banking Outlook Survey, which forecasts activity for 2012, bankers expect the public markets to be stable enough to welcome 25 new technology firms this year – the same number predicted for 2011.

But the number of IPOs is only half of the equation, as subsequent stock performance shows longer-term confidence in the newly public companies’ businesses. In 2011, we saw a number of fairly successful tech IPOs, many of which came from the consumer technology sector, such as LinkedIn and Zynga. But some of these vendors’ initial good fortunes were short-lived. LinkedIn, for example, has lost one-quarter of its market value since the company debuted in May 2011, and Zynga is trading below its offer price.

Among the top issues affecting stock markets are progress toward resolving or containing the European debt crisis and an agreement by the US congress on a bipartisan plan that would reduce the federal deficit by at least $1.3 trillion over the next 10 years. A full 85% of tech bankers surveyed answered that progress on the European debt crisis would increase M&A activity, while 73% said the same about progress on reducing the federal deficit. However, neither of these issues seems likely to be resolved anytime soon. The European sovereign debt crisis appears particularly hairy, after credit rating agency Standard & Poor’s recently downgraded nine major European nations’ credit ratings. Meanwhile, presidential election season in the US is likely to cause most to focus on campaigning rather than the federal deficit. While many weigh their options in voting for the next US president, the stock market may lose its vote of confidence, and deal volume could decline as a result.