Big Data or Big Hype? – by Zsolt Kerekes

Friday, March 9th, 2012 at 12:20 pm

The following is an email that I received from Zsolt Kerekes, Editor of STORAGEsearch.com. If you have not checked out his blog, it is very informative. I stumbled upon it because I wanted to take a closer look at the storage sector. As a former media banker, storage was like potatoes or hot sauce to me – who knew there were so many different types?!

The following is an email excerpt from Zsolt that I would like to share. He provides some insights regarding Big Data.

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John thanks for your comments and question.

re – big data or is it big hype?

It can be real or it can be hype.

True big data architecture (for SSD) starts at the internal level of the design.

How many memory chips has it been optimized for? Once that decision is made – the cost, space, reliability and performance characteristics are inevitable. My article – http://www.storagesearch.com/bigvsmall-ssd-arch.html may be too technical for you – but here’s an analogy.

If you look at the I/O of food in your local supermarket. The way it comes in from suppliers (from trucks) is different to the way it goes out (in cars).

Technically the supermarket could receive all its supplies in small car loads – but that would be inefficient.

Technically your house could receive all its supplies in big trucks (if the road permits) – but that would be inefficient too.

There are market flexibility advantages which come from designing small architecture SSDs . You can use the same design in a notebook or a server so you can access a bigger market.

But big architecture SSDs intrinsically can work with 30% to 40% less memory chips – and use a wider range of reliability / data healing tricks.

On the downside – big architecture designs can’t be used in as many markets as small ones – so their cost base may be higher.

The result is that the purchase cost advantages of one versus the other may cancel out – as seen in street prices of arrays.

Running cost – if you have a big system – is something which remains.

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When it comes to hard drives – RAID was better than what it replaced in the 1980s – but if you started again today with the internet connectivity and processors we have today – and started to design big arrays of disks from first principles then you wouldn’t see just the RAID systems you see today. That’s because RAID is small architecture too. It optimizes over maybe 5 to 10 disks. If you optimize reliability etc over 100 disks – then you get better efficiency. That’s why Google designed its own disk managment system. The cost savings at the million plus disk level are worthwhile.

This is exactly the same principle in SSDs. SandForce optimize around less than 10 flash chips – whereas Violin optimize around 100 plus.

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Technically you can wrap “big software” around either type of hardware architecture to simplify “big data management”. But the electricity cost isn’t fooled by the software.

Feel free to share my reply if you find it useful.

It was more interesting than what I was supposed to be working on.

Take care

Zsolt

From: John Doyle

Date: Thursday, March 08, 2012 19:43

To: Zsolt@STORAGEsearch.com

Subject: Good Stuff

Zsolt,

I just wanted to send you a note saying that your website is very informative! Thank you for putting it out. Also, let me know if you have conversations with bankers.

I’m a tech banker and storage is becoming a very hot sector. I’d like to get your thoughts on whether you believe in big data or is it big hype.

Hope all is well and thank you!

Best,

John

John H. Doyle II

Managing Director & Founder

Peachtree Capital Advisors, Inc.

1055 East Colorado Blvd., Suite 500

Pasadena, CA 91106

OFFICE 626.204.4047

MOBILE 626.394.2167

FAX 626.628.0411

Investment Bankers

Software, Digital Media & Cleantech

www.PeachtreeCapitalAdvisors.com

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Peachtree Discusses Cyber-Security M&A in 2012

Monday, February 13th, 2012 at 7:34 pm

Below is a link to an article that appeared a week ago in Software Magazine that discusses Cyber-Security M&A in 2012.

http://www.scmagazine.com/debate-ma-activity-in-the-cyber-security-arena-will-significantly-increase-in-2012/article/223542/

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Survey: Insights on Technology Investing

Wednesday, November 2nd, 2011 at 12:55 pm

Peachtree is proud to announce, in collaboration with Herrick, Feinstein LLP, the release of our Insights on Technology Investing venture capital and private equity survey report. We polled nearly 100 leading venture capital and private equity firms on current environment in and future outlook of technology investing. Here’s an excerpt from the report, which details our findings:

Despite the difficulties surrounding the current economic environment, Peachtree Capital Advisors’ 2011 Insights on Technology Investing survey finds that U.S. technology venture capital and private equity investors share a generally positive outlook on investment opportunities in the near-term future. Among survey respondents, 52% expect venture capital and private equity investments in technology to increase over the next twelve months, whereas only 10% predict a decline over this same period.

Investors who consider their sectors undervalued, including those in Enterprise Software and Healthcare IT, hold a slightly more positive view of the investing environment than their counterparts who consider their sectors overvalued, such as investors in Cloud Computing, Mobile, and Social Media & Collaboration.

The strongest consensus to emerge from the survey was the belief that Social Media & Collaboration is overvalued; 88% of respondents stated this opinion, with many additionally expressing the expectation that consolidation will occur in the space over the next three years. Many investors also feel that Cloud Computing is currently overvalued, but will nonetheless experience explosive growth over the next three years. Meanwhile, enterprise software and Healthcare IT elicited a greater variety of responses, although the general opinion trended toward Enterprise Software being undervalued and Healthcare IT seeing substantial near-term growth.

To request the full report, please email research@peachtreecapitaladvisors.com.

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Just Released: Mid-Year Technology M&A Report

Friday, July 8th, 2011 at 3:22 pm

Earlier this week, Peachtree released its 2011 Mid-Year Technology M&A Review, which provides insight into the current M&A environment in the technology sector.

Despite a sluggish economy, technology M&A rode its momentum from late 2010 to enjoy a solid first half in 2011. Although valuations in the technology sector did not rise substantially following steady growth in 2010, they remained relatively constant throughout the first half of the year, providing necessary stability and support for the M&A marketplace. Large-cap companies, having accumulated a buildup of cash during the recession, emerged as major spenders, pursuing acquisition growth strategies rather than investing in organic growth. To read the complete report, click here.

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Who will HP Acquire?

Tuesday, March 15th, 2011 at 11:16 am

Here is a link to an article written by SoftwareAdvice.com that discusses 14 potential acquisition targets for HP.

http://www.softwareadvice.com/articles/enterprise/hp-mergers-acquisitions-who-is-next-1031401/

As we all know, technology and software M&A is “supposedly” on the rise. It might still be a year off, because middle market companies have inflated valuations due to speculation that they will be a takeover candidate as opposed to valuations based on growth and financial performance. Instead of growing through acquisition, management teams of middle-market companies are content to grow with the market. They do not have to worry how “ho-hum” growth will affect their stock price in this environment.

This dynamic will change once private equity companies come off the sidelines and start consolidating the market. Competition for smaller acquisition targets and scale will begin to drive M&A in the middle market. This phenomena is not very far off.

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Peachtree Releases Technology Report

Tuesday, January 25th, 2011 at 11:51 pm

We just released a new report today, our 2010 Software and Technology M&A Review. Here’s a snippet from the report that summarizes M&A activity in the tech sector in 2010:

Propelled by a stabilizing economic environment, a buildup in corporate cash, and increased activity from private equity buyers, U.S. software and technology M&A rebounded in 2010 from a two-year decline to climb 22%. In total, 426 transactions were announced for a reported $44.9 billion this year, up from 414 and $36.8 billion in 2009.

With a recalibrated strategic focus and a slight sense of urgency triggered by rising valuations, technology companies were motivated to pursue larger deals on their corporate wish lists and follow emerging trends and technologies such as mobility and connectivity. Among the largest deals of the year were Intel acquiring McAfee for $7.7 billion, SAP buying Sybase for $5.8 billion, and HP beating out Dell in a bidding war to acquire 3Par for $2.4 billion—more than double Dell’s original offer.

Meanwhile, the private equity community, which showed little movement throughout the recession, stirred from its hibernation to enjoy a comparatively active year in 2010. After private equity firms raised enormous funds in 2005 and 2006, the subprime mortgage crisis that hit in 2007 had paralyzed the industry as cheap debt disappeared and investments became nearly impossible to exit. Three years later, the stabilizing economic climate, alongside rising valuations and loosening credit markets, enabled private equity firms to once again deploy and explore exit opportunities.

To read the rest of the report, you may download it here.

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Tech Bubble Blogpost by Yoni Jacobs

Monday, January 3rd, 2011 at 1:44 pm

Below is a link to an excellent post by Yoni Jacobs regarding the recent run up of stock prices in the tech . I agree with most of what Yoni says regarding the tech bubble, but as it relates to Groupon turning down a $6 billion offer, he does not mention that both Google and Facebook also turned down a multi-billion dollar bids from Yahoo and Microsoft as early stage companies. Had either of those two companies taken their respective offers, they would have clearly left a lot on the table.

Sign of a Renewed Technology Bubble

The bottom-line is that technology investors and acquirers have to have a well-thought-out plan when it comes to the Cloud. Buying a company just because they are a SAAS company on the Cloud is not a good enough reason to make an acquisition. CEOs need to adhere to the golden rule of M&A when it comes to evaluating targets in this new cloud environment, if it is good for the customer then it is a good acquisition. Providing a software or service over the Cloud is meaningless unless someone is paying for it.

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What’s Your Five-Year Plan?

Monday, October 4th, 2010 at 11:01 am

Many moons ago when I was still dating, a woman asked me to give her my five year plan. At that stage in my life, I did not have a five month plan, much less a five year plan. I have to admit that I was a bit taken aback by the pointed line of questioning, so I decided to have some fun with the situation and asked, “Why do you ask? I mean, what I’ve done up to this point isn’t good enough?” Her response was, “Yeah, it’s ok, but I need to know what to expect in the future before making a commitment to you.” (Hah! Just “Ok.”)

The moral of this blog post is to advise tech entrepreneurs not to fall into the earn-out trap. Oh, the lovely earn-out. It is a wonderful tool to get deals done, but it can be a spider’s web. Typically, companies are paid a purchase price and there is an implied multiple based on their trailing twelve months financial results. As your investment banker, it would be my job to apply that implied multiple to your projected financial results, making the case that the the company’s historicals actually its projected year-end results.

Oftentimes, this opens the door to an earn-out situation, whereby the acquirer sees the opportunity to “bridge the gap” with an earn-out. If an entrepreneur is not well-equipped with an advisor that can help them work through the details of an earn-out, they might find themselves committing to unreachable financial hurdles or, even worse, a situation where corporate expenses are allocated to their operating expenses lowering their operating cash flow.

An entrepreneur’s business is just that, his or her business, and it should be acquired on the merits of its market share, defensible product positioning in the market and historical financial results. The purchase price of a transaction should never be based solely on future results. The absolute maximum amount of the purchase price allocated to future results should never exceed 50% in addition to capping the out years at 25% per year for a maximum duration of two years. Otherwise an entrepreneur would be better off keeping his or her business and selling it at a later date.

So, when a suitor asks for your five-year plan, treat this as a red flag warning and be prepared for them to try to tie you to an earn-out based on this forecast. If you are not asked to project your business out five years when selling your company, then you will know the buyer is making a serious run for your company. Always take the posture that you are selling your business and running it for the buyer. Not the other way around, i.e. buying your own business with its future cash flows.

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