BakBone Acquires ColdSpark for $15.9M

BakBone Software announced it has acquired ColdSpark for $15.9M ($8.125M cash plus stock).

BakBone has historically been focused on data protection offerings for Linux, Solaris, and Windows-based platforms with backup, disaster recovery, replication, and storage reporting solutions. The acquisition extends BakBone's reach into message management.

ColdSpark's solutions can be thought of as providing service-oriented management of email traffic, historically focused largely on ecommerce and financial services customers. ColdSpark's SparkEngine essentially defines a virtual object that represents a subset of all SMTP traffic, then enables automatic policies to manage that object. Customer scenarios include traffic prioritization and granular mail-flow management, compliance and supervision of message content, and the enablement of virtual "lanes of traffic" enabling different levels of service to different email traffic streams.

Observations:

  • BakBone has acquired good technology.
  • ColdSpark had substantial success selling to large financial services firms (e.g., Fidelity, Lehman Brothers, Merrill Lynch). This meant that with the vicissitudes of that market in 2008 onwards, ColdSpark's revenues suffered to some degree.
  • We estimate ColdSpark revenues peaked at around $5M in 2007, and had probably dropped to around a $3M/year rate by late 2008.
  • ColdSpark had two rounds of external funding:
    • Early 2006, for $6.5M.
    • November 2008, for $3M. This was probably to keep the company alive until it found a buyer.
  • We thus estimate a price/trailing 12 months revenue ratio of 4:1, assuming:
    • $1M of cash left in ColdSpark.
    • $4M of revenues for the preceding 12 months.
  • ColdSpark may have been able to get a further round of funding, but assuming the uncertainty of the future success of the business, the buyout offer was probably attractive. A 4:1 price/revenue ratio isn't fabulous, but it's far from an insult. Plus, there probably weren't other attractive offers on the table.
  • We infer most investors got their money back, and there's still enough stock left over to motivate key employees. All ColdSpark employees have moved over to BakBone.
  • BakBone is not known in the messaging world. It will require substantial marketing and general management expertise to build its name in this new field of opportunity.

... David Sengupta and David Ferris

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