Red Hat (RHAT) has re-established the multiple for acquiring so-called open source software (OSS) companies with its September 4, 2008 acquisition of Qumranet. In the process, it looks like the price to acquire an open source company is becoming more like the cost of acquiring any other small, hot software company. This further confirms the way open source has merged into the software industry in general. (I use the words “so-called” to modify open source because from a market research perspective, there really is no such thing as an OSS company. Open source companies are a figment of so-called open source company PR folks.)
I have been following the multiple trend primarily since Red Hat’s acquisition of JBoss in April 2006 at what might have turned out to be as high as 100 times revenue. At the demonstrable peak in October-December 2007, Citrix (CTXS) acquired Xensource and Yahoo (YHOO)acquired Zimbra for around the same multiple. By April of 2008, Sun (JAVA) “only” paid 20x annual revenue for MySQL. Although there was no public information available, I made some estimates concerning Oracle’s (ORCL) acquisition of Innobase and Sleepycat, IBM’s (IBM) acquisition of Gluecode, the Iona (IONA) acquisition of LogicBlaze, and other deals that happened before and after these highly publicized transactions.
To be fair to Citrix, it believes it paid about 10x 2008 revenue for Xensource and we are not able to compare revenue-per-year totally fairly in all these acquisitions because the acquired companies were all private. Also acquisitions such as the Progress (PRGS) acquisition of Iona are not considered in this analysis because Iona had only recently begun to embrace open source terms and conditions
With the Red Hat/Qumranet acquisition, the multiple appears to be down to about 5x annual revenue. This is the range that the next OSS players in line—for example, Alfresco, Compiere, Groundwork, Jaspersoft, Talend, etc.—should be thinking about. And it looks like, unlike in 2006 and 2007, they probably have to actually be posting some revenue..
In addition, with this acquisition it also looks like Red Hat is finally putting together the new desktop strategy that has been hinted at for a year.
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