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| Home - Software M&A Review - May 04 Issue |
Software M&A – Q1 Software Industry Equity Report
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For the fifth consecutive quarter, median valuations for software company exits continued their quarter over quarter increase (Figure 13). The median software company M&A valuation (based on equity purchase price), reached 2.3 times trailing-twelve-months (TTM) revenue in 1Q04, more than two times the median M&A valuation of 1Q03 and better than 4Q03’s 2.1x median valuation.
Although cash remains the preferred form of payment for software M&A, stock is comprising a growing component of the deal consideration (Figure 14). With stock prices higher, larger public companies no longer consider their stock too deflated in value to use as currency. Smaller public companies, with higher stock prices but little cash remaining on their balance sheets, also convinced more sellers to accept stock. As a result, 51% of buyers in Q1 2004 used cash – down from 68% in Q1 2003 but on par with last quarter. 22% of buyers in Q1 2004 paid all stock (vs. 21% in Q1 2003) and 27% used a combination of cash and stock (vs. 11% in Q1 2003).
MERGERS AND ACQUISITIONS: Most Active Buyers
Multi-transaction buyers proliferated in the first quarter of 2004. It was not unusual to see the same buyer roll-up a competitor in one deal and strategically enhance its product line in another. Some of the quarter’s most active buyers:
Agilisys International
Varial Software AG
daly.commerce
infor business solutions AG
Hewlett-Packard Company
TruLogica, Inc.
Consera Software
Novadigm, Inc.
IPVoice Communications, Inc.
Digital Computer Integration Corp
Wireless Frontier Internet, Inc.
Medical Office Software, Inc.
SS&C Technologies, Inc.
OMR Systems Corporation (Sub of ADP)
NeoVision Hypersystems, Inc.
Investment Advisory Network, LLC
Zaq Inc.
Logo Computer Systems Inc.
Rate4Me Inc.
Silver Leap Technologies Inc.
Ariba, Inc.
Softface, Inc.
Alliente, Inc.
ASG Corporation
Soamaï
Dirig Software
CACI International, Inc.
American Management System (Defense and Intelligence Group
CMS Information Services, Inc.
Cisco Systems, Inc.
Riverhead Networks
Twingo Systems
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Kintera, Inc.
Carol/Trevelyan Strategy Group
Prospect Information Network
MobilePro Corp.
Shrevenet
August.net
Optimi
TarTec
RF Consulting
Power By Hand
Pinpoint Networks
PocketGear.com
PurchaseSoft, Inc.
Computer Information Enterprises Inc.
NetShare Solutions
The Thomson Corporation
Educational Training Systems, Inc.
CCBN, Inc.
Thoroughbred Interests, Inc.
Kiwi Network Solutions, Inc.
Totemaster software
VeriSign, Inc.
Unimobile (Unit of Electronics for Imaging)
EuroTrust PKI A/S (Div. Of EuroTrust AS)
Verity, Inc.
NativeMinds
Cardiff Software
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MERGERS AND ACQUISITIONS: SELECT 2003 SOFTWARE M&A TRANSACTIONS
Buyer: Agilysys (Nasdaq: AGYS)
Seller: Inter-American Data
Price: $36,500,000
Revenue: $40,000,000
Mult.: 0.91x
Currency: Cash
Category: Hotel/Casino Vertical
SEG’s Insight:
Agilysys, a distributor and reseller of enterprise computer systems, acquires Inter-American Data (IAD), a provider of property and materials management software to casinos and major resorts. Seeking to redefine itself due to shrinking hardware margins and a TTM revenue decline of 50%, this is Agilysys’ second acquisition in five months of a vertical market solution provider. There is some synergy, though, as Agilysys is an IBM Premier Business Partner, and IAD’s solutions run on IBM platforms. With $319 million in cash remaining, look for additional Agilysys software acquisitions in the coming months.
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Buyer: Ask Jeeves (Nasdaq: ASKJ)
Seller: Interactive Search Holdings
Price: $342,603,000
Revenue: $100,000,000
Mult.:3.4x
Currency: Cash, Stock
Category: Internet Search
SEG’s Insight:
Consolidation continues amoung search engine providers, as Ask Jeeves acquires competing internet search company Interactive Search Holdings (ISH), the owner of the Excite, iWon, and MySearch websites. Investors responded favorably to this deal. Originally worth $328 million when tendered, valuation grew to more then $420 million after Ask Jeeves shares jumped 40% on deal day to $29.01 – a 877% increase since the beginning of 2003. Ask Jeeves, which lost $699 million during its first six years in business but is now profitable, raised the $115 million cash purchase price by issuing zero coupon convertible subordinated notes back in June. Ask Jeeves reported revenue of $107 million and an operating profit of $25 million while ISH had revenues of $140 million and profit of $35 million. The acquisition doubles Ask Jeeves market share to 7% and gives them an annual search inventory equal to 21 days worth of Google’s traffic.
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Buyer: Avocent (Nasdaq: AVCT)
Seller: OSA Technologies
Price: $100,000,000
Revenue: $6,250,000(Estimate)
Mult.:16.0x
Currency: Cash, Stock
Category: Firmware
SEG’s Insight:
Avocent, supplier of KVM (keyboard, video and mouse) switching and connectivity solutions, expands into a new market by acquiring OSA Technologies, provider of embedded firmware and software to manage servers, blades, networks and storage devices. The $100 million purchase price ($52 million cash and $48 million stock) represents a hefty premium over OSA’s revenue (estimated at less than $10 million), but will extend Avocent into a new, higher end/higher margin market. OSA, with offices in Shanghai and Taipei, also offers Avocent more exposure to Asian markets. OSA has received more than $19 million in equity financing from the likes of Dell, Intel Capital, VC’s and Taiwan Manufacturers.
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Buyer: Bain Capital, Silver Lake Partners, Warburg Pincus
Seller: UGS PLM Solutions
Price: $2,050,000,000
Revenue: $897,000,000
Mult.:2.3x
Currency: Cash
Category: Product Design Management
SEG’s Insight:
In a quest for cash to offset its $5 billion in debt, Electronic Data Systems’ (EDS) sells its product design management-software unit, UGS PLM Solutions, to private buyout firms Bain Capital, Silver Lake Partners and Warburg Pincus. Each will reportedly invest $350 million cash and take an equal stake. Citigroup Global Markets Inc., J.P. Morgan Chase & Co. and Morgan Stanley have agreed to provide roughly $1.2 billion in senior bank debt and high yield bonds. The $2.05 billion price amounts to 2.3x UGS’ $897 million trailing revenue in 2003, and 10.2x current EBITDA (roughly $200 million). UGS’ 42,000 customers and 8% annual revenue growth brought an array of interested parties to the table. The UGS deal is the largest technology private equity investment since the $2 billion purchase of Seagate Technology Inc.’s disk-drive business in 2000.
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