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| Home - Software M&A Review - May 04 Issue |
Software M&A – Q1 Software Industry Equity Report
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Buyer: Convergys (NYSE: CVG)
Seller: DigitalThink (Nasdaq: DTHK)
Price: $105,000,000EV
Revenue: $42,100,000
Mult.:2.9x
Currency: Cash, Stock
Category: Online Education
SEG’s Insight:
Convergys, a Cincinnati Bell spinoff that is now a $2.3 billion global provider of outsourced customer billing and HR services, acquires DigitalThink, a provider of e-learning to the Fortune 1000. After issuing first quarter earnings targets that fell below some analysts’ projections causing its share price to drop 5.8%, Convergys is betting DigitalThink will help it retain customers and aggressively expand its HR outsourcing business. The $120 million purchase price represents a 30% premium to DigitalThink’s closing price immediately before the deal was announced. The timing was right for DigitalThink, which lost more then $10 million on $45 million in TTM revenue, as well as one of its biggest clients, EDS. Investors agreed, driving DigitalThink’s share price up 51% on deal day.
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Buyer: FindWhat.com (Nasdaq: FWHT)
Seller: Comet Systems
Price: $18,580,000EV
Revenue: $8,500,000
Mult.:2.2x EV
Currency: Cash,Stock
Category: Internet Tools/Utilities
SEG’s Insight:
FindWhat.com, a provider of marketing and e-commerce services, including online marketplaces, acquires Comet Systems, a developer of free download consumer software and a fee-based desktop search engine. FindWhat, which derives most of its revenue from a keyword-targeted internet advertisement service, hopes its advertisers will pay more in order to gain access to the 100 million who have downloaded Comet’s pop-up blocker and surf privacy software. Comet stockholders will receive $8.5 million in cash (equal to Comet’s 2003 net revenue) plus $15 million in FindWhat stock and up to $10 million in cash based on 2004 and 2005 operating performance.
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Buyer: Hewlett Packard (NYSE: HPQ)
Seller: Novadigm, Inc. (NASDAQ: NVDM)
Price: $94,834,000 EV
Revenue: $58,300,000
Mult.:1.6x
Currency: Cash
Category: Enterprise system management
SEG’s Insight:
Hewlett-Packard Co. continues to aggressively expand its OpenView software suite by acquiring Novadigm Inc., a leading provider of automated IT configuration and change management software. Simultaneously, HP picked up Consera Software, a provider of software that enables IT resources to be mapped to business services. Last fall, HP acquired Talking Blocks for services management, Baltimore Technologies’ Select Access business for identity management, and Persist Technologies for information lifecycle management. Novadigm saw its revenue decrease 11% the last fiscal year. HP agreed to pay $6.10 in cash for each share of Novadigm stock. The day after this deal was announced, Novadigm’s stock shot up 27% shortly after the opening bell.
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Buyer: InfoSpace (Nasdaq: INSP)
Seller: Switchboard (Nasdaq: SWBD)
Price: $104,150,000EV
Revenue: $15,190,000
Mult.:10.5x
Currency: Cash
Category: Internet Tools/Utilities
SEG’s Insight:
In a drive to increase its share of the $450 million online local directory market, Internet and wireless solution provider Infospace acquires Switchboard, a provider of online business directories advertising products. InfoSpace expects Switchboard to add $10 million to $12 million in revenue and between $4 million to $5 million in search and directory income during the second half of 2004. Local search has become a hot area for Internet companies, with Google and Yahoo each introducing new tools in the past month. With revenue of $15 million, the $160 million all cash price represented a 28% premium over a very healthy market cap of $147 million, and was received favorably by investors. Switchboard’s price leaped 28% on deal day, while Infospace’s price jumped 14%.
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Buyer: Juniper Networks (Nasdaq: JNPR)
Seller: NetScreen Technologies (Nasdaq: NSCN)
Price: $3,436,781,000EV
Revenue: $275,290,000
Mult.:12.5x
Currency: Stock
Category: Security
SEG’s Insight:
Juniper Networks, the second largest internet router manufacturer, acquires internet security solution provider NetScreen Technologies in a deal valued at $3.8 billion. Noting the hefty 56% premium, the market drove down Juniper’s share price 11% on deal day, slicing more then $456 million in deal value. That same day NetScreen’s share price increased 36% to an all time closing high. The amount Juniper is paying is nearly $1 billion more then Juniper’s total cumulative revenue last year. Why the big multiple? First, Juniper has focused primarily on the telecom market and now needs NetScreen to compete against bellwether Cisco in the lucrative government sector. Second, NetScreen has performed admirably, even in a tough economy, by boosting sales to $245 million last year, up 77% from 2002. This acquisition puts pressure on the other major firewall/VPN provider, Check Point, to partner with a hardware provider. Check Point now becomes the only major player entirely focused on network security. For the time being, Juniper and NetScreen will remain separate businesses, although eventually NetScreen’s security will be embedded in Juniper’s routers.
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Buyer: Serena Software (Nasdaq: SRNA)
Seller: Merant Plc (Nasdaq: MRNT)
Price: $309,300,000EV
Revenue: $128,300,000
Mult.:2.41x
Currency: Cash,Stock
Category: Change Management
SEG’s Insight:
Serena Software’s acquisition of competing Enterprise Change Management (ECM) software provider Merant creates the second largest provider (23% market share) in this space behind IBM’s Rational Software division (30% market share). The combined company will have estimated annual revenue of $225 million, 15,000 customers, and 46 of the 50 largest multinational companies. Serena, sells ECM software mostly for mainframes, has a market cap of about $803 million, while Merant, whose software is deployed on distributed systems, has a market cap of about $300 million. Serena’s 2003 revenues were 27% lower then Merant’s, but Serena achieved much higher revenue and profitability per employee leading to the higher market valuation and an opportunity to improve Merant’s performance. For Merant shareholders, the deal equates to a 25% premium above Merant’s closing price on the day of the announcement, not bad considering Merant has racked up losses aggregating $140 million on revenue of $483 million over the last three fiscal years and saw its revenue fall 32%.
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Buyer: Verity (Nasdaq: OPSW)
Seller: Cardiff Software
Price: $50,000,000EV
Revenue: $26,300,000
Mult.:1.9x
Currency: Cash
Category: Content management
SEG’s Insight:
Verity, a provider of enterprise search, classification and personalization software, acquires Cardiff Software, a developer of document-capture and e-forms processing software. The deal, which takes the last independent e-forms software developer off the market for $50 million all cash, extends Verity into a new area of information management. Verity will now be able to capture data from documents and forms and move the unstructured information through business processes, which then can be searched and analyzed by Verity’s suite of tools. With Cardiff competitors (Accellio, Shana, and Caere) in the e-forms space all being acquired by larger companies, and with Microsoft and Adobe systems elbowing their way into the space, the time was right for Cardiff to exit.
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Buyer: VerticalNet (NYSE: VERT)
Seller: Tigris Corp.
Price: $9,279,690
Revenue: $10,000,000
Mult.:0.93x
Currency: Stock,Cash
Category: Supply Chain Management
SEG’s Insight:
Verticalnet, a strategic sourcing and supply chain application vendor, acquires Tigris Corp., a sourcing and supply chain consultancy. Most appealing to VerticalNet was Tigris’s data intensive, tools-based approach to spend analysis, which Aberdeen Group claims could save enterprises $260 billion annually. The acquisition, which will double VerticalNet’s TTM revenue comes none too soon. VerticalNet’s revenue declined 65% to $9.6 million in its last fiscal year. With only $4.2 million in cash on hand, the company resorted to a net $6.2 million private placement less then two weeks before this deal was announced.
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Buyer: Yahoo (Nasdaq: YHOO)
Seller: Kelkoo SA
Price: $576,000,000
Revenue: $50,000,000
Mult.:11.5x
Currency: Cash
Category: Internet Tools/Utilities
SEG’s Insight:
Yahoo expands both its geographical reach and search-related marketing services by acquiring Kelkoo SA, a major European comparison shopping site. Founded in France in 1999, Kelkoo grew through a series of rapid acquisitions in the U.K., Spain and Norway, and now operates in 9 European countries with 32 million unique users monthly. While the $578 million all-cash purchase price (41 times 2003 cash flow and 11 times last year’s sales) leaves some observers breathless, at least a few analysts believe Kelkoo’s revenue and cash flow will double in 2004. They also see the acquisition as necessary for Yahoo to fend off fierce competition from rivals Google and Microsoft. The Kelkoo deal follows Yahoo’s December 2002 acquisition of search engine provider Inktomi for $235 million, and its July 15, 2003 acquisition of Overture Services, a leader in paid-search listings, for a whopping $1.6 billion.
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EV: Enterprise value
This report was prepared by Software Equity Group, L.L.C. (SEG), a mergers and acquisitions advisory firm serving the software, life science and technology sectors. SEG is solely responsible for its content. This material is based on data obtained from sources we deem to be reliable; it is not guaranteed as to its accuracy and does not purport to be complete. This information is not to be used as the primary basis of investment decisions. For more, please visit www.softwareequity.com, or phone (858) 509-2800.
 
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