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Will the enterprise market spend significant IT budget on Windows Vista in 2007?



Software M&A Insights

By Ken Bender, Managing Director, and Allen Cinzori, Vice President - Software Equity Group, LLC

Deal multiples this week reflect a buyerís market rather than the sellerís market we have grown accustomed to in 2004. Total Systems Services acquires Clarity to compete in a rapidly consolidating market; VerticalNet continues to seek revenue growth and profitability through acquisition, this time by acquiring B2eMarkets; Art Technology Group makes a very good strategic acquisition to offer a more robust solution to its target market but the street didnít take notice; WorkStream continues its quest to be an acquisition candidate itself by buying Bravanta; and ViryaNet purchases a company in one of its key verticals.

Total System Services (NYSE: TSS) acquires Clarity Payment Solutions
Category: Transaction Processing
Purchase Price: $53,000,000
Seller Revenue: $9,800,000 Estimate
Revenue Multiple: 5.4x
Payment Terms: Cash

SEGís Perspective:
Total Systems Services (TSYS), a $1 billion global electronic payment processing company, acquires Clarity Payment Solutions, provider of reporting, marketing, communications, compliance and risk management tools designed for the prepaid market. Clarity, now one of 9 TSYS subsidiaries, will allow TSYS to expand out of its mature current market (consumer, debit, commercial, and retail cards) into emerging prepaid markets like healthcare, payroll, insurance claims, branded gift and the like. Look for more acquisitions from TSYS as it tries to branch out into emerging foreign markets (domestic sales accounted for 92% of total revenue) and grow rapidly in a consolidating industry. In April, TSYSí largest competitor, First Data, acquired Concord EFS for $7 billion.

VerticalNet (NASDAQ: VERT) acquires B2eMarkets
Category: Supply Chain Management and Logistics
Purchase Price: $12,963,603
Seller Revenue: $8,100,000
Revenue Multiple: 1.6x
Payment Terms: Stock

SEGís Perspective:
VerticalNet, a former dotcom darling and operator of online vertical trade communities that is now a provider of strategic sourcing and supply chain software, acquires strategic sourcing software maker, B2eMarkets (B2e). B2e complements VerticalNetís previous 2004 acquisition of Tigris, a decision support optimization provider, and will bring with it sorely needed new customers. VerticalNet, with new licenses accounting for only 3% of total revenue and four customers responsible for 72% of total revenue over the last 6 months, convinced B2e to take its stock and a promissory note as payment. The united company will be competing against the recently combined Ariba/FreeMarkets, larger ERP software developers, and niche players in spend analytics, sourcing, and optimization. In an attempt to clean up its balance sheet and return to profitability, VerticalNet recently raised $3 million in a private placement. VerticalNetís $32 million market cap is a far cry from its 1999 IPO market cap of $738 million.

Art Technology Group (NASDAQ: ARTG) acquires Primus (NASDAQ: PKSI)
Category: Customer Relationship Management, Marketing & Sales
Purchase Price: $20,060,000EV
Seller Revenue: $25,700,000
Revenue Multiple: 0.8x
Payment Terms: Stock

SEGís Perspective:
Art Technology Group (ATG), provider of ecommerce software, acquires Primus Knowledge Solutions, a developer of customer relationship management, marketing and knowledge management software for managing customer queries, emails, and chat sessions. ATG saw ample cross-sell opportunities into Primusí installed base and was also attracted by Primusí 29% year-over-year revenue growth. The street didnít seem to recognize the synergies, as news of the deal had virtually no impact on Primusí share price and pushed ATGís down 12.2%. Both companies have suffered similar fates since going public in July 1999. At one time, each enjoyed a share price north of $120, but were trading below $1 on deal day.


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