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| Home - Software M&A Review - Sep 02 Issue |
Software M&A - Q3 Update |
By Ken Bender, Managing Director, and Allen Cinzori, Associate - Software Equity Group
A finely tuned yo-yo could not have kept pace with tech stocks in August (ending down 0.8%), as the market reflected mixed economic indicators and shaky investors. Still, M&A activity maintained its steady pace as buyers continued to seek out strategic acquisitions particularly those offering competitive leverage and short-term revenue potential. Below are our thoughts on eight such deals.
Bentley Systems / Rebis Industrial Workgroup Softwarep
Category: Plant design & management software
LTM Revenue Multiple: 2.0x
Terms: Undisclosed
SEG s Perspective:
Bentley trumps Autodesk by acquiring Rebis, a global leader in plant design software and one of Autodesk s leading third party providers. Bentley gains access to Autodesk customers, a distribution channel covering 75 countries and an application that can drive sales of its MicroStation platform. In this two-stage transaction, Bentley acquired 12.5% of Rebis in January and the balance six months later. SEG served as Rebis advisor in the transactions.
Micromuse (MUSE) / RiverSoft (LSE:RSFT)
Category: Network management software
LTM Revenue Multiple: 6.3x
Terms: Cash
SEG s Perspective:
Don t be fooled by the multiple. Faced with increased competition, a soft market, and too little operating cash to await an economic recovery, RiverSoft succumbed and sold to its competition. Taking into account RiverSoft s $74M of cash, Micromuse pays virtually nothing in return for expanded international presence, additional technology and greater market share.
Intuit (INTU) / Blue Ocean Software
Category: IT asset management software
LTM Revenue Multiple: 5.7x*
Terms: Cash
SEG s Perspective:
Intuit departs from its vertical acquisition strategy by picking up a leader in IT asset management. Intuit sees a tremendous opportunity to cross-sell Blue Ocean s IT management software to its small and medium sized customer base.
We re skeptical. The demand for this technology in many small medium businesses seems hardly sufficient to justify a 5.7x revenue multiple, and the space is already crowded with competition.
Inktomi Corp. (INKT) / Quiver
Category: Data management software
LTM Revenue Multiple: 4.8x*
Terms: Stock & cash
SEG s Perspective:
Here s another good example of a strategic acquisition, close to home, driving a high multiple. Inktomi, a market leader in information retrieval systems paid about 5x trailing revenue to pick up highly sophisticated categorization and taxonomy software in order to enhance and differentiate its enterprise offering.
Autodesk (ADSK) / CaiCE Software Corp.
Category: Surveying and engineering design software
LTM Revenue Multiple: 3.3x*
Terms: Cash
SEG s Perspective:
Autodesk continues to diversify its revenue stream, as AutoCAD sales now account for only 1/3 of total revenue. With the acquisition of CAiCE, a $2.5M provider of surveying and engineering applications for state and local transportation departments, Autodesk adds a niche vertical solution to its complement of industry applications and bolsters its geographic information systems business.
John H. Harland Company (JH) / INTERLINQ Software Corp. (INLQ)
Category: Data management software
LTM Revenue Multiple: 2.1x**
Terms: Cash
SEG s Perspective:
Why would a $752M industry leader in the financial services sector pay a 227% premium for an established software company that s losing $2M, despite annual revenues of $17M? Our guess is Harland sees pent up demand among its customer base for INTERLINQ s industry leading mortgage loan software and the opportunity to cross-sell to INTERLINQ s 1,300 mortgage lenders.
Creo (CREO) / ScenicSoft
Category: Software for the publishing and printing industry
LTM Revenue Multiple: 1.1x*
Terms: Cash
Vertical software companies in niche markets continue to be popular acquisition targets when the buyer sees a real strategic fit. Within the publishing and printing vertical, ScenicSoft is an established leader with industry-leading solutions that will complement Creo s product mix. Partners for nearly eight years, this is a good example of how a strategic partnership with a large public company can evolve into a favorable acquisition.
Geac Computer Corp. (GAC.TO) / Extinsity (EXTN)
Category: Software for the publishing and printing industry
LTM Revenue Multiple: 1.1x**
Terms: Cash
After streamlining operations and product lines, Geac aims to expand in the enterprise market and is back on the prowl for complementary technologies to sell into its installed base. Extensity, a provider of business travel and expense reporting software largely to the service industry, was ripe for the picking. Once a high-flying stock, Extensity has generated a flood of red ink and 38% falloff in revenue. At $0.78/share (down from $5.14 a year ago), Extensity shareholders receive a 124% premium, but the revenue multiple is 0.46x after backing out Extensity s $37M in cash.
* Seller's revenue estimated
** Purchase price calculated as equity price plus debt minus cash & cash equivalents
M&A Update is prepared by Software Equity Group, L.L.C. (SEG) which is solely responsible for its content. SEG (www.softwareequity.com) is one of the nation’s leading software industry M&A Advisories for privately held software companies. Established in 1992, SEG has served more than 300 companies in thirty states and six countries. This material is based on data obtained from sources we deem to be reliable; it is not guaranteed as to accuracy and does not purport to be complete. This information is not intended to be used as a basis for investment decisions.
 
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