|
|
| Home - Software M&A Review - Jan 05 Issue |
Software M&A-Q4 Review
continued... page 2 |
Marchex acquires Name Development
Category: Internet Domain Names
Purchase Price $164,000,000
Seller Revenue $19,000,000
Revenue Multiple 8.6x
Payment Terms: Cash
SEG’s Perspective:
Marchex, a provider of technology-based services to merchants engaged in online transactions, acquires Name Development, a British Virgin Islands entity that owns thousands of Internet domains that match commercial search terms, drawing 17 million unique visitors each month. Marchex plans to use the acquisition to expand into direct navigation, where consumers type the domain name of a website directly into the address box of an Internet browser and are met with advertising or a redirect. Name Development is projected to have more than $19 million in revenues this year, with operating margins expected to top 80% - yielding about twice as much cash flow as Marchex. Marchex, with only $25 million in the bank, is financing the transaction by raising $180 million in a secondary offering only eight months after its IPO.
Progress Software (NASDAQ: PRGS) acquires Persistence Software (TSX: PRSW)
Category: Enterprise Application Integration Software
Purchase Price $11,025,000EV*
Seller Revenue $8,280,000
Revenue Multiple 1.3x
Payment Terms: Cash
SEG’s Perspective:
Consolidation continues in the middleware category, as Progress Software, a provider of technology to develop and manage business applications, acquires Persistence, a developer of distributed data access and caching software. Progress will integrate Persistence’s real time data services technology into its ObjectStore data management product line. The timing was right for both parties. Persistence has struggled for some time, relying on layoffs to offset declines in revenue and break-even profitability. The purchase price represents a 52% premium over Persistence’s stock price prior to announcement. This deal is the latest in a string of competition motivated transactions. Following Progress’ 2002 acquisition of eXcelon, direct competitor Versant acquired eXcelon competitor Poet Software for 3.5x ttm.
ScanSoft (NASDAQ: SSFT) acquires ART, Phonetic, Rhetorical
Category: Voice Recognition Software
Purchase Price: $63,200,000
Seller Revenue: $13,200,000 (Estimate)
Revenue Multiple: 4.8x
Payment Terms: Cash and Stock
SEG’s Perspective:
Scansoft, a leading provider of speech and imaging solutions, acquires three speech recognition software vendors (Advanced Recognition Technologies ($6.7 million), Phonetic Systems ($35 million), and Rhetorical Systems ($21.5 million). ART develops voice based and writing recognition programs for wireless devices; Phonetic Systems develops text to speech solutions and is a provider of automated directory assistance and speech recognition systems for telecom carriers and the Fortune 1,000. Scansoft, with one profitable quarter in the last six, is stretched thin. With only $47.7 million in cash on hand, Scansoft will pay an aggregate $27.4 million at closing and defer payment of $34 million until later years. The deal also includes an earnout of up to $35 million over a three year period.
WatchMark-Comnitel acquires Metrica Service Assurance Group
Category: Network Performance Management
Purchase Price: $41,624,000
Seller Revenue: $30,000,000
Revenue Multiple: 1.4x
Payment Terms: Cash and Stock
SEG’s Perspective:
WatchMark-Comnitel, a privately held provider of solutions for wireless network performance management solutions, acquires the Metrica Service Assurance Group from ADC Telecom, provider of network infrastructure equipment and services. With the addition of Metrica, Watchmark now boasts the largest worldwide installed base of wireless service assurance products. The Metrica unit is expected to report a 6.7% decline in revenue for 2004 compared to 2003. For the first three quarters of 2004, Metrica lost $2 million, compared to a $5 million operating profit in its 2003 fiscal year. WatchMark paid $35 million in cash and the balance in stock, giving ADC less than 5% ownership in WatchMark.
Yahoo! (NASDAQ: YHOO) acquires MusicMatch
Category: Online Entertainment Software
Purchase Price: $160,000,000
Seller Revenue: $24,400,000
Revenue Multiple: 6.6x
Payment Terms: Cash
SEG’s Perspective:
Leading Internet portal player Yahoo! acquires MusicMatch, a digital music store and provider of digital music management products. Yahoo expects to see its music audience increase from 12.9 million listeners to an estimated 23 million listeners after Musicmatch is integrated into Yahoo Launch. Look for Yahoo to quickly subsidize these low-margin music downloads with higher-margin advertising and subscriptions. Yahoo faces stiff competition from a host of competitors, including RealNetworks, Napster, Wal-Mart, Sony, Microsoft and eBay. The clear leader, for now, is Apple’s iTunes, with 70% of the music download market.
*EV: Enterprise Value = equity purchase price, plus seller’s interest bearing debt, minus seller’s cash & cash equivalents.
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 details, please visit www.softwareequity.com, or phone (858) 509-2800.
 
|
|
|
