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Software M&A - Q2 Market Turnaround

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

The software M&A market is on the upswing with companies leveraging strengths of their product offerings to expand their presence globally. Case in point: Captiva picks up a leading French provider of document capture solutions, RealNetworks buys out Helsinki based Mr.Goodliving, Transaction Systems Architects to use S2 Systemsí strong open-architecture payment solutions to grow fast, Swedish-based International Business Systems (IBS) acquires Australian IDS Enterprise Systems, a developer of supply chain solutions to the automotive industry.

Captiva Software (NASDAQ: CPTV) acquires SWT SA
Category: Data management
Purchase Price: $20,260,000
Seller Revenue: $9,000,000
Revenue Multiple: 2.3x
Payment Terms: Cash and Stock

SEGís Perspective:
Captiva, a provider of data captures and document information processing software, picks up SWT SA, a French provider of data extraction and document capture solutions. A Captiva partner since 2002, this is a safe bet for Captiva, which will leverage SWT to strengthen its product offering and to solidify its foot print in France and Spain, where SWT has a strong market presence. No stranger to mergers and acquisitions, Captivaís revenue has doubled to $70 million since merging with Action Point in 2002 and acquiring ADP Context in 2004. Look for additional acquisitions from Captiva as the company folds other high growth, strategic businesses into its operations. SWTís revenue grew 25% between 2003 and 2004.

RealNetworks (NASDAQ: RNWK) acquires Mr.Goodliving
Category: Entertainment
Purchase Price: $15,000,000
Seller Revenue: $5,000,000 estimate
Revenue Multiple: 3.0x
Payment Terms: Cash.

SEGís Perspective:
RealNetworks, a provider of network-delivered digital media content and services, acquires Helsinki based Mr.Goodliving, a developer and publisher of high-quality mobile games in Europe. Real, which acquired mobile gaming developer and distributor GameHouse Studios for $36 million in 2004, is aggressively expanding its PC games business onto mobile devices Ė one of Realís fastest growing business segments. This deal provides Real with a library of game titles, a proprietary development platform and immediate access to more than 100 distributors and carriers in Europe. We estimate Mr.Goodlivingís TTM revenue to be $5 million. For 2006, Real expects the acquisition to generate $8 million of incremental revenue.

Transaction Systems Architects (NASDAQ: TSAI) acquires S2 Systems
Category: Payment Transaction Software
Purchase Price: $35,000,000
Seller Revenue: $14,000,000 estimate
Revenue Multiple: 2.5x
Payment Terms: Cash.

SEGís Perspective:
A provider of e-payment and electronic funds transfer (EFT) software, Transaction Systems Architects (TSA) acquires S2 Systems, a leader in open-architecture payment transaction software solutions. While management asserts that S2ís vertical presence within retail, telecommunications and hospitality was a key driver for the deal, it does not justify a 2.5x revenue multiple. The real driver for this deal is TSAís desire for S2ís open-architecture application and open systems expertise. TSA is paying $35 million in cash plus earn-out payments tied to incremental performance criteria. TSA expects the deal to be immediately accretive.

SS&C Technologies (NASDAQ: SSNC) acquires Financial Interactive
Category: Financial Management
Purchase Price: $13,400,000
Seller Revenue: $5,000,000 estimate
Revenue Multiple: 2.7x
Payment Terms: Stock

SEGís Perspective:
A serial buyer, SS&C Technologies, a financial management software and business process outsourcing provider to the financial services industry acquires Financial Interactive, a provider of investor relationship management solutions to the hedge fund industry. SS&Cís fourth acquisition of 2005, Financial Interactive complements SS&Cís product portfolio and strengthens the companyís offerings in the hedge fund market. Historically a cash buyer, this is SS&Cís first stock deal in more than 18 months. SS&Cís stock price has increased 10 fold since bottoming out in January 2001.



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