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India

China


Software M&A - Q3 Review

By Ken Bender and Allen Cinzori, Software Equity Group, LLC

The third quarter saw big companies gobbling up smaller ones in a bid to capture markets and extend product portfolios. Cases in point: Plumtree, a developer of enterprise portal solutions, throws in the towel and is acquired by BEA Systems; Bentley Systems picks up the REI assets of netGuru; Interwoven acquires Scrittura; SSA Global buys out Epiphany, and Security market leader Symantec extends its reach to include end point security through the cash acquisition of Sygate.

BEA Systems (NASDAQ: BEAS) acquires Plumtree Software (NASDAQ: PLUM)
Category: Enterprise Portal
Purchase Price: $132,000,000EV
Seller Revenue: $94,000,000s
Revenue Multiple: 1.4xEV
EBITDA: -$2,130,000
EBITDA Multiple: N/A
Payment Terms: Cash

SEG's Perspective: Public since 2002, Plumtree, a developer of enterprise portal solutions, throws in the towel and is acquired by BEA Systems, a provider of enterprise infrastructure software. The last "pure-play" portal provider, Plumtree struggled mightily to compete in a market dominated by IBM WebSphere, Microsoft SharePoint and BEA WebLogic, experiencing only 1.2% revenue growth between 2002 and 2004. For BEA, which has also struggled with top line growth in recent years and is routinely mentioned as a take-over target, this is a pure consolidation play that gives BEA access to Plumtree's 700 customers and a recurring maintenance and support base north of $25 million. While Plumtree has not turned an annual operating profit since 2002, look for BEA to remove redundant costs and excess fat from the business to quickly recoup its 5.3x maintenance and support purchase price. BEA also acquired Compoze Software and M7 during the quarter.

Bentley Systems acquires netGuru REI Division (NASDAQ: NGRU)
Category: Engineering Software
Purchase Price: $23,500,000
Seller Revenue: $11,035,000
Revenue Multiple: 2.1x
Payment Terms: Cash

SEG's Perspective: Bentley Systems, a leading private provider of architecture, engineering and construction (AEC) software, picks up the REI assets of netGuru. REI and the STAAD structural analysis product line have a long history in the AEC market and compliment Bentley's AEC portfolio. netGuru relied on STAAD as a cash cow for years as it flirted with businesses as diverse as travel services and long distance telephony. Eventually the family that holds effective control of netGuru suffered enough and agreed to the asset sale. With netGuru's collaboration software business the only remaining asset of substance, look for netGuru to divest that business, or liquidate altogether in the coming months. Paying over 2x revenue for a division growing at less than 5% clearly indicates Bentley was pushed by competing bidders. Bentley grew its revenue at better than a 16% rate last year, however, and they will look to pull REI along at a similar pace.

Interwoven (NASDAQ: IWOV) acquires Scrittura
Category: Content Management
Purchase Price: $16,300,000
Seller Revenue: $6,000,000
Revenue Multiple: 2.7x
Payment Terms: Cash

SEG's Perspective: Interwoven, a leading provider of enterprise content management solutions acquires Scrittura, a privately held provider of document automation for complex trading operations in the financial services sector. Through the acquisition, Interwoven offers the first complete ECM solution to automate Over-the-Counter Derivatives trading. While the market sounds a bit esoteric, this strategic deal actually puts Interwoven in the middle of a $1 billion market that has experienced at 31% CAGR since 2001. Interwoven will now have a cross selling opportunity, offering its existing capital market customers like ABN Amro and CS First Boston, a best of breed OTC derivatives solution, while marketing existing products to Scrittura's customer base, which includes AIG, Bear Stearns and Royal Bank of Scotland. A 2.7x purchase price multiple is rich when compared with Interwoven's own 1.2x EV/Rev trading value, but expands their reach to an important tangent market that they appear poised to exploit.

SSA Global (NASDAQ: SSAG) acquires Epiphany (NASDAQ: EPNY)
Category: Customer relationship management
Purchase Price: $78,768,000EV
Seller Revenue: $71,500,000
Revenue Multiple: 1.1xEV
EBITDA: -$21,900,000
EBITDA Multiple: N/A
Payment Terms: Cash

SEG's Perspective: Continuing its strategy to acquire market share and customer share, SSA Global, an enterprise app provider melded together through a series of 10 acquisitions including Baan, Elevon, EXE Technologies, and Infinium, picks-up former dot com darling Epiphany, a provider of business-to-consumer marketing and analytics software. Akin to SSA's other deals, Epiphany comes with a healthy maintenance and support revenue stream that accounts for 42% of the Company's TTM revenue. More strategically, Epiphany's solutions fill a hole in SSA's offering and can be immediately sold into SSA's base of 13,000 active customers. While SSA is paying $329 million cash for Epiphany, SSA will inherit $250 million of cash and cash equivalents that reside on Epiphany's balance sheet. Epiphany has no interest bearing debt.

Symantec (NASDAQ: SYMC) acquires Sygate Technologies
Category: Security
Purchase Price: $175,000,000 (Estimate)
Seller Revenue: $20,000,000 (Estimate)
Revenue Multiple: 8.8x
Payment Terms: Cash

SEG's Perspective: Security market leader Symantec extends its reach to include end point security through the cash acquisition of Sygate. Analysts readily concluded that the acquisition, which handsomely rewarded Sygate's venture investors, positions Symantec with best of breed technology to go on the offensive against rival Check Point. Two years ago, Check Point paid over 10x to establish its position in the market by acquiring Zone Labs. The deal was immaterial to Symantec's financials, but it plugs a significant gap and responds to the Network Access Control segment that is also targeted by Cisco. As with its acquisition of Brightmail, Symantec looks to leverage a unique product extension to drive sales in the competitive enterprise antivirus segment.

EV: Enterprise Value = equity purchase price, plus seller's interest bearing debt, minus seller's cash & cash equivalents



Software Equity Group, L.L.C. (SEG), a mergers and acquisitions advisory firm serving the software, life science and technology sectors, prepared this report. 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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