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| Home - Software M&A Review - Jul 06 Issue |
Software M&A – A Glimpse into Q2 |
By Ken Bender and David Legacki, Software Equity Group, L.L.C.
M&A momentum continued to build in 2Q06. At the current rate, which we expect to continue, 2006 M&A deal volume will far exceed 2005’s tally. Domestic M&A activity across all industry sectors in the second quarter totaled 2,874 transactions, with an aggregate purchase price of $376 billion. The total number of deals in 2Q06 increased 19.1% over 2Q05, while total M&A dollars increased 36.7% over the same time period.
Software represented 15% of total M&A deal activity in 2Q06, leading all other industry sectors as in quarters past. There were 431 software transactions, a 5.1% increase over 2Q05. In terms of total M&A dollars spent, the software sector ended the quarter at $12.2 billion, aggregating $26 billion for the first half of the year. The median valuation of software industry M&A transactions (based on TTM revenue and the seller’s equity value) in 2Q06 was 2.3x, somewhat lower than both 2Q05 (2.4x) and 1Q06 (2.8x).
Listed below are some of 2Q06 more notable software M&A deals.
Amdocs Limited (NYSE: DOX) acquires QPass
Category: Billing & Service Provisioning Software
Purchase Price: $275,000,000
Seller Revenue: $15,100,000 (estimate)
Revenue Multiple: 18.2x (estimate)
Payment Terms: Cash
SEG’s Perspective:
Amdocs, a leading provider of operation support software to telecom providers, acquires QPass, a provider of mobile commerce solutions to content and service providers. QPass’ software facilitates the sale of mobile content (ring tones, games, graphics and video) from providers to end users, via carriers, and is Amdocs’ initial foray into the high growth wireless content management and delivery market. Amdocs paid approximately 4.5x forward twelve months revenues to stay relevant with its large installed base of carrier customers (Cingular, Sprint, etc.) that need solutions to manage the burgeoning demand for new media products. In March, Verisign, which has made significant investments in its mobile content platform, acquired QPass competitor, m-Cube, for $250 million (estimated 3.0x TTM Revenue).
AttachmateWRQ acquires NetIQ (NASDAQ: NTIQ)
Category: IT Asset Management
Purchase Price: $309,960,000EV
Seller Revenue: $194,520,000
Seller EBITDA: ($14,850,000)
Revenue Multiple: 1.6x EV
Payment Terms: Cash
SEG’s Perspective:
Privately held AttachmateWRQ, provider of access management to enterprise applications, databases and information, acquires NetIQ, developer of software used to test, migrate and analyze distributed computer systems. The combined company, with 40,000 customers, 16 million users and $400 million in revenue, will have the scale and resources to compete against its larger competitors CA, Compuware, IBM and HP. AttachmateWRQ is no stranger to consolidation due to its experience in 2005 when Attachmate and WRQ merged with the help of its private equity financiers. AttachmateWRQ paid a 14% premium to NetIQ’s closing stock price prior to announcement despite NetIQ’s revenue decline of 31% since FY2003. In 2000, NetIQ traded at seven times AttachmateWRQ’s purchase price. The cash on NetIQ’s balance sheet represented 45% of the gross purchase price.
Infor Global Solutions acquires SSA Global (NASDAQ: SSAG)
Category: Manufacturing Enterprise Resource Planning Software
Purchase Price: $1,436,000,000EV
Seller Revenue: $746,900,000
Seller EBITDA: $126,600,000
Revenue Multiple: 1.9x EV
EBITDA Multiple: 11.3x EV
Payment Terms: Cash
SEG’s Perspective:
Infor continues its consolidation of the manufacturing vertical, this time acquiring rival SSA Global, provider of enterprise resource planning software. The combined company will boast $1.6 billion in revenue, 37,000 customers and be the third largest ERP provider behind SAP and Oracle. For SSA, the acquisition marks the end to a tumultuous existence that started with its founding in 1981, a peak public market capitalization of $1.4 billion in 1995, a delisting and bankruptcy in 1999, a private equity buyout for $52 million and subsequent reorganization in 2000, a reentrance into the public markets at a valuation of $716 million in 2005 and finally a purchase price which represents a 25% premium to its closing stock price prior to announcement. SSA is the fourth public company Infor has taken private since 2004.
JDA Software (NASDAQ: JDAS) acquires Manugistics Group (NASDAQ: MANU)
Category: Supply Chain Management
Purchase Price: $248,380,000EV
Seller Revenue: $176,192,000
Seller EBITDA: $24,840,000
Revenue Multiple: 1.4x EV
EBITDA Multiple: 10.0x EV
Payment Terms: Cash
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