|
|
| Home - Software M&A Review - Jul 06 Issue |
Software M&A – A Glimpse into Q2
continued... page 2 |
SEG’s Perspective:
JDA Software, provider of point of sale and supply chain management solutions primarily to the retail vertical, acquires Manugistics, developer of supply chain management and logistics software. Manugistics will help JDA expand out of the increasingly competitive retail vertical, where both Oracle and SAP have made significant investments, and into the manufacturing and government vertical. Manugistics does not come without problems. The company had a 63% and 27% decrease in license and total revenue, respectively, from FY2004 to FY2006 while losing an aggregate $86.5 million from operations over the same time period. Still, Manugistics was able to keep its recurring maintenance and support stable at around $86 million per year which should help justify the small 4% premium JDA paid over Manugistics’ closing stock price prior to announcement. JDA was rumored to be in competition with Oracle, SAP, Lawson, and a private equity firm for Manugistics.
Oracle (NASDAQ: ORCL) acquires Portal Software (OTCBB: PRSF.PK)
Category: Billing & Service Provisioning Software
Purchase Price: $220,000,000
Seller Revenue: $104,720,000
Seller EBITDA: ($58,360,000)
Revenue Multiple: 2.1x
Payment Terms: Cash
SEG’s Perspective:
In its fourth acquisition of 2006, Oracle acquires Portal Software, provider of billing systems for the communications and media vertical. Portal Software supplies packaged applications that can be used by media companies to bill for services such as broadband, standard and VOIP calls and wireless connectivity. The acquisition is consistent with Oracle’s strategy of acquiring vertical market expertise (Retek, ProfitLogic, i-flex, g-log) to enhance its application business and complement its database business. Despite some Portal shareholder dissent the 17% premium1 Oracle paid is a good outcome for a company that hasn’t posted an operating profit in five years.
1: 17% premium is calculated using Portal Software’s closing stock price prior to acquisition announcement
Red Hat (NASDAQ: RHAT) acquires JBoss
Category: Open Source Middleware
Purchase Price: $350,000,000
Seller Revenue: $16,000,000 (estimate)
Revenue Multiple: 21.9x (estimate)
Payment Terms: Cash, Stock, Earnout
SEG’s Perspective:
Red Hat, a leading provider of open source infrastructure software built on the Linux operating system, acquires open source application server vendor, JBoss. For Red Hat, an application server was a necessary addition to its infrastructure software stack as the company’s size and market position increasingly put it in direct competition with larger vendors BEA, Oracle, IBM and Microsoft. Faced with competition from IBM1 and Oracle2 after they acquired open source infrastructure vendors, the possibility of losing JBoss to either of them or to an IPO, and JBoss’ 68% projected CAGR from 2005 to 2007, normally cautious Red Hat ponied up almost 22 times JBoss’ trailing twelve month revenue (before earnout). Considering the competitive nature of this market, it is unlikely JBoss’ shareholders, who invested $10 million in 2004, could have timed a better exit.
1 IBM acquired open source application server vendor Gluecode
2 Oracle acquired open source database vendors Innobase and Sleepycat
Verisign (NASDAQ: VRSN) acquires GeoTrust
Category: Security Software
Purchase Price: $125,000,000
Seller Revenue: $31,250,000 (estimate)
Revenue Multiple: 4.0x (estimate)
Payment Terms: Cash
SEG’s Perspective:
With its sixth acquisition in 2006, Verisign, provider of infrastructure security and services for the Internet and telecommunications networks, acquires GeoTrust, provider of digital certificates for e-commerce transactions and internet identity verification. While most of Verisign’s 2006 acquisitions had been product extensions to bolster its wireless market presence, GeoTrust was acquired to take out a competitor in the enterprise SSL market where Verisign holds approximately 60% market share by revenue. In the first five months of 2006, Verisign has spent $561 million in cash on seven acquisitions1; a significant amount even for a company generating $416 million in TTM EBITDA and with $769 million on its balance sheet.
1: GeoTrust ($125 million), m-Qube ($250 million), Kontiki ($62 million), 3united ($66 million), Snapcentric ($12 million), CallVision ($30 million), Affiliate ($16 million)
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.
 
|
|
|
