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| Home - CEO Spotlight - Feb 07 Issue |
Software M&A – Highest Ever Deals in 2006
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Intuit (NASDAQ: INTU) Acquires Digital Insight (NASDAQ: DGIN)
Category: Customer Relationship Management Software (CRM)
Purchase Price: $1,261,000,000EV
Revenue: $238,110,000
EBITDA: $69,660,000
Revenue Multiple: 5.3x EV
EBITDA Multiple: 18.1x EV
Payment Terms: Cash
SEG’s Perspective:
Intuit, a leader in accounting and finance solutions to consumers and SME customers, acquires Digital Insight, a SaaS developer of financial software to small and medium sized banks and credit unions. Digital Insight is Intuit’s largest deal to date and brings 1,800 credit unions and mid-sized banks into its fold. Combined, the financial institutions served by Digital Insight have approximately 38 million customers, of which only 20% bank online, providing significant growth opportunities, especially for its low cost SaaS-based offering. Digital Insight had grown its trailing twelve months revenue 15.5% and had analyst projecting 11.3% growth for CY07 compared to CY06. Intuit, with $1 billion of cash on its balance sheet, no debt and approximately $556.6 million in TTM operating cash flow, will take on $1 billion in debt to finance the deal. Digital Insight shareholders will receive an 18% premium to their closing stock price prior to announcement.
Made2Manage Acquires KNOVA (OTC: KNVS)
Category: Customer Relationship Management Software (CRM)
Purchase Price: $39,670,000EV
Revenue: $27,120,000
EBITDA: ($974,300)
Revenue Multiple: 1.5x EV
Payment Terms: Cash
SEG’s Perspective:
Made2Manage (M2M), a private equity backed provider of ERP software to small and mid-sized manufacturers, acquires KNOVA, developer of CRM software. KNOVA fit M2M’s acquisition strategy perfectly; mainly it was cheap due to its poor financial performance, including its lack of profitability over the last 3 years. M2M is taking a page out of its main competitor’s (Infor) playbook by acquiring a breadth of products to sell into its large installed base of SMB manufacturers. With high retention rates and a stable recurring revenue, SMB manufacturing customers have been highly coveted. M2M paid a 22% premium to KNOVA’s closing stock price prior to announcement. The acquisition is M2M’s second 2006 acquisition within CRM after it paid 1.6x TTM revenue for Onyx Software in June.
McAfee (NYSE: MFE) Acquires Citadel Security (OTC: CDSS)
Category: Security Risk Management Software
Purchase Price: $64,203,190EV
Revenue: $14,240,000
Revenue Multiple: 4.5xEV
Payment Terms: Cash
SEG’s Perspective:
Security software behemoth McAfee acquires Citadel Security Software, provider of security compliance and vulnerability remediation solutions. The acquisition falls in line with McAfee’s goal of bolstering its regulatory compliance, remediation and vulnerability assessment suite, a goal it has been working towards with acquisitions of Foundstone and Preventsys. Additionally, clients within the healthcare and government verticals make up a significant portion of Citadel’s customer base, two sectors that McAfee has targeted for growth. Citadel follows RSA Security (acquired by EMC, 5.5x TTM (EV)) and Internet Security Systems (acquired by IBM, 3.0x TTM (EV)) as the third publicly listed security company to be acquired in the past three months.
McKesson (NYSE: MCK) Acquires Per-Se (NASDAQ: PSTI)
Category: Healthcare Vertical Software
Purchase Price: $1,800,000,000EV
Revenue: $541,170,000
EBITDA: $106,730,000
Revenue Multiple: 3.3xEV
EBITDA Multiple: 16.9xEV
Payment Terms: Cash
SEG’s Perspective:
McKesson, one of the largest healthcare services companies, acquires Per-Se, developer of financial and administrative healthcare solutions for hospitals (29% of revenue), physicians (51% of revenue) and retail pharmacies (20% of revenue). Attractive to McKesson was Per-Se’s customer base, which includes approximately 100,000 physicians in small practices, 17,000 hospital-affiliated physicians, 3,000 hospitals and 50,000 retail pharmacies. Per-Se’s virtual monopoly on pharmacy claims clearing (90% of U.S. retail pharmacies are connected) will be an attractive tool in managing McKesson’s drug distribution customers. Per-Se had grown TTM revenue 46.8%, in large part due to its pharmacy business acquired from NDC Health in January, and was expected to grow revenue 9.2% in CY07 compared to CY06. The deal represents a 14.5% premium to Per-Se’s last closing stock price.
Oracle (NASDAQ: ORCL) Acquires MetaSolv (NASDAQ: MSLV)
Category: Telecommunications Vertical Software
Purchase Price: $161,240,000EV
Revenue: $95,030,000
EBITDA: $5,650,000
Revenue Multiple: 1.7xEV
EBITDA Multiple: 28.5xEV
Payment Terms: Cash
SEG’s Perspective:
Database and applications software behemoth Oracle continues its strategy of obtaining vertical market expertise by acquiring MetaSolv Software, a provider of operations support systems (OSS) software for the telecommunications and media industry. Oracle can now offer end-to-end telecommunications software incorporating OSS, CRM, ERP and revenue management. OSS is the fastest growing IT domain in the communications industry, and represented a $1.6 billion market in 2006. Oracle paid a 23% premium to MetaSolv’s pre-announcement closing stock price. MetaSolv follows HotSip AB, Portal Software and Net4Call, as Oracle’s 4th telecommunications acquisition in 2006.
Rocket Software Acquires Seagull Software (Euronext: SEAGU)
Category: IT Asset Management Software
Purchase Price: $53,400,000EV
Revenue: $29,846,000
Revenue Multiple: 1.8xEV
Payment Terms: Cash
SEG’s Perspective:
Privately held Rocket Software, developer of enterprise software including network management and security solutions, acquires Seagull, developer of technology that transforms legacy applications into SOA-compliant web services. The deal helps Rocket expand its breadth of products while providing better penetration into Europe. Seagull had been performing well, increasing license revenue by 15% in the six months ending in October compared to the same period a year ago. Seagull will be Rocket’s third acquisition in 2006 and follows its $35 million acquisition of ASTRAC in June 2005. The purchase price represents a 110% premium to Seagull’s closing stock price prior to acquisition.
SkillSoft (NASDAQ: SKIL) Acquires Thomson NETg
Category: e-Learning Software
Purchase Price: $285,000,000
Revenue: $161,000,000 (estimate)
Revenue Multiple: 1.8x (estimate)
Payment Terms: Cash
SEG’s Perspective:
SkillSoft, developer of e-learning software for business and information technology professionals, acquires NETg, one of its main competitors and a subsidiary of The Thomson Corporation. Skillsoft will finance approximately $180 million of the purchase price with debt, a significant amount considering Skillsoft has $103 million in cash and generates less than $50 million in TTM EBITDA. For Thomson, NETg was part of its $2.3 billion revenue generating learning business segment, which the company put up for sale in October and is Thomson’s worst performing segment from both an EBITDA margin perspective and revenue growth perspective. Considering Thomson purchased NETg from Prometric for $775 million in 2000, the $285 million sale to Skillsoft must be disappointing.
Trimble Navigation (NASDAQ: TRMB) Acquires @Road (NASDAQ: ARDI)
Category: Mobile Resource Management (MRM)
Purchase Price: $401,530,000EV
Revenue: $100,370,000
EBITDA: $1,510,000
Revenue Multiple: 4.0x EV
EBITDA Multiple: 265.9x EV
Payment Terms: Cash, Stock
SEG’s Perspective:
Trimble, developer of GPS navigation systems and software, acquires @Road, provider of fleet tracking, field service management and field asset management solutions. @Road was highly strategic to Trimble, complementing Trimble’s existing GPS technology platform with best of breed MRM solutions and expanding Trimble’s vertical presence from construction, supply, direct store delivery, public safety and utilities into telecommunications, cable, field service, transportation, facilities management and public works where @Road is strong. According to Frost & Sullivan, the MRM market is projected to grow at a four-year CAGR of 21% to $2.6 billion by 2010. @Road had increased TTM revenue 17% and had analysts projecting 26% revenue growth for CY07 compared to CY06. Trimble paid a 12% premium over @Road’s closing stock price prior to announcement.
Websense (NASDAQ: WBSN) Acquires PortAuthority
Category: Risk Management Software
Purchase Price: $90,000,000
Revenue: $15,000,000 (estimate)
Revenue Multiple: 6.0x (estimate)
Payment Terms: Cash
SEG’s Perspective:
In its first acquisition as a public company, Websense, provider of content filtering solutions, acquires information leak prevention provider, PortAuthority. The 6.0x Websense paid is a premium to overall software industry M&A (2.6x), but provides Websense quick access to one of the fastest growing segments of the IT security market which IDC estimates will grow to $435 million in 2009, representing a 2007-2009 CAGR of 50%. This acquisition marks the first time Websense has used its significant cash hoard, which includes over $300 million in cash and almost $90 million in operating cash flow, for M&A. The acquisition comes on the heels of Websense’s main rival’s, SurfControl, acquisition of BlackSpider (5.0x TTM Revenue) in the email filtering space.
Steve Martin has been personally responsible for over a quarter of billion dollars of high technology sales while working for leading edge Silicon Valley companies over the past twenty years. During this time, he has participated in thousands of sales calls and worked with hundreds of salespeople in roles ranging from salesperson to Vice President. His new book titled "Heavy Hitter Selling - How Successful High Technology Salespeople Use Language and Intuition to Persuade Customers to Buy," is the first book to truly explain the human nature of high-tech selling. Visit www.HeavyHitterSelling.com or email Steve directly at stevemartin@heavyhitterselling.com to provide article feedback.
 
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