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| Home - Software M&A Review - Jan 03 Issue |
Q4 2002 - Software M&A Review |
By Ken Bender, Managing Director and Allen Cinzori, Associate – Software Equity Group, LLC
By our count, twelve noteworthy deals were concluded in the fourth quarter, bringing to close a year that saw considerably more software industry mergers and acquisitions than many had predicted. Look for Software Equity Group’s 2002 Annual M&A Report, out by month end, which will provide a comprehensive analysis of last year’s deals, valuations and trends. Fourth quarter deals built upon a theme which became well-entrenched in 2002: Buyers seek strategic acquisitions, usually close to home, which add leverage in their current markets, provide competitive differentiation and generate immediate incremental revenue and near term profitability.
IBM Corp. (NYSE: IBM) acquires Rational Software Corp. (Nasdaq: RATL)
Category: Software developer tools
Purchase Price: 1,600,000,000EV
Seller Revenue: $657,300,000
Revenue Multiple: 2.43x
Payment Terms: Cash and stock
SEG’s Perspective:
IBM bulks up its software group and improves its positioning against Microsoft by adding Rational, the crown jewel of the software development tools sector. With Rational, IBM seeks to foster its e-business-on-demand strategy enabling disparate enterprise applications to automatically integrate without writing new code. IBM also gains access to Rational’s extensive customer base, which includes 98% of the Fortune 100. This is an all cash deal in which Rational shareholders receive a 29% premium for their shares. Adding back Rational’s $500M of debt and subtracting its $1B of cash, IBM paid 2.4 times Rational’s LTM revenue.
NetIQ Corp. (NTIQ) acquires Marshal Software
Category: Enterprise security
Purchase Price: $23,000,000
Seller Revenue: $6,000,000 (estimated)
Revenue Multiple: 3.83x
Payment Terms: Cash
SEG’s Perspective:
NetIQ, which has evolved from a provider of Windows infrastructure management solutions to a cross-platform provider of systems management, security management and Web analytics, picks up privately held Marshal Software of Auckland, New Zealand. Marshal strengthens NetIQ’s enterprise content security offering and anti-spam solutions for messaging environments, currently a source of pain for many NetIQ customers. This transaction follows on the heels of NetIQ’s recent acquisition of security management provider PentaSafe Security Technologies.
VERITAS Software Corp (Nasdaq: VRTS) acquires Precise Software Solutions (Nasdaq: PRSE)
Category: Application performance management
Purchase Price: $400,000,000EV
Seller Revenue: $71,800,000
Revenue Multiple: 5.57x
Payment Terms: Cash & stock
SEG’s Perspective:
A leader in storage management, Veritas is aggressively pursuing additional market opportunities and positioning to be a leading IT infrastructure management provider. Veritas will acquire Precise, a next generation application performance management provider, and Jareva Technologies, a market leader in server automation. From Precise, Veritas also picks up a complementary low end SAN product. Precise shareholders will receive a 37% premium for their shares. Veritas will pay $63M in cash for Jareva. Jareva’s revenue was not disclosed.
Barra (Nasdaq: BARZ) acquires Financial Engineering Associates
Category: Financial investment software
Purchase Price: $21,500,000
Seller Revenue: $8,000,000
Revenue Multiple: 2.69x
Payment Terms: Cash
SEG’s Perspective:
Barra, a leader in risk management technology for investment professionals, strengthens its product offering by acquiring privately held Financial Engineering Associates (FEA), a market leader in option valuation models and risk analytics software with more than 700 institutional clients. Highly profitable Barra (39% EBITDA) paid all cash for FEA.
Fidelio Acquisition Company acquires Intertrust Technologies Corp (Nasdaq: ITRU)
Category: Digital rights management
Purchase Price: $328,100,000EV
Seller Revenue: $11,700,000
Revenue Multiple: 28.04x
Payment Terms: Cash
SEG’s Perspective:
Fidelio, a company formed by Sony, Phillips and others, purchases Intertrust, the leader in digital rights management. The buyers hope Intertrust’s technology will help leverage their digital media strategies, and will rely on Intertrust’s strong patent portfolio and active litigation strategy to help limit competition. With trailing twelve-month revenue of $11.7M, Intertrust sells for a 39 times multiple, or 28 times after backing out its cash balance of $125M. Intertrust shareholders will receive $4.25 per share in cash, a 26% premium over what some believe was a highly overvalued market cap.
Borland Software Corp. (Nasdaq: BORL) acquires Starbase Corp. (Nasdaq: SBAS)
Category: Software developer tools
Purchase Price: $22,900,000EV
Seller Revenue: $41,100,000
Revenue Multiple: 0.56x
Payment Terms: Cash
SEG’s Perspective:
Application development platform provider Borland expands into software lifecycle solutions by acquiring Starbase, a leading software configuration management provider. Starbase also furthers Borland’s platform independence strategy and complements its TogetherSoft acquisition. Though the revenue multiple was only 0.56, Starbase shareholders will receive a cash premium of 244% for their shares. Time was running out for Starbase, with only $1.4M of cash and a trailing twelve-month operating loss of $12M before depreciation and amortization.
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