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| Home - Software M&A Review - Jan 03 Issue |
Q4 2002 - Software M&A Review
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Rocket Software acquires TCSI Corp. (Nasdaq: TCSI)
Category: Telecom network management software
Purchase Price: $10,700,000
Seller Revenue: $7,710,000
Revenue Multiple: 1.39x
Payment Terms: Cash
SEG’s Perspective:
Rocket Software, an ISV which develops enterprise software for OEMs such as IBM, RSA and Microsoft, picks up TCSI, a struggling public software company serving the global telecom industry. Backing out TCSI’s $15M of cash from the $11M purchase price, TCSI shareholders receive a 62% premium and Rocket receives $4M to cover losses until it controls TCSI’s burn. Expect immediate and substantial cost cutting of non-developer TCSI personnel.
SofTech acquires Workgroup Technology Corp. (Nasdaq: WKGP)
Category: Product data management software
Purchase Price: $1,400,000EV
Seller Revenue: $7,020,000
Revenue Multiple: 0.20x
Payment Terms: Cash
SEG’s Perspective:
Two market challenged companies, one with a substantial operating loss and the other with declining revenue and a 26% net loss last quarter, join together hoping the whole will exceed the sum of the parts. SofTech plans to wrap its CAD/CAM products with Workgroup’s product data management products. SofTech shareholders reacted favorably, pushing the stock upward 100%.
Documentum (Nasdaq: DCTM) acquires eRoom Technology
Category: Enterprise collaboration software
Purchase Price: $110,000,000
Seller Revenue: $29,500,000
Revenue Multiple: 3.73x
Payment Terms: Cash and stock
SEG’s Perspective:
After concluding that collaboration is an ideal complement to enterprise content management (ECM), leading ECM developer Documentum acquired eRoom, a venture backed provider of enterprise collaboration software and services. Documentum expects to realize substantial ROI by cross-selling each company’s products in the other’s installed base. Based on Documentum’s stock price prior to the announcement, eRoom shareholders will receive $97M in Documentum stock and $12.6M in cash.
Borland Software Corp. (Nasdaq: BORL) acquires TogetherSoft Corp.
Category: Software design and development tools
Purchase Price: $185,000,000
Seller Revenue: $51,000,000
Revenue Multiple: 3.63x
Payment Terms: Cash and stock
SEG’s Perspective:
Application development platform provider Borland was apparently dissatisfied with its arrangement to resell Rational Rose as its UML offering. TogetherSoft gives Borland ownership of a state-of-the-art, collaborative UML-based CASE application development toolset and access to blue chip customers such as GE, NASA and Home Depot. The multiple reflects both strategic fit and TogetherSoft’s 81% revenue growth in 2001.
Invitrogen Corp. (Nasdaq: IVGN) acquires InforMax (Nasdaq: INMX)
Category: Software for research experiments
Purchase Price: $42,000,000
Seller Revenue: $16,900,000
Revenue Multiple: 2.49x
Payment Terms: Cash
SEG’s Perspective:
Invitrogen, a provider of research tools to the life sciences industry, picks up InforMax, a software company which develops tools for design, management and interpretation of research experiments. This is another highly strategic deal which leverages both buyer and seller in the same target market. InforMax shareholders received $1.36 a share, a 142% premium. However, the revenue multiple is really negative 0.26 after backing out InforMax’s $47M cash balance from the purchase price.
Microsoft Corp.(Nasdaq: MSFT) acquires Vicinity Corp. (Nasdaq: VCNT)
Category: Location based services and technology
Purchase Price: $13,200,000EV
Seller Revenue: $15,800,000
Revenue Multiple: 0.83x
Payment Terms: Cash
Microsoft continues to flirt with the wireless industry acquiring Vicinity, a provider of location-based solutions that enable businesses to direct customers to a local brick-and-mortar store. Microsoft aims to leverage Vicinity’s products and to quickly deliver .NET platforms and solutions to this market. With $82.8M of cash on Vicinity’s balance sheet, the effective purchase price was $13.2M. Vicinity shareholders received a 46% premium for their shares.
EV: Enterprise Value = equity purchase price, plus seller’s interest bearing debt, minus seller’s cash & equivalents
This update was prepared by Software Equity Group, L.L.C. (SEG), a leading M&A firm serving the technology industry. 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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