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If the average Venture Capitalist was asked to run a startup, would he/she be successful?

YES. The average VC would do a good job as CEO of a startup.

NO. VC's are investors, not operating executives, and would mess things up if they tried to run a business day to day.

Software M&A: Acquisition Spree Continues

By Ken Bender, Managing Director, and Kris Beible, Analyst - Software Equity Group, LLC

M&A Deal activity within the software sector continues its torrid pace. Deals highlighted this month include Autonomy’s acquisition of Zantaz in the content archiving space, Fiserv’s acquisition of financial e-commerce software and services provider CheckFree, Google’s acquisition of Postini in the red-hot security and compliance arena, Megasoft’s acquisition of struggling telecom billing and payment software and services provider Boston Communications Group, Nice Systems’ acquisition of Actimize, a provider of transactional risk management software, and The Sage Group’s acquisition of payroll and human resource management software provider Creative Software.

Autonomy (LSE: AU) Acquires Zantaz
Category: Content Archiving Software
Purchase Price: $375,000,000
Seller Revenue: $100,000,000
EBITDA: $5,200,000
Revenue Multiple: 3.8x
EBITDA Multiple: 72.1x
Payment Terms: Cash

SEG’s Perspective:
Enterprise search and e-mail archiving leader Autonomy acquires Zantaz, a developer of best-of-breed on-demand content archiving software. The acquisition allows Autonomy to provide consolidated archiving, e-discovery, analytics and real-time policy management in one unique system and strengthens its position as the leader in information risk management solutions. Specifically, the company bolsters its position in the legal and compliance arena – Zantaz is reported to service 9 of the top 10 global law firms, 14 of the top 20 financial securities firms, and 11 of the Fortune 25 companies. In a September 2006 IDC report, Zantaz owned approximately 27% of its core market and had grown revenue better than 50% in 2004 and 2005. Zantaz recently reported 20% growth in 2006.

Fiserv (NASDAQ: FISV) Acquires CheckFree (NASDAQ: CKFR)
Category: Financial e-Commerce Software and Services
Purchase Price: $4,400,000,000
Seller Revenue (TTM): $972,640,000
EBITDA (TTM): $276,030,000
Revenue Multiple (TTM): 4.5x
EBITDA Multiple (TTM): 15.3x
Payment Terms: Cash

SEG’s Perspective:
Fiserv, a provider of information management systems and services to the financial and insurance industries acquires CheckFree, a leader in financial e-commerce software and services. Fiserv plans to integrate CheckFree’s electronic bill payment and settlement capabilities with its leading account processing and risk management products. CheckFree, which currently serves 21 of the top 25 financial institutions, will enable Fiserv, which has typically served small and mid-sized banks, to extend its core banking services to large U.S. banks. Thus far in 2007, CheckFree has spent $479 million to acquire financial software and services providers Carreker (1.5xEV TTM revenue), Corrilian (3.6xEV TTM revenue) and Upstream Technologies. The $48 per share bid represents a 30% premium over CheckFree’s pre-announcement last day closing stock price.

Google (NASDAQ: GOOG) Acquires Postini
Category: On-Demand Messaging Security and Compliance Software
Purchase Price: $625,000,000
Seller Revenue: $75,000,000 (estimate)
Revenue Multiple: 8.3x (estimate)
Payment Terms: Cash

SEG’s Perspective:
Google acquires Postini, a leading provider of on-demand messaging security and compliance software. Google Apps, released earlier this year, quickly gained traction in the small business segment, but lacked security features required by larger organizations. Postini’s secure email and messaging apps fill the hole and put Google in good position to compete against Microsoft (Exchange), IBM (Lotus Notes) and Novell (Group Wise) in the growing online email and messaging market place. The acquisition complements Google’s current strategy of selling personal and group productivity applications to businesses, part of its vision of driving long-term expansion through enterprise sales. Postini follows acquisitions of DoubleClick ($3.1 billion) and YouTube ($1.65 billion), as Google’s third largest to date.

Megasoft Acquires Boston Communications Group (NASDAQ: BCGI)
Category: Billing and Payment Software
Purchase Price: $26,020,000EV
Seller Revenue (TTM): $98,850,000
EBITDA: $24,730,000
Revenue Multiple (TTM): 0.3xEV
EBITDA Multiple (TTM): 1.1xEV
Payment Terms: Cash

SEG’s Perspective:
Indian telecommunications software and services provider Megasoft acquires Boston Communications (BCGI), a provider of billing and payment software for cell phone service providers. The acquisition doubles Megasoft’s revenue and gives the company greater access to North American and Latin American markets. The $3.60 per share bid represents an 81% premium over BCGI’s pre-announcement last day trading price. Early investors, however, will remain underwater. The company’s stock had traded as high as $10 per share in December 2004, but has been riddled with controversy ever since. In May 2005, BCGI was found guilty of patent infringement and liable for $128 million in damages, which it settled for $87 million in early 2006. In mid-2006, the company announced an internal review of stock-option grants. It has since failed to file a complete quarterly report and faced NASDAQ delisting prior to acquisition. Additionally in 2006, the company saw its revenue decline as blue-chip customers, such as Verizon and Cingular, migrated off its managed billing platform. The purchase price included approximately $39 million of cash on BCGI’s balance sheet.

NICE Systems (NASDAQ:NICE) Acquires Actimize
Category: Transactional Risk Management Software
Purchase Price: $280,000,000
Seller Revenue: $30,000,000 (estimate)
Revenue Multiple: 9.3x (estimate)
Payment Terms: Cash/Stock

SEG’s Perspective:
Nice Systems, a provider of call center performance and analytics solutions acquires Actimize, a developer of best-of-breed transactional risk management software for the financial industry. Nice will integrate Actimize’s transaction analytics technology with SmartCenter, its performance management technology platform primarily for financial services call centers, to provide the first integrated real-time transaction and customer interaction analytics solution. Actimize has reported a CAGR of 125% over the past 5 years and forecasts 30% long-term growth1. Nice has enjoyed year-over-year quarterly revenue growth of approximately 30%.

1. Gartner Report

The Sage Group (LSE:SGE) Acquires Creative Software
Category: Payroll and Human Resource Management Software
Purchase Price: $6,568,000
Seller Revenue: $3,218,000 (estimate)
Revenue Multiple: 2.0x (estimate)
Payment Terms: Cash

SEG’s Perspective:
The Sage Group, a leading provider of accounting and payroll software to the SME market acquires Creative Software, a provider of payroll and human resource management software and services in the Pacific Rim. The acquisition provides further penetration in the burgeoning SME market and broadens Sage’s reach in the growing Asian markets. In an effort to expand its global presence, Sage has been extremely acquisitive the past two years, acquiring businesses focused in North America (Verus, Intuits Master Builder Business, Contractor Anywhere, Emdeon Practice Services and Corum Mobile), France (Cogestib, Adonix S.A., and Xpert) the U.K (Protx Group and Snowdrop Systems), Germany (Baurer), Switzerland (Pro-Concept) and Scandinavia (Visma ASA).

Sign up for Software Equity Group’s complementary (http://www.softwareequity.com) 3Q07 M&A Report, which provides a comprehensive analysis of deals, valuations and trends in 3Q07.

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 for 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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