Home | About | Recent Issue | Archives | Events | Jobs | Subscribe | ContactBookmark The Sterling Report


How will SAP's acquisition of Business Objects impact its M&A strategy?

Only strategic acquisitions will be made

Expect more acquisitions from SAP – a lot more

Nothing – business will go on, as usual

Software M&A Insights: Deals Continue to Impress

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

Amid deepened recessionary fears, M&A deal activity within the software sector continues to impress. Deals highlighted this month include BMC’s acquisition of BladeLogic, a provider of data center automation solutions; Microsoft’s acquisition of struggling enterprise search provider Fast Search & Transfer; Oracle’s acquisition of BEA Systems, the largest remaining pure-play middleware player; SolarSoft’s acquisition of manufacturing ERP vendor Chelford Group; Synopsys’ acquisition of Synplicity, a developer of semiconductor design and verification software and Thoma Cressey Bravo’s purchase of Macrovision’s digital rights management software division.

BMC Software (NYSE: BMC) Acquires BladeLogic (NASDAQ: BLOG)
Category: Data Center Automation Technology
Purchase Price: $810,070,000EV
Seller Revenue: $71,350,000
TTM Revenue Growth: 80.6%
EBITDA: ($1,150,000)
Revenue Multiple: 11.4xEV
Payment Terms: Cash

SEG’s Perspective:
BMC Software, a provider of enterprise systems and services management software, acquires high-flying BladeLogic, a best-of-breed provider of data center automation technologies. The addition of BladeLogic’s applications allows BMC to marry IT service management with robust process automation technologies. The deal enables BMC to compete against IT management behemoths Hewlett-Packard and IBM in the growing IT management arena and gives the BMC a new high-growth revenue stream. BladeLogic, which went public in July, saw its stock price rise to above $30 per share in late December before declining 48% as the market turned sour. The $28 per share tender offer represents a 42.1% premium over BladeLogic’s average last 30 days closing stock price, and an 11.7% premium over its initial day closing price of $25.07 in July. BMC is rumored to have beaten out VMWare for the deal – making BladeLogic the second company in the past year that VMWare has supposedly competed for and lost (VMWare is rumored to have bid on Opsware). BladeLogic joins Emprisa Networks ($21.9 million1), RealOps ($52.5 million2) and ProactiveNet as BMC’s fourth acquisition in the past 12 months.
1 Purchase Price
2 Purchase Price

Microsoft (NASDAQ: MSFT) Acquires Fast Search & Transfer (OSE: FAST)

Category: Enterprise Search
Purchase Price: $1,062,000,000EV
Seller Revenue: $167,800,000
EBITDA: ($64,600,000)
Revenue Multiple: 6.3xEV
Payment Terms: Cash

SEG’s Perspective:
Microsoft acquires Fast Search & Transfer (FAST), a best of breed developer of real-time enterprise search and business intelligence solutions. Microsoft adds sophisticated unstructured data search capabilities for the high-end enterprise, complementary to its recent release of SharePoint Server 2007, targeting the lower end of the market, and becomes the only vendor serving both segments. The acquisition will likely spur further search-related acquisitions by Google, Yahoo and others. Additionally, FAST’s recent focus on online advertising and search monetization complements Microsoft’s 2007 acquisition of aQuantive and better positions Microsoft to compete with Google and Yahoo for lucrative internet advertising revenues. The 42% premium1 offered to shareholders appears to be fair given FAST’s recent accounting debacle. In July 2007, the company announced it would restate 2007 and 2006 financials, booking substantial decreases in revenue and negative EBITDA. Its share price quickly dropped approximately 50%, to its lowest point in three years, and had remained submerged. Tender offer/pre-announcement last day closing stock price

Oracle (NASDAQ: ORCL) Acquires BEA Systems (NASDAQ: BEAS)
Category: Middleware
Purchase Price: $7,109,050,000EV
Seller Revenue: $1,486,710,000
TTM Revenue Growth:
EBITDA: $254,900,000
Revenue Multiple: 4.8xEV
EBITDA Multiple: 27.9xEV
Payment Terms: Cash

SEG’s Perspective:
Oracle continues its acquisition spree with the purchase of BEA Systems, the largest remaining pure-play middleware provider. The combination of Oracle Fusion Middleware and BEA Systems significantly bolsters Oracle’s market presence domestically and abroad (notably in China where BEA is the leading Middleware vendor), blocks competitors such as SAP from entering the space, and solidifies Oracle’s position as the number two middleware provider, second only to infrastructure behemoth IBM. The acquisition also provides Oracle entree into the SOA governance technologies space, a market for which Oracle had no competitive offering. BEA rejected Oracle’s initial $17 per share bid made in October, countering at $21, a price BEA believed could be achieved through a competitive bidding process. SAP and others have since remained silent, however, and Oracle raised its bid 14% to $19.38 per share, a price BEA’s management deemed acceptable. BEA faced considerable pressure from activist shareholder Carl Icahn (13% shareholder) who filed lawsuit against BEA following its rejection of Oracle’s initial bid. The deal spares both companies an ordeal similar to Oracle’s hostile take-over of PeopleSoft in 2003.

Solarsoft Business Systems Acquires Chelford Group Plc (AIM: CHR)
Category: Manufacturing Enterprise Resource Planning Software
Purchase Price: $27,260,000EV
Seller Revenue: $37,715,000
EBITDA: $2,752,000
Revenue Multiple: 0.7xEV
EBITDA Multiple: 9.9xEV
Payment Terms: Cash

SEG’s Perspective:
Solarsoft Business Systems, a provider of manufacturing enterprise resource planning (ERP) software, acquires Chelford Group Plc, a developer of process manufacturing ERP and supply chain management (SCM) solutions. Solarsoft, a private company controlled by Marlin Equity Partners, adds complemetary process manufacturing software to its discrete manufacturing expertise, and significantly expands Solarsoft’s geographic reach in the U.K. and Europe. The 2.15 British pounds per share bid represents a 25% premium to Chelford’s pre-announcement last-day trading stock price. The 0.7x TTM revenue valuation Chelford received was due to flat TTM revenue growth and a less than stellar TTM EBITDA margin of only 7.3%. Chelford is the latest in a string of acquisitions made by Marlin Equity to roll-up small and medium size manufacturing ERP vendors domestically and abroad – VantagePoint Systems ($10.2 millionEV1 – 0.8x TTM revenue), CMS Software, and XKO Software ($27.8 million2).
1 Purchase Price
2 Purchase Price
Synopsys (NASDAQ: SNSP) Acquires Synplicity (NASDAQ: SYNP)
Category: Semiconductor Design and Verification Software
Purchase Price: $188,000,000EV
Seller Revenue: $71,200,000
TTM Revenue Growth: 13.8%
EBITDA: $7,200,000
Revenue Multiple: 2.6xEV
EBITDA Multiple: 26.1xEV
Payment Terms: Cash

SEG’s Perspective:
Synopsys, a provider of semiconductor electronic design automation (EDA) software, acquires Synplicity, a developer of semiconductor design and verification software. Synopsys picks up the field programmable gate arrays (FPGA) market leading software provider, while also eliminating a competitor. The acquisition also helps Synopsis’ CAGR – Synplicity posted 13.8% TTM revenue growth vs. Synopsys’ 8.1% growth, which is due in part to 2007 acquisitions of Sandwork Design ($23.7 million1), MOSAID’s Semiconductor IP Product Development Business ($15.3 million2) and ArchPro Design Automation. The 60% premium3 offered to shareholders was announced amidst rumors of competitor Mentor Graphics’ interest in acquiring the company.
1 Purchase Price
2 Purchase Price
3 Tender offer/pre-announcement average last 30 days closing stock price

Thoma Cressey Bravo Acquires Macrovision’s Software Business Unit
Category: Digital Rights Management Software
Purchase Price: $200,000,000
Seller Revenue: $112,900,000
Revenue Multiple: 1.8x
Payment Terms: Cash

SEG’s Perspective:
Thoma Cressey Bravo, a mid-market private equity firm, acquires Macrovision’s digital rights management software division. Macrovision spins out the division to focus resources on its pending acquisition of Gemstar – TV Guide International (NASDAQ: GMST) for $2.3 billion (3.7xEV TTM Revenue) and intends to use the proceeds from the transaction to lessen debt-funding requirements. Macrovision also announced the sale of its PC games digital distribution technologies business, Trymedia Systems, to RealNetworks in late March. In November Thoma Cressey took Manatron, a provider of property tax systems for state a local governments, private for $69.9 millionEV (1.6xEV TTM revenue).

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 

Click to email this article to a friend     Back


  Home | About | Recent Issue | Archives | Events | Jobs | Subscribe | Contact | Terms of Agreement
© 2006 The Sterling Report. All rights reserved.