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Will software sales in the US be affected due to the sluggish economy?



Software M&A Insights: 3Q08 Continues to Impress  

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

M&A deal activity within the software sector has continued to impress thus far in 3Q08. Deals highlighted this month include Hellman & Friedman’s leveraged buy-out of SSP Holdings, a leading provider of insurance solutions to the European and Australasia markets; IBM’s tuck-in acquisition of ILOG in the business process management infrastructure arena, JDA Software’s purchase of struggling supply chain management competitor i2 Technologies and OpenText’s acquisition of Captaris, a provider of document capture and imaging technologies.

Hellman & Friedman acquires SSP Holdings (AIM: SSPH)
Category: Insurance Industry Software
Purchase Price: $393,560,000EV
Seller Revenue (TTM): $128,750,000
EBITDA (TTM): $32,900,000
Revenue Multiple (TTM): 3.1xEV
EBITDA Multiple (TTM): 12.0xEV
Payment Terms: Cash

SEG’s Perspective:
Hellman & Friedman adds to its portfolio of enterprise software businesses through its acquisition of SSP Holdings, a UK-based provider of software and services to the insurance industry. SSP Holdings serves as Hellman and Friedman’s second European platform software acquisition – following the June 2007 announced merger of Iris Group and Computer Software, funded by Hellman and Friedman for approximately $1 Billion. SSP significantly expanded its geographical presence in May 2007 by acquiring Sirius Financial Solutions, which had operations in the United States, Africa, India and Australasia. The 1.90 pence per share tender offer represents an approximate 50% premium over SSP’s closing stock price prior to announcement of a possible takeover.

Category: Business Process Management Software
Purchase Price: $231,190,000EV
Seller Revenue (TTM): $214,710,000
EBITDA (TTM): $5,750,000
Revenue Multiple (TTM): 1.1xEV
EBITDA Multiple (TTM): 40.2xEV
Payment Terms: Cash

SEG’s Perspective:
Infrastructure software behemoth IBM, acquires ILOG, a provider of business rules management software. The acquisition of ILOG fills a hole in the IBM WebSphere business process management suite, and extends IBM’s optimization and visualization opportunities, two areas of increasing relevance to business process management and complex event processing environments. The business rules market has seen significant consolidation over the past 3 years, with acquisitions of RulesPower by Fair Isaac in 2005, Mindbox by MacDonald Detwiller & Assoc. in 2006 and 2007 acquisitions of Gensym ($15.5 millionEV, 0.9x TTM revenue) by Versata, Yasu Technologies by SAP and Haley Systems by RulesBurst. The $15.69 per share tender offer represents an approximate 56% premium to ILOG’s pre-announcement average 30 days’ closing stock price.

JDA Software (NASDAQ: JDAS) acquires i2 Technologies (NASDAQ: ITWO)
Category: Supply Chain Management
Purchase Price: $346,000,000EV
Seller Revenue (TTM): $257,040,000
EBITDA (TTM): $ 34,050,000
Revenue Multiple (TTM): 1.6xEV
EBITDA Multiple (TTM): 11.7xEV
Payment Terms: Cash

SEG’s Perspective:
JDA Software group, an industry-leading supplier of supply chain management solutions, has acquired struggling competitor i2 Technologies. The acquisition significantly strengthens JDA’s position within the manufacturing sector, while also doubling the company’s size and increasing recurring revenue to nearly 50% of total sales. The $14.86 per share tender offer represents a 9.7% premium over i2’s pre-announcement average 30 days closing stock price – a substantial offer given i2’s high margin license and maintenance & support streams have decreased year-over-year for the past several years, while its low margin services business has shown growth, albeit sluggish. With the acquisition of i2, JDA surpasses Manhattan Associates as the largest pure-play provider of supply chain management solutions.

Open Text (NASDAQ: OTEX) acquires Captaris (NASDAQ: CAPA)
Category: Document Management/Imaging
Purchase Price: $105,460,000EV
Seller Revenue (TTM): $111,370,000
EBITDA (TTM): ($3,840,000)
Revenue Multiple (TTM): 0.9xEV
Payment Terms: Cash

SEG’s Perspective:
Open Text, a leading provider of enterprise content management software, acquires Captaris, a provider of document and data capture solutions. The acquisition strengthens Open Text’s partnership offerings by better integrating its invoice management solutions with SAP and Oracle enterprise offerings. OpenText’s $4.80 bid modestly trumps private equity firm Vector Capital’s March 2008 $4.75 per share tender offer. The 0.9xEV revenue multiple offered reflects Captaris’ sluggish revenue growth and poor profitability. The addition of Captaris serves as Open Text’s third acquisition of the year, following acquisitions of eMotion ($5M – Equity Value), a provider of digital media asset management solutions, and Spicer Corporation ($12M – Equity Value), a developer of content and document management solutions.

Software Equity Group is an investment bank and M&A advisory serving the software and technology sectors. Founded in 1992, the firm has represented and guided private companies throughout the United States and Canada, as well as Europe, Asia Pacific, Africa and Israel. They have advised public companies listed on the NASDAQ, NYSE, American, Toronto, London and Euronext exchanges. Software Equity Group also represents several of the world's leading private equity firms. They were recently ranked among the top ten investment banks worldwide for application software mergers and acquisitions. For more, please visit www.softwareequity.com.

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