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Will the enterprise market spend significant IT budget on Windows Vista in 2007?



Software M&A – Second Quarter 2003, Deals and Insight

By Ken Bender, Managing Director, Software Equity Group, LLC

There were some very encouraging signs during the first half of Q2. The Nasdaq, which now appears to have bottomed in October, grew 15% during the first 45 days of the quarter to its highest level in eleven months. M&A activity followed suit, climbing considerably from Q1 lows. Extrapolating data from the first half of the quarter, software M&A is projected to climb 10% in Q2, with a continuing mix of strategic and distressed acquisitions. For sellers, strategic acquirers continue to seek small and midcap companies with sound financials, loyal customers and product lines which can be leveraged into short-term incremental revenue and earnings. For buyers, opportunity persists as many businesses are forced to choose between the lesser of two evils – cease operations or be acquired for pennies on the dollars invested. Below is our perspective on nine such deals.

ACD Systems (Tsx:ASA) acquires Deneba Systems
Category: Desktop publishing and imaging software
Purchase Price: $5,500,000
Seller Revenue: $4,600,000
Revenue Multiple: 1.2x
Payment Terms: Cash and stock

SEG’s Perspective:
ACD, a developer of digital imaging and management software, acquires Deneba, a provider of photo editing and desktop publishing applications. Deneba’s core products and small file “foot print” complement ACD’s products and Web distribution model. Deneba should also aid in diversifying ACD’s revenue, likely derived mostly from its ACDSee product. ACD will pay $4.5M in cash and $1M in stock, but seeking to preserve its cash balance, has offered Deneba shareholders a 20% premium on any cash amount under $1.5M taken in ACD stock.

FileNet (Nasdaq:FILE) acquires Shana Corp.
Category: e-Forms software
Purchase Price: $8,500,000
Seller Revenue: $7,500,000 estimate
Revenue Multiple: 1.1x
Payment Terms: Cash

SEG’s Perspective:
With $160M of cash on its books, cash rich FileNet, a provider of enterprise content and collaboration software, picks up Canadian based Shana, a privately held e-forms software vendor. A FileNet partner for the last twelve months, Shana complements FileNet’s offering and furthers its push to offer customers an end-to-end ECM solution. With 66 employees, Shana’s revenue is estimated to be $7.5M.

Group 1 Software (Nasdaq:GSOF) acquires Sagent Technology (Nasdaq:SGNT)
Category: Data extraction and analysis
Purchase Price: $17,000,000
Seller Revenue: $37,900,000
Revenue Multiple: 0.45x
Payment Terms: Cash

SEG’s Perspective:
After defaulting on a $7M loan in late March, data extraction and analysis provider Sagent threw in the towel. Group 1, a CRM solutions vendor, is the beneficiary. Group 1 pays 0.5 times Sagent’s LTM revenue and in return picks up 1,500 global customers, powerful complementary technology and a product it can sell immediately into its installed base of 2,000 customers.

Hewitt Associates (Nyse:HEW) acquires Cyborg Systems
Category: Workforce management and payroll services
Purchase Price: $43,000,000
Seller Revenue: $40,000,000
Revenue Multiple: 1.1x
Payment Terms: Cash

SEG’s Perspective:
Global HR outsourcing and consulting firm Hewitt picks up Cyborg Worlwide, a provider of HR workforce management software. What really attracted Hewitt was Cyborg’s lucrative payroll services business, which Hewitt needs to round out its HR outsourcing business. Hewitt also gains access to 750 companies in ten countries using Cyborg’s payroll service. At 1.1x, the multiple is in line with what we expect today from a strategic acquisition of a service provider.

JDA Software (Nasdaq:JDAS) acquires Vista Software Solutions
Category: Retail supply chain solutions
Purchase Price: $4,300,000
Seller Revenue: $4,300,000
Revenue Multiple: 1.0x
Payment Terms: Cash

SEG’s Perspective:
Leading retail industry software provider JDA beefs up its planning, forecasting and supply chain solutions by acquiring the IP assets and staff of Vista Software, a provider of data synchronization and integration solutions linking retailers, distributors and manufacturers. This is an inexpensive acquisition that will enable JDA customers to better manage trade promotions and synchronize data throughout their supply and demand chains. Vista had $1.4M in software revenue.


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