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| Home - Software M&A Review - Jul 03 Issue |
Software M&A - Q2 in Review
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Representative transactions include:
Accounting / Financial Management
Agile Software Corp. / MS2
Fidelity National Financial / Hamilton & Sullivan
Fidelity National Information Solutions / DPN
Financial Profiles / StatiaFX
Hyperion Solutions Corp. / The Alcar Group
Risk Capital Management Partners / AcuRisk
SAS Institute / OpRisk Analytics
Enterprise Resource Planning
Battery Ventures / Made2Manage Systems
Cerberus Capital Management and General Atlantic Partners / Baan
Epicor / Select CompuNet eBusiness Assets
Oracle Corp. / PeopleSoft· PeopleSoft / J.D. Edwards
Prophet 21 / Faspac Systems
Speedware / Enterprise Computer Systems
Security / Firewall
Microsoft Corp./ GeCAD Software
Network Associates / Entercept Security Technologies
Network Associates / IntruVert Networks
SAIC / Predictive Systems’ Business Unit
Symantec Corp. / Nexland
Enterprise Systems Management
BMC Software / Database Guys (DGI)
Gores Technology Group / Resonate
IBM / Think Dynamics
NaviSite / Interliant
Surgien Networks / ProTier Corp.
Tarantella / New Moon Systems
Supply Chain Management
Agilisys International / Future Three Software
Electronics for Imaging / Printcafe Software
JDA Software Group / Vista Software Solutions
Manhattan Associates / Select ReturnCentral Assets
NDC Health Corp. / TechRx
NxTrend Technology / Dimasys Software
SSA Global Technologies / Ironside Technologies
Marketing Automation
Google / Applied Semantics
Interwoven / MediaBin
Siebel Systems / BoldFish
Silverpop Systems / Select Avalon Digital Marketing Systems Assets
Unica / Marketic
Wireless Software
Sun Microsystems / Pixo
Infowave Software / HiddenMind Technology
Novarra / Neomar
Nokia Corp. / Eizel Technologies
M&A: Most Active Buyers
There were few buying sprees in Q2. The most active buyers were:
ACD Systems
Deneba Systems, $5.5M
LINMOR Subsidiary, $1.3M
Mercury Interactive
Kintana, $225M
Performant, $22.5M
Agile Software Corp.
MS2, ND
ProductFactory, ND
Network Associates
Entercept Security Technologies, $120M
IntruVert Networks, $100M
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Cadence Design Systems
Get2Chip, ND
K2 Technologies, ND
SSA Global Technologies
Elevon, $20.3M
Ironside Technologies, ND
Celartem Technology
DiamondSoft, ND
LizardTech, $11.3M
Synopsys
InnoLogic Systems, ND
Qualis, ND
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Overall, software industry M&A activity in the second quarter showed considerable improvement over the prior 10 quarters The number and type of buyers increased. Financial buyers reentered the market seeking sound investment opportunities for realistic prices. Industry consolidation among enterprise players, long predicted, became more of a reality. Strategic acquirers shopped aggressively and paid higher multiples. We expect these trends to continue for the remainder of the year and remain steadfast in our forecast for a 10% increase in software M&A for 2003.
SELECT SOFTWARE M&A TRANSACTIONS, Q2 2003
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| ACD Systems (Tsx:ASA) |
Deneba Systems |
$5,500,000 |
$4,600,000 |
1.2x |
Cash & Stock |
| SEG’s Insight: 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. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| Battery Ventures |
Made2Manage Systems (Nasdaq:MTMS) |
$13,516,000EV |
$30,100,000 |
0.5x |
Cash |
| SEG’s Insight: Battery Ventures, a first-tier VC firm, takes private Made2Manage, an ERP provider to small and midsize manufacturers. Here’s another example of a struggling, undervalued public company being acquired at a price that looks like a real bargain at a 1.0x multiple, but represents a healthy 40% premium to shareholders. Look for additional acquisitions by Made2Manage now that it has Battery’s financial backing and greater flexibility as a private company. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| Cerberus Capital Management / General Atlantic Partners |
Baan |
$135,000,000 |
$265,000,000 |
0.5x |
Cash |
| SEG’s Insight: Once a real competitor in the ERP space before falling early victim to an accounting scandal and selling to Invnesys for $800M, Baan fell victim again – this time to the stagnant ERP market and depressed corporate IT spending. Private investment firms Cerberus and General Atlantic are the beneficiaries, picking up Baan for a song. The investors will combine Baan with SSA Global, leveraging Baan’s strength in open systems and its European focus with SSA’s AS/400 strength and North American focus. The combined business will boast $600M in revenue. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| FileNet (Nasdaq:FILE) |
Shana Corp. |
$8,500,000 |
$7,500,000(est.) |
1.1x |
Cash |
| SEG’s Insight: With $160M of cash on its books, cash-healthy FileNet, a provider of enterprise content and collaboration software, picks up Canadian firm Shana, a privately held e-forms software vendor. A FileNet partner for the last 12 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. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| Group 1 Software (Nasdaq:GSOF) |
Sagent Technology (Nasdaq:SGNT) |
$17,000,000 |
$37,900,000 |
0.45x |
Cash |
| SEG’s Insight: 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. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| Hewitt Associates (Nyse:HEW) |
Cyborg Systems |
$43,000,000 |
$40,000,000 |
1.1x |
Cash |
| SEG’s Insight: 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 10 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. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| JDA Software (Nasdaq:JDAS) |
Vista Software Solutions |
$4,300,000 |
$4,300,000 |
1.0x |
Cash |
| SEG’s Insight: 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. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| Kofax Imaging Products |
Mohomine |
$9,000,000 |
$1,500,000(est.) |
6.0x |
Cash |
| SEG’s Insight: Kofax, a provider of software and image-processing products for data and document capture, picks up Mohomine, a venture-backed developer of unstructured data capture. Mohomine’s patented classification and extraction technologies, which can classify up to 100 documents per second, further Kofax ’s pursuit of an end-to-end data capture solution. Kofax paid roughly 6x on LTM revenue between $1M and $2M, a relatively good return for Mohmine’s investors who received 80 cents on the dollar. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| MICROS Systems (Nasdaq:MCRS) |
Datavantage Corp. |
$52,000,000 |
$42,000,000 |
1.2x |
Cash & Stock |
| SEG’s Insight: MICROS, a leader in IT services and solutions to the hospitality industry, acquires Datavantage, a provider of POS software to the likes of Starbucks, IKEA and Staples. MICROS rationalized the acquisition by pointing out hospitality businesses often have retail operations. Fact is, MICROS is bucking the current trend of staying “close to home” by moving into a new and different vertical market that is faring better than travel and hospitality. Saratoga Partners, Datavantage’s investors, earned a 43% IRR. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| NaviSite(Nasdaq:NAVI) |
Interliant(Nasdaq:INIT) |
$7,000,000 |
$44,600,000 |
0.2x |
Cash |
| SEG’s Insight: Navisite, a provider of application management and hosting services, acquires Interliant, a bankrupt competitor focused on corporate messaging and e-mail outsourcing. It’s fourth acquisition of a hosting business in recent months, NaviSite is taking advantage of depressed valuations and others’ misfortunes. While the market reacted favorably to the acquisition, driving NaviSite’s stock price upward 67%, we’re a little less enthusiastic. NaviSite has significant debt, a dwindling cash balance and negative operating income. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| Oracle Corp.(Nasdaq:ORCL) |
PeopleSoft(Nasdaq:PSFT) |
$4,170,000,000EV |
$1,930,000,000 |
2.2x |
Cash |
| SEG’s Insight: On the heels of the PeopleSoft/J.D. Edwards announcement, Oracle responded promptly by tendering a hostile bid for PeopleSoft in the amount of $5.1B, or $16 per share. Viewed by many as a grossly inadequate offer, PeopleSoft’s stock price was bid up from $15 to $18 in anticipation of a higher offer by Oracle or a white knight. Less than two weeks later, Oracle revised its bid upward 22% to $19.50 per share, but many obstacles remain. Oracle, which has historically abstained from acquisitions, was sufficiently threatened by the prospect of a PeopleSoft/Edwards merger to act as spoiler offering most of its $6B of cash. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| PeopleSoft(Nasdaq:PSFT) |
J.D. Edwards (Nasdaq:JDEC) |
$1,350,000,000EV |
$886,000,000 |
1.5x |
Cash & Stock |
| SEG’s Insight: Kicking off what was a very exciting week for software M&A, PeopleSoft announced it would acquire J.D. Edwards. With Edwards, PeopleSoft will greatly strengthen its position in the mid-market, as well as its presence in manufacturing and other key vertical industries such as real estate and construction. Though Edwards’ revenue declined 11% from its 2000 high, it has done reasonably well in the current economy. We’re a bit surprised at the price, which equates to a modest 1.5x multiple and only a 19% premium to Edwards’ shareholders. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| Saratoga Partners(NASDAQ: FILE) |
Divine’s Managed Services Unit |
$28,000,000 |
$60,000,000 |
0.5x |
Cash |
| SEG’s Insight: Fallout from the Divine debacle continues with the U.S. Bankruptcy Court’s approved sale of Divine’s managed services unit to Saratoga Partners, a New York private equity firm. Saratoga is one of the few private equity firms that saw opportunity in the current market and jumped headlong into the fray. This is Saratoga’s third acquisition since February and follows on the heels of its recent sale of Datavantage to MICROS Systems. The managed services unit was built through Divine’s acquisition of Data Return, Intira and Host One. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| ScanSoft (Nasdaq:SSFT) |
SpeechWorks Int’l (Nasdaq: SPWX) |
$133,756,000EV |
$36,000,000 |
3.7x |
Stock |
| SEG’s Insight: ScanSoft, a leading developer of digital imaging software, continues to redefine itself by picking up publicly traded SpeechWorks, a speech recognition and text-to-speech vendor. This is ScanSoft’s third acquisition in this sector. ScanSoft clearly considers SpeechWorks to be highly strategic, considering the 63% premium it paid for a company that has historically lost significant amounts of cash. ScanSoft expects the deal to be 5% accretive after eliminating $27M through headcount cuts and office consolidations. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| SERENA Software (Nasdaq:SRNA) |
TeamShare |
$18,000,000 |
$12,500,000(est.) |
1.4x |
Cash |
| SEG’s Insight: Serena, a provider of software solutions used to manage enterprise application code and Web content changes, picks-up TeamShare, a “SoftLetter 100” provider of developer-oriented collaboration and workflow management tools. TeamShare’s product, which is already integrated with Serena’s, provides a highly complementary product extension for Serena. Revenue is estimated to be $12.5M. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| SSA Global Technologies |
Elevon (Nasdaq: ELVN) |
$20,280,000 |
$33,000,000 |
0.6x |
Cash |
| SEG’s Insight: Serena, a provider of software solutions used to manage enterprise application code and Web content changes, picks-up TeamShare, a "SoftLetter 100" provider of developer-oriented collaboration and workflow management tools. TeamShare’s product, which is already integrated with Serena’s, provides a highly complementary product extension for Serena. Revenue is estimated to be $12.5M. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| Symantec Corp. (Nasdaq:SYMC) |
Nexland(OTC:XLND) |
$20,100,000EV |
$7,740,000 |
2.6x |
Cash |
| SEG’s Insight: Symantec continues to reposition as a security software provider by acquiring Nexland, a small public company whose patent-pending security applications and appliances enable secure virtual private networking between corporate and remote offices. Here’s another example of a strategic partnership evolving into an acquisition with a decent multiple. After backing out Nexland’s cash and adding debt, Symantec paid $20.1M. Nexland’s compound annual revenue growth rate exceeded 129% over the last two years. |
EV: Enterprise value = Purchase price, plus debt, minus cash & equivalents
This report was prepared by Software Equity Group, L.L.C. (SEG), a mergers and acquisitions advisory firm serving the software, life science and technology sectors. 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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