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| Home - Software M&A Review - Aug 03 Issue |
Software M&A: Q3 in Review |
By Ken Bender, Managing Director, and Allen Cinzori, Vice President - Software Equity Group, LLC
Software M&A activity continues to gain momentum, driven by industry consolidation, strategic acquisitions and smaller public companies going private. Enterprise resource planning continues to be one of the hottest sectors, with the spotlight focused on PeopleSoft, J.D. Edwards and Oracle. Oracle’s hopes for a quick acquisition of PeopleSoft have been stymied by poison pills, antitrust issues and continued opposition by PeopleSoft’s board. PeopleSoft did, however, manage to consummate its purchase of J.D. Edwards, closing the transaction in mid-July. Other acquisitive enterprise software vendors included Epicor, Lawson Software, The Sage Group and SSA Global Technologies. The business intelligence sector was equally hot, as Actuate, Business Objects and Hyperion all executed strategic acquisitions with significant “pull through” revenue potential. Overall, software M&A is on track to reach 400 deals by the end of the third quarter, a substantial improvement over Q2’s 300 deals, and the 272 deals consummated in Q1. Below is our perspective on eight of the most significant deals.
Business Objects (Nasdaq:BOJB) to acquire Crystal Decisions
Category: Reporting and query tools
Purchase Price: $820,000,000
Seller Revenue: $270,000,000
Revenue Multiple: 3.04x
Payment Terms: Stock and cash
SEG’s Perspective:
Business intelligence software provider Business Objects picks up the world’s leading report writer. BO covets the midmarket and Crystal boasts 14 million licenses as well as 350 OEMs. Incremental revenue through cross-licensing is the short-term goal, but BO will have to sell an awful lot of report writers to justify the multiple it paid. For Crystal Decisions, the sale scotches a planned IPO, but it’s doubtful the markets would have been as generous. BO also gets Crystal’s $95 million in cash and expects the acquisition to be immediately accretive.
EMC (NYSE:EMC) to acquire Legato Systems (Nasdaq:LGTO)
Category: Storage backup and recovery
Purchase Price: $1,239,420,000EV
Seller Revenue: $ 280,300,000
Revenue Multiple: 4.42x
Payment Terms: Stock
SEG’s Perspective:
Information and storage leader EMC, hammered by IT budget cuts and resistance to its proprietary offering, continues its foray into open systems through acquisition. Its fourth software acquisition in the last 12 months, EMC acquires Legato, the number three seller of backup and recovery software. Expect EMC to also capitalize on Legato’s 500 strong sales force and customer base of some 31,000 businesses. Legato shareholders received a 16 percent premium, a nice outcome given the firm’s rocky road since its revenue recognition debacle in 2000.
Epicor Software (Nasdaq:EPIC) acquired ROI Systems
Category: Enterprise resource planning
Purchase Price: $20,700,000
Seller Revenue: $ 20,000,000
Revenue Multiple: 1.04x
Payment Terms: Cash
SEG’s Perspective:
A provider of enterprise software to the mid-market, Epicor picks up ROI Systems, a privately held ERP vendor to multiple vertical sectors in manufacturing. This deal is typical of the current M&A market; Epicor looks to add immediate revenue and earnings by leveraging ROI’s complementary products and 6,500 customers. This is an all-cash deal of a business that has sustained 20 years of profitability for a price equivalent to one-time trailing 12 month revenue.
Hyperion Solutions (Nasdaq:HYSL) to acquire Brio Software (Nasdaq:BRIO)
Category: Business intelligence tools
Purchase Price: $116,500,000EV
Seller Revenue: $101,800,000
Revenue Multiple: 1.14x
Payment Terms: Stock and cash
SEG’s Perspective:
Just days after the Business Objects-Crystal Decisions deal, Hyperion, a leader in business performance management, acquires Brio after former partner Crystal Decisions sells to Business Objects. Brio’s strong query and reporting tools are an excellent entre to Hyperion’s dynamic enterprise performance monitoring. Brio’s declining revenues and ongoing operating losses starkly contrast with Crystal Decisions’ growth and profitability and help explain the lower multiple. Hyperion adds Brio’s 3,000 customers, while beefing up its query and reporting offering. Brio shareholders get a 39 percent premium.
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