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| Home - Software M&A Review - Oct 03 Issue |
Software M&A - Q3 Review
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M&A: Most Active Buyers
An increased number of buyers entered the market in Q3, and several engaged in modest buying sprees. Among the most active buyers:
Chinadotcom
Industri-Matematik, $25 million
Ross Systems, $69 million
Eastman Kodak
MiraMedica, ND
PracticeWorks, $466 million
Epicor Software
ROI Systems, $21 million
TDC Solutions, ND
Hewlett-Packard
Baltimore Technologies (select
assets), ND
Talking Blocks, ND
PipeBeach AB, ND
Extreme Logic, ND
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International Microcomputer Software
CADalog.com, ND
CADKEY, $2.5 million
Upperspace (select assets), ND
Intuit
Income Dynamics, $10 million
Innovative Merchant Solutions, $116 million
Lawson Software
Apexion Technologies, ND
Closedloop Solutions, ND
Numbercraft, ND
Pumatech
Loudfire, ND
Spontaneous Technology, ND
Synchrologic, ND
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Overall, software industry M&A activity in the third quarter continued to show improvement. The number and type of buyers increased. More strategic buyers entered the market, as financial buyers retreated. While strategic acquirers continued to shop opportunities to bulk up in the short term, many sought longer term investments and technologies which could be leveraged into competitive advantage. Software sectors previously hammered by IT budget cuts began their recovery, with notably increased activity in storage management, ERP, wireless and vertical apps. Valuations also improved markedly. We expect these trends to continue for the remainder of the year and remain comfortable with our prior forecasts of a 10% increase in software M&A for 2003.
SELECT SOFTWARE M&A TRANSACTIONS, Q3 2003
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| Ascential Software (Nasdaq:ASCL) |
Mercator Software (Nasdaq:MCTR) |
$97,900,000 EV |
$111,900,000 |
0.9x |
Cash |
| SEG’s Insight: Fending off a hostile bid from Strategic Software Holdings, enterprise application/data integration provider Mercator agrees to a $106 million cash offer from Ascential. Since spinning out from Informix, the acquisitive Ascential has bought Vality, Torent Systems and Metagenix to beef up its data warehousing suite. The deal represents a 22% premium to Mercator’s shareholders. Ascential has more than $500 million in cash remaining. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| Business Objects (Nasdaq:BOJB) |
Crystal Decisions |
$820,000,000 |
$270,000,000 |
3.0x |
Cash / stock |
| SEG’s Insight: 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. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| Chinadotcom (Nasdaq:CHINA) |
Ross Systems (Nasdaq:ROSS) |
$66,110,000 EV |
$46,050,000 |
1.4x |
Cash / stock |
| SEG’s Insight: Hong Kong-based Chinadotcom (CDC), a pan-Asian enterprise software and services provider, acquires Ross Systems, a leading ERP vendor in the process manufacturing space. With a whopping 600 enterprise customers in Asia-Pacific, CDC aspires to dominate the region and preempt Tier 1 players, but lacked a comprehensive ERP offering. Ross was an obvious choice. After seeing revenue decline 50% over the past three years, Ross shareholders saw the writing on the wall and grabbed the 23% premium, but will receive only 26% of the purchase price in cash. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| Chinadotcom (Nasdaq:CHINA) |
Industri-Matematik |
$25,000,000 |
$45,000,000(estimate) |
0.6x |
ND |
| SEG’s Insight: Five days after its Ross buy, Chinadotcom (CDC) acquired 51% of IMI from Symphony Technology Group, a financial investor that bought IMI in 4Q02 for $11 million, yielding a $14 million profit after just nine months. CDC needed a supply chain solution company to round out its enterprise suite – which now includes Ross. Look for CDC to cut costs by funneling IMI development to its China R&D center. This rollup should enable CDC to lengthen its lead in China and the Pac Rim. Symphony retains 49% of IMI. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| EMC (NYSE:EMC) |
Legato Systems (Nasdaq:LGTO) |
$1,239,420,000 EV |
$280,300,000 |
4.4x |
Stock |
| SEG’s Insight: 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% premium, a nice outcome given the firm’s rocky road since its revenue recognition debacle in 2000. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| Epicor Software (Nasdaq:EPIC) |
ROI Systems |
$20,700,000 |
$20,000,000 |
1.0x |
Cash |
| SEG’s Insight: 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. |
| Buyer |
Seller |
Price |
Revenue |
Multiple |
Currency |
| Hyperion Solutions (Nasdaq:HYSL) |
Brio Software (Nasdaq:BRIO) |
$116,500,000 EV |
$101,800,000 |
1.1x |
Cash / stock |
| SEG’s Insight: 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% premium. |
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