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| Home - Software M&A Review - Mar 04 Issue |
Software M&A – A Glimpse into the First Quarter |
By Ken Bender, Managing Director, and Allen Cinzori, Vice President - Software Equity Group, LLC
The opening months of 2004 saw a continuation of the momentum that characterized the software industry in the closing months of 2003. Buyers were primarily public software companies seeking strategic acquisitions in response to market demands and competing players. High on many buyers’ list were strategic acquisitions that enhanced their product offering (JDA Software/Timera Retail; Verity/Cardiff Software; Hewlett Packard/Novadigm) as well as select acquisitions that provided immediate access to new markets (Captiva Software/ADP Context; Agilysys/Inter-American Data). Cash continued its dominance as the primary form of payment. Here’s an analysis of eleven of the most interesting acquisitions from the first half of the quarter.
Juniper Networks (NASDAQ: JNPR) acquires NetScreen Technologies (NASDAQ: NSCN)
Category: Security
Purchase Price: $3,436,781,000EV
Seller Revenue: $275,290,000
Revenue Multiple: 12.5x
Payment Terms: Stock
SEG’s Perspective:
Juniper Networks, the second largest internet router manufacturer, acquires internet security solution provider NetScreen Technologies in a deal valued at $3.8 billion. Noting the hefty 56% premium, the market drove down Juniper’s share price 11% on deal day, slicing more then $456 million in deal value. That same day NetScreen’s share price increased 36% to an all time closing high. The amount Juniper is paying is nearly $1 billion more then Juniper’s total cumulative revenue last year. Why the big multiple? First, Juniper has focused primarily on the telecom market and now needs NetScreen to compete against bellwether Cisco in the lucrative government sector. Second, NetScreen has performed admirably, even in a tough economy, by boosting sales to $245 million last year, up 77% from 2002. This acquisition puts pressure on the other major firewall/VPN provider, Check Point, to partner with a hardware provider. Check Point now becomes the only major player entirely focused on network security. For the time being, Juniper and NetScreen will remain separate businesses, although eventually NetScreen’s security will be embedded in Juniper’s routers.
Electronics for Imaging (Nasdaq: EFII) acquires Automated Dispatch Systems
Category: Asset/Service Management
Purchase Price: $11,500,000
Seller Revenue: $5,000,000 (Estimate)
Revenue Multiple: 2.3x
Payment Terms: Cash
SEG’s Perspective:
Electronics for Imaging (EFI), global provider of digital imaging and print management solutions for commercial and enterprise printing, acquires Automated Dispatch Systems (ADS), a provider of service tech dispatch software targeted at the photocopier repair market. EFI’s Intelligent Device Management software automatically monitors customers’ consumables use and provides continuous remote diagnostics and troubleshooting. When something is amiss, ADS software will automatically dispatch a repair technician. After acquiring Printcafe Software and T/R Systems in 2003, EFI has seen its revenue growth plummet 32% over the last fiscal year and is seeking incremental revenue opportunities targeted at the print industry. Look for additional EFI acquisitions in the coming months; the $11.5 million cash deal won’t make much of a dent in its $624 million cash reserve.
FindWhat.com (Nasdaq: FWHT) acquires Comet Systems
Category: Internet Tools/Utilities
Purchase Price: $18,580,000EV
Seller Revenue: $8,500,000
Revenue Multiple: 2.2x
Payment Terms: Cash, Stock
SEG’s Perspective:
FindWhat.com, a provider of marketing and e-commerce services, including online marketplaces, acquires Comet Systems, a developer of free download consumer software and a fee-based desktop search engine. FindWhat, which derives most of its revenue from a keyword-targeted internet advertisement service, hopes its advertisers will pay more in order to gain access to the 100 million who have downloaded Comet’s pop-up blocker and surf privacy software. Comet stockholders will receive $8.5 million in cash (equal to Comet’s 2003 net revenue) plus $15 million in FindWhat stock and up to $10 million in cash based on 2004 and 2005 operating performance.
JDA Software (Nasdaq: JDAS) acquires Timera Retail Solutions
Category: Workforce Management
Purchase Price: $13,000,000
Seller Revenue: $6,000,000 (Estimate)
Revenue Multiple: 2.2x
Payment Terms: Cash
SEG’s Perspective:
JDA Software, a leading retail sector solution provider, acquires Timera Retail Solutions, a developer of workforce management solutions in a $13 million, all cash deal. Timera stumbled in 2003 with revenue down sharply from 2002’s $8.3 million. Targeting primarily high-end retailers, JDA has beefed up its offering to include merchandising , collaboration, analytic and, now, labor cost tracking applications to compete against Peoplesoft, and Siebel. Look for additional acquisitions from JDA as it seeks to expand its revenue base to spur a lethargic 6.1% LFY growth rate.1
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