| Software M&A - First Quarter 2003, Deals and Insight
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| By Ken Bender, Managing Director, and Allen Cinzori, Associate - Software Equity Group, LLC
Mergers and acquisitions continue in the software sector, though buyers' appetites have been somewhat dampened by the impending war with Iraq. Predictably, the defense and government IT sectors remain fertile ground for M&A. Below is a closer look at twelve deals from the current quarter, and Software Equity Group's analysis of the factors which drove those deals. Look for SEG's First Quarter 2003 M&A Update, out next month, which will provide a more comprehensive study of current M&A activity and trends. Amdocs (NYSE: DOX) acquires Exchange Applications (Pink Sheet: EXAP) Category: Campaign management and marketing automation Purchase Price: $5,000,000 Seller Revenue: $24,400,000 Revenue Multiple: 0.20x Payment Terms: Cash SEG's Perspective: Amdocs, a leader in CRM and billing solutions for the telecom market, acquires the assets of Enterprise Applications (Xchange), a provider of campaign management and marketing automation software. The acquisition follows Xchange's rapid demise after raising $99M in the public markets, and enables Amdocs to broaden its ClarifyCRM product line, acquired from Nortel in late 2001 for $200M. Laden with debt, Xchange shut its doors in February 2003 after an unsuccessful attempt at taking the business private. Cisco Systems (Nasdaq: CSCO) acquires SignalWorks Category: IP Telephony Purchase Price: $13,500,000 Seller Revenue: $unknown Revenue Multiple: n/a Payment Terms: Stock SEG's Perspective: IP telephony is a Cisco priority, with 6,000 IP communications customers and 1.5M IP phones shipped. By acquiring SignalWorks, a developer of advanced software that delivers high-performance audio capabilities for IP telephony systems, Cisco secures its technical lead and extends into new markets. This is an all stock deal - somewhat surprising since Cisco sees its stock as quite undervalued and has launched an aggressive $13B stock buyback initiative. Indus Int'l (Nasdaq: IINT) acquires SCT's GEUS Business Unit Category: Software solutions for the energy sector Purchase Price: $39,000,000 Seller Revenue: $74,200,000 Revenue Multiple: 0.53x Payment Terms: Cash SEG's Perspective: Indus, an enterprise asset management provider to the utility and energy markets, picks up Systems and Computer Technology Corp's Global Energy and Utility Solutions (GEUS) business unit. Here's another example of a strategic acquisition in the same target market offering immediate incremental revenue opportunities. Considering GEUS's revenue, net assets of $31.8M and breakeven net income, it looks like Indus picked up GEUS for a song. GEUS gives Indus a CIS solution for its installed base, plus 200 new customers. Itron (Nasdaq: ITRI) acquires Silicon Energy Category: Enterprise energy management software Purchase Price: $71,200,000EV Seller Revenue: $15,000,000 estimate Revenue Multiple: 4.75x Payment Terms: Cash SEG's Perspective: Itron, a leading technology provider to major utilities worldwide moves into the end-user market by announcing a bid for privately-held Silicon Energy, a provider of enterprise energy management solutions. Silicon Energy filed, then shelved an IPO back in 2001 at an implied market cap of $250M. The $71.2M price tag is a 4.75x multiple over Silicon Energy's trailing revenue. Itron expects the deal to be mildly dilutive in 2003. L-3 Communications (NYSE: LLL) acquires Ship Analytics Category: Homeland security, command and control Purchase Price: $11,400,000 EV Seller Revenue: $25,000,000 estimate Revenue Multiple: 0.46x Payment Terms: Cash and earnout SEG's Perspective: Beefing up its homeland security offering, L-3 Communications picks up privately held Ship Analytics (SA), a provider of crisis management software. Having partnered together earlier, L-3 decided to tie the knot and target state governments and FEMA. The purchase price is largely contingent. L-3 will pay $6.7M, assume $4.7M of Ship Analytics' debt, and provide up to an additional $20.2M as an earnout, subject to financial performance, through 2005. Ship Analytics does not disclose its financials, but we estimate revenues in the range of $25M. ManTech Int'l Corp. (Nasdaq: MANT) acquires Integrated Data Systems Category: Government software and services Purchase Price: $62,700,000EV Seller Revenue: $40,000,000 Revenue Multiple: 1.57x Payment Terms: Cash and earnout SEG's Perspective: ManTech, an IT services provider to the Federal government, picks up software developer and systems integrator IDS in order to beef up its secure messaging and security network offering. IDS, with year-over-year growth exceeding 80%, derives the vast majority of its revenue from ManTech's target market - the DoD and intelligence community. ManTech paid 12.2 times IDS' CY 2002 EBITDA and expects to receive highly favorable tax treatment due to the structure of the deal. This is ManTech's third acquisition following its IPO in 2002. MASBC Acquisition Corp. acquires Viador (Nasdaq: VIAD) Category: Enterprise information portal Purchase Price: $1,080,000EV Seller Revenue: $4,940,000 Revenue Multiple: 0.22x Payment Terms: Cash SEG's Perspective: Following in the footsteps of Industri-Matematik, Prophet 21 and Riverdeep, Viador, an enterprise portal vendor, takes its business private. MASBC, the acquisition corporation formed to purchase Viador, is financially backed by Suma Ventures and an existing Viador shareholder. Like the others, Viador lists cost savings, better management focus and a desire to reduce executive liability imposed by the Sarbanes-Oxley Act as primary drivers. Viador raised $36M in a 1999 IPO, but saw its revenue decline precipitously from $26.2M in 2000 to its current run rate of $4.9M. Viador had approximately $1.4M of cash on its books and a market cap of $168K. Open Text Corp. (Nasdaq: OTEX) acquires Corechange Category: Enterprise information portal Purchase Price: $4,200,000 Seller Revenue: $18,000,000 estimate Revenue Multiple: 0.23x Payment Terms: Cash SEG's Perspective: Knowledge management software provider Open Text follows up its recent acquisition of Eloquent by acquiring enterprise portal vendor Corechange. Open Text, hoping to beef up the front and back ends of its collaboration offering, will pay 0.2 times Corechange's fiscal 2001 revenue, a multiple which clearly reflects the tough market environment for portal-only vendors. It's likely Corechange was running out of cash. Another disappointment for VCs, who had $36M invested. Open Text Corp. (Nasdaq: OTEX) acquires Eloquent Corp. (Nasdaq: ELOQ) Category: CRM rich media solutions Purchase Price: $6,720,000 Seller Revenue: $2,500,000 Revenue Multiple: 2.69x Payment Terms: Cash SEG's Perspective: Open Text, a leader in online collaboration, plans to acquire Eloquent, a niche CRM player whose technology will add video conferencing to Open Text's Livelink offering. Eloquent, with sharply declining revenue, a negative $12.2M twelve month EBITDA and $12.1M cash balance has been buyer shopping for 6 months. Open Text's offer of 34 cents per share ($6.7M all cash) is quite a come down. Eloquent traded as high as $39 per share in March, 2000. How times change. Perot Systems (NYSE: PER) acquires Soza & Company Category: Government IT provider Purchase Price: $75,000,000 Seller Revenue: $137,000,000 Revenue Multiple: 0.55x Payment Terms: Cash and earnout SEG's Perspective: In the IT services arena, Perot Systems acquires Soza & Co. a professional services firm strongly focused on defense and homeland security, growth sectors which are clear priorities for Perot. Soza expands Perot's Government Services Group, adding 900 employees and $137M in revenue to the Perot Group's 600 employees and $63M of revenue. With an earnout in cash and stock of $32M, the purchase price can approach a 0.8x revenue multiple, not bad for a services provider. SunGard Data Systems (NYSE: SDS) acquires Caminus Corp. (Nasdaq: CAMZ) Category: Integrated software solutions for the energy sector Purchase Price: $119,000,000EV Seller Revenue: $84,000,000 Revenue Multiple: 1.42x Payment Terms: Cash SEG's Perspective: Sungard, the leader in financial services software, moves aggressively into the energy vertical, acquiring Caminus, a developer of trading and risk-management systems for that sector. Sungard's value has declined 9.1% since its $9 a share offer, a $6.50 premium over Caminus' trading price. We disagree. Backing out Caminus' estimated $40M cash balance, Sungard paid only 1.4x trailing 12 month revenue for a company growing at almost 50% annually. Caminus' net losses are largely due to amortization expenses relating to prior acquisitions. SunGard Data Systems (NYSE: SDS) acquires HTE (Nasdaq: HTEI) Category: Software and services for the public sector Purchase Price: $96,900,000EV Seller Revenue: $70,000,000 Revenue Multiple: 1.38x Payment Terms: Cash SEG's Perspective: SunGard continues to ramp up its public services operating unit with the acquisition of HTE, a leader in IT and software solutions to the government sector, especially local agencies. Backing out HTE's cash balance of $24.1M, SunGard pays a 1.4x multiple, or $96.9M. Although HTE's revenue has hovered for the past two years around $65M, it returned to profitability in 2002, attracting SunGard's interest. EV: Enterprise Value = equity purchase price, plus seller's interest bearing debt, minus seller's cash & 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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