Software M&A Insights: 2005 Q1 Review

By Ken Bender, Managing Director, and Allen Cinzori, Vice President - Software Equity Group, LLC

Verisign (NASDAQ: VRSN) acquires LightSurf
Category: Mobile Messaging Software
Purchase Price $270,000,000
Seller Revenue $12,000,000 (Estimate)
Revenue Multiple 22.5x
Payment Terms: Stock

SEG's Perspective:
Verisign beefs up its Communications Services Group, which serves wireline and wireless telecom carriers, by placing another heavy bet on mobile content delivery. This time it's Lightsurf, a provider of picture mail and video mail solutions for wireless operators. The deal follows closely on the heals of Verisign's acquisition of mobile content aggregator Jamba! for $273 million. Together the two acquisitions will enable Verisign to provide telecoms with solutions to satisfy the growing demand for both third-party and user generated content. It's estimated Jamba! alone will contribute $500 million to CY2005 revenues.

EMC (NYSE: EMC) acquires SMARTS
Category: Networking Software
Purchase Price $260,000,000
Seller Revenue $60,000,000
Revenue Multiple 4.3x
Payment Terms: Cash

SEG's Perspective:
EMC continues its acquisition-driven evolution from world leader in storage management to leading provider of IT infrastructure and systems management solutions, by acquiring SMARTS, a provider of network systems management software. The acquisition puts EMC in competition with the likes of BMC, IBM (Tivoli), HP (Open View), and Computer Associates (Unicenter). EMC was attracted to SMARTS' 85% gross margins (EMC's 60% gross margins due to 47% of sales from hardware). EMC has made significant investments outside of the storage arena by acquiring VMWare, Documentum, and now SMARTS. In the past 18 months, EMC has spent $4 billion to acquire nine software companies.

Siebel Systems (NASDAQ: SEBL)acquires edocs
Category: e-billing software Purchase Price: $116,000,000
Seller Revenue: $40,000,000
Revenue Multiple: 2.9x Payment Terms: Cash

SEG's Perspective:
In search of incremental revenue and new markets, Siebel Systems acquires edocs, a provider of e-billing and self service software applications. edocs' software enables customers to submit and track electronic payments and manage online bills and accounts. Siebel is hoping vertical applications can help offset 17% year-over-year decline in core CRM license revenue, but the e-billing sector is fragmented and highly competitive. Siebel previously acquired Motiva (Incentive compensation management) and Eontec (Multichannel retail banking software) 2003 as part of its revenue diversification/vertical market strategy.

Infor Global Solutions acquires MAPICS (NASDAQ: MAPX)
Category: Manufacturing ERP Software Purchase Price: $347,000,000
Seller Revenue: $172,800,000
Revenue Multiple: 2.0x Payment Terms: Cash

SEG's Perspective:
As U.S. manufacturers struggle to retain customers and compete globally, their IT solution providers have shared the pain, resulting in consolidation among manufacturing software developers. The latest example - Infor Global Solutions (formerly Agilisys), a provider of manufacturing and distributed software to select industries acquires Mapics, a competing provider of software to discrete and batch processes manufacturers. The purchase price represents a 10% premium to Mapics' pre-announcement closing share price. The combined company will boast more than 17,500 customers in 70 countries. Mapics had increased trailing-twelve-month (TTM) revenue 10.4% and TTM EBITDA 131% year-over-year (YOY) but was unable to excite investors, resulting in a 15.4% decline in enterprise value from 4Q03 to 4Q04.

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.