NCR rings up another software purchase with Retalix

Contact: Brenon Daly

NCR will hand over $763.5m in cash for Retalix, the latest example of an old-line hardware vendor using M&A to build up its more valuable software and services business. The deal is actually the second significant software acquisition by the company formerly known as National Cash Register, and takes the equity value of the transactions to a collective $2bn. In mid-2011, NCR dropped $1.2bn on fellow publicly traded company Radiant Systems.

NCR leaned on the credit market to finance nearly all of its purchase of Radiant, the largest acquisition the company has done. It will add a bit more debt to cover the just-announced reach for Retalix. An Israeli company, Retalix has no debt and about $133m in cash, lowering the net cost of the business to roughly $650m.

In comparing NCR’s two software plays, the valuations line up rather closely. NCR’s bid for Radiant valued the company (on the basis of enterprise value) at about 3.2 times trailing sales and 21x trailing EBITDA. For Retalix, the comparable figures are 2.4x trailing sales and 25x trailing EBITDA.

Further, the premium NCR paid for Radiant, compared with the stock price 30 days prior, came in at 47%; for Retalix it was 50%. A final similarity between the two deals: the advisers. J.P. Morgan Securities banked NCR in both deals while Jefferies & Company worked for both Radiant and Retalix.

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Accounting for M&A

Contact: Ben Kolada

As accounting software giant Intuit buys beyond its traditional roots, it is leaving the door open for competition from a new breed of accounting startups. A handful of accounting companies have popped up over the past few years in the US and abroad to target consumers and SMBs, some with freemium models. These Davids are walking in Goliath’s giant footsteps, and are announcing a number of their own expansion plays.

Over roughly the past year, accounting startups Wave Accounting (based in Toronto), Xero (based in New Zealand) and FreeAgent (based in the UK) have each announced at least one acquisition. For the most part, these companies’ purchases have been done to expand beyond their core accounting focus. Wave, for example, recently announced the pickup of small stock analysis startup Vuru.

Xero has been particularly acquisitive, announcing four acquisitions since its founding in 2006. The company, publicly traded on the New Zealand Stock Exchange, has been doing deals to both complement its products and expand geographically. Its purchase of PayCycle in July 2011 helped the company enter the nearby Australian market. Through organic and inorganic growth, Xero has grown its revenue to about $16m in its 2012 fiscal year, which ended in March.

Beyond M&A, some companies have developed new products as an offshoot to their businesses. Ruby on Rails developer LessEverything, based in Fort Lauderdale, Florida, is now offering LessAccounting. And Toronto-based invoice vendor 2ndSite now offers FreshBooks.

Meanwhile, Outright Inc was recently acquired by Go Daddy Group. Though, if you ask LessEverything, it could have very well been its LessAccounting product. The company purported on its blog that Go Daddy approached it two years ago with interest in buying its LessAccounting product.

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Intuit pays up for SMB-focused Demandforce

Contact: Ben Kolada, Thejeswi Venkatesh

Intuit on Friday announced its largest M&A move in six years, acquiring SMB-focused marketing automation startup Demandforce for $423.5m. The deal, and Demandforce’s valuation, was primarily driven by the target’s market traction. The company, founded just in 2003, has amassed a customer roster of more than 35,000 SMBs. The transaction also demonstrates the accounting and tax giant’s desire to further penetrate this market with additional products and services – this is its first major play in marketing automation.

The Demandforce acquisition complements Intuit’s QuickBooks software and expands its offerings for SMBs. (We’d note that Intuit already offers a marketing management and productivity application called QuickBase, though that product is for enterprises.) Demandforce provides marketing automation SaaS and helps businesses maintain an online profile and better communicate with their customers. The company has grown considerably over its short lifetime. According to’s annual survey of the fastest-growing companies, Demandforce generated $15.3m in revenue in 2010, up from $6.4m in 2009. Continuing that growth rate would put its 2011 revenue at roughly $25-30m.

Intuit is handing over $423.5m in cash for Demandforce, making this deal Intuit’s largest since it forked over $1.35bn for transaction processor Digital Insight in 2006. Demandforce’s growth certainly factored into its valuation. Assuming that Demandforce maintained historical growth rates, Intuit’s offer would value the target at a whopping 15-20 times trailing sales. If our initial estimates are correct, that valuation is double and even triple some precedent valuations. For example, in 2010, IBM bought Unica for 4.4x sales. Unica had flatlined during its final years as a public company, with revenue remaining in the $100m ballpark for the four years before its sale. The valuation is also double Teradata’s Aprimo acquisition, also announced in 2010. Teradata paid $525m for Aprimo, or 6.3x sales.

Software AG feels the need for speed in latest acquistion

by Brenon Daly

Moving to bolster its middleware messaging technology, Software AG said Monday that it would pick up London-based my-Channels. The acquisition of 13-year-old my-Channels, which is probably best known for its Nirvana product used in foreign currency trading, will provide technology to the German BPM giant that will allow customers to stream data to a variety of sources. Software AG plans to release the first product integrated with the newly acquired Nirvana technology before the end of the year, although the technology will be interoperable with its webMethods suite shortly.

The purchase by Software AG, which is its first deal in almost a year, has a few echoes with an acquisition Informatica did almost two years ago. Like my-Channels, 29West focused on high-volume, low-latency messaging for financial services firms. Informatica indicated that it paid about $40m for 29West, which we suspect is more than Software AG paid for my-Channels. However, according to our understanding, 29West had almost three times the revenue of the UK-based startup

Monitise pays out now for payoff later

Contact: Ben Kolada

Mobile banking and payments vendor Monitise made a big bet on Monday when it moved to consolidate its industry with the acquisition of startup Clairmail. At first glance, the deal should have set off alarms among Monitise’s investors. The all-stock transaction will significantly dilute Monitise’s shareholders, leaving them owning three-quarters of the combined company. However, its investors remained calm – Monitise’s share price closed down only 2%. Why? Although the deal is richly valued and dilutes Monitise’s shareholders, those same investors are all but assured of their own rich payoff eventually.

Another explanation for the muted shareholder response is that the transaction only seems overvalued on the surface. It is actually fairly valued by several metrics. Monitise’s £109m ($173m) offer values Clairmail at 9.3 times trailing sales, a smidgen below its own current 10x enterprise value (Monitise held $68m in net cash at the end of 2011, while Clairmail had $5m). Further, Monitise is also obtaining more valuable customers. Clairmail had 48 banking customers generating a total of $18m in revenue last year, or about $375,000 per customer. Monitise, meanwhile, had more than 250 customers, each of which generated an average of less than $150,000 in annual revenue. And because of Clairmail’s growth rate (its revenue jumped 90% in 2011), its price-to-projected-sales valuation is certain to be much lower. Further placating investors, Monitise is forecasting continued heady growth. The combined company, which would have generated $56m in revenue in 2011 on a pro forma basis, is projecting 2012 total revenue close to $100m.

There’s certainly no reason for alarm among the acquirer’s investors, considering valuations across the mobile payments industry are already high and the potential for Monitise itself to one day find a fruitful takeover offer. In July, eBay announced that it was buying Zong for $240m. And in June, Visa announced that it was buying Fundamo for $110m, or about 11x estimated trailing sales. The latter deal is of particular note, given the growing relationship between Visa and Monitise. Following the Fundamo buy, will Visa make a larger play in mobile payments, perhaps by acquiring Monitise? The two companies are already partners – Visa Europe made a $38m investment in Monitise in October, the two companies equally share a joint venture in India and Visa Europe president and CEO Peter Ayliffe sits on Monitise’s board. And as of February 28, Visa and Visa Europe combined owned 21% of Monitise’s equity.

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S1 is out of one deal, still in a second deal

Contact: Brenon Daly

We now know that S1 Corp won’t be a buyer, but whether the financial software company is a seller remains an open question. Late last week, S1 scrapped its three-month-old plans to acquire Fundtech, pocketing an $11.9m breakup fee for its trouble. (That represents a not-insignificant windfall for a company that has only earned $2.2m so far this year, on a GAAP basis.)

Instead, Fundtech will be picked up by private equity firm GTCR in a deal that appears much more straightforward than S1’s original offer. For starters, GTCR is paying in cash, while S1 was planning on a mix of cash and stock. But maybe more importantly, there’s a fair amount of uncertainty hanging over S1 itself, as the company is still fending off an unsolicited acquisition offer.

A month after launching the bid for Fundtech, S1 received an offer of its own from ACI Worldwide. The two sides have been scrapping ever since. S1 has told its shareholders not to back ACI’s proposed bid, warning that there are ‘serious, unaddressed concerns’ such as antitrust challenges and ACI’s plan to raise some $450m in the credit market.

ACI looks to crash S1’s wedding

Contact: Brenon Daly

Just a month after announcing its largest-ever acquisition, S1 Corp has found itself unexpectedly (and perhaps unwelcomely) on the other end of a potential transaction. The payments software maker agreed in late June to acquire Fundtech in a stock swap valued at $326m. On Tuesday, ACI Worldwide sought to play the spoiler in that planned marriage, pitching an unsolicited offer to S1 that it says holds ‘significant upside’ compared to the proposed Fundtech deal.

ACI is offering $9.50 in cash and stock for each share of S1, for total consideration of $540m. The bear hug represents a premium of 33% over S1’s previous closing price and the highest price for the stock since late 2004. ACI says it has the financing lined up and could close the deal by the end of the year. Although S1 hasn’t responded to ACI’s proposal, its stock traded in line with the offer, changing hands on Tuesday afternoon at about $9.35.

In some ways, the current interest in S1 is about a half-decade overdue. We speculated in September 2006 that the company was likely on its way out. At that time, S1 was busy unwinding some misguided deals that it had inked years earlier as part of a larger ‘strategic review.’ (The divestitures came at a time when activist hedge fund Ramius Capital was the company’s largest shareholder.) Had it made its move then, ACI could have picked up the company on the cheap: S1 was trading at half the level of ACI’s current bid.

IntraLinks limps onto the market

Contact: Brenon Daly

It turns out that the third time is not the charm for IntraLinks, at least not in terms of its initial valuation as a public company. IntraLinks cut the price for the 11 million shares it is selling to $13 each, down from the $14-16 range it had set. That means the company is raising $143m, some $22m less than it would have if it priced at the midpoint of its initial range. That’s a key consideration because unprofitable IntraLinks was counting on the IPO proceeds to help it pay down debt.

But at least it did manage to get public, unlike the times it filed back in 2000 and 2005. We recently noted how much more grown up IntraLinks looks now compared to its earlier S-1s. One kicker: when it originally filed in 2000, the company ran at negative gross margins compared to the fairly respectable 65% it notched in 2009. Although IntraLinks still isn’t printing black numbers, it’s come a long way from 2000, when it lost five times more money than it even brought in as revenue.

The weaker-than-expected pricing continues a trend that we’ve seen in most tech offerings so far this year: Motricity, Broadsoft, TeleNav, Convio and others have all priced below their range – and all of them are trading lower in the aftermarket. (The one exception to this weakness is QlikTech. The offering, which we indicated would be a hot one, priced above its range at $10, and is now trading at $15.) For its part, IntraLinks first traded at $13 and basically stuck around that level in its debut.

Amex buys into the alternative online payments revolution

-Contact Thomas Rasmussen

As the first significant deal that adds online payments technology to a legacy payment platform, American Express’ recent $300m acquisition of Revolution Money essentially amounts to a shot across the bow of eBay’s PayPal and Google’s CheckOut. The relatively rich purchase of four-year-old Revolution Money also stands as the third-largest alternative online payments buy to date, trailing only eBay’s pickups of PayPal and Bill Me Later. We estimate that Revolution Money, which had taken some $100m in venture funding, was running at around $10m-$20m in sales.

The alternative payments market is both large and fragmented, and is likely to see substantial consolidation in the coming years. It is also a space that has had difficulties in establishing a coherent offering, with early efforts ranging from ill-conceived ‘sci-fi-esque’ biometrics offerings to SMS-based payment methods. Until recently, it has mostly been marred by failed startups, poorly executed acquisitions and fire sales. Nonetheless, thanks to the continuing success of PayPal and new alternatives (Google Checkout, among others), as well as the boom in online micro-transactions and an uptick in general online shopping, the sector is again gaining favor, particularly as a way to cut transaction costs.

Looking ahead, we believe Amex’s acquisition of Revolution Money will serve as a wakeup call to other legacy payments vendors as well as financial institutions that might now look to do some catch-up shopping of their own. This inevitable consolidation should serve as good news for some of the established startups in the industry such as mPayy, Moneta, eBillme and Secure Vault Payments, among many others. These firms could well find themselves getting some overdue attention in 2010 as alternative online payments continue to gain currency.

Intuit mints a rich deal

-Contact Thomas Rasmussen, Brenon Daly

We might be inclined to read Intuit’s recent purchase of Mint Software as a case of ‘If you can’t beat ’em, buy ’em.’ The acquisition by the powerhouse of personal finance software undoubtedly gives the three-year-old startup a premium valuation. Intuit will hand over $170m in cash for Mint, which we understand was running at less than $10m in revenue. (Although we should add that Mint had only just begun looking for ways to make money from its growing 1.5-million user base.)

More than revenue, we suspect this deal was driven by Intuit’s desire to get into a new market, online money management and budgeting, as well as the fear of the prospects of a much smaller but rapidly growing competitor. (Intuit and Mint have been talking for most of this year, according to one source.) In that way, Intuit’s latest acquisition has some distinct echoes of its previous buy, that of online payroll service PayCycle. For starters, the purchase price of both PayCycle and Mint totaled $170m. And even more unusually, bulge bracket biggie Goldman Sachs advised Intuit on both of these summertime deals. (Remember the days when major banks would hardly answer the phone for any transaction valued at less than a half-billion dollars? How times change.) On the other side of the table in this week’s deal, Credit Suisse’s Colin Lang advised Mint.

Intuit M&A, 2007 – present

Date Target Deal value
September 14, 2009 Mint Software $170m
June 2, 2009 PayCycle $170m
April 17, 2009 BooRah <$1m*
December 3, 2008 Entellium $8m
December 19, 2007 Electronic Clearing House $131m
November 26, 2007 Homestead Technologies $170m

Source: The 451 M&A KnowledgeBase *451 Group estimate