End of a (Lucid)Era

Contact: Brenon Daly, Krishna Roy

After unsuccessfully trying to find a buyer for several months, LucidEra has turned itself over to a workout firm to sell off the patents and whatever else has value at the once-promising on-demand business intelligence (BI) vendor. We understand that CEO Robert Reid and the company’s board members have left LucidEra, replaced by Diablo Management Group. DMG, which got the mandate last week, has sole fiduciary control at LucidEra. A scrap sale, if it occurs, is likely within the next two months or so.

It’s a stunning fall for LucidEra, which was arguably the most visible startup in the market. Certainly, cofounder and former CEO Ken Rudin was one of the loudest – if not the loudest – evangelist for on-demand BI. (Rudin served as CEO until last July, when he assumed the role of chief marketing officer and turned the company over to Reid.) The company had raised some $23m from Crosslink Capital, Benchmark Capital and Matrix Partners over two rounds. We would note that if DMG does manage to sell LucidEra, the startups’ creditors will be first in line for payment, with any remaining funds then available to investors. LucidEra doesn’t have many creditor claims, but there are some.

In many ways, what initially allowed LucidEra to get going ultimately proved to be its undoing. From the beginning, the vendor tied its fate to Salesforce.com, specifically offering a pipeline reporting and analytics feature for the on-demand CRM vendor. That essentially made LucidEra an after-market add-on for Salesforce.com customers, which limited its market and always prompted questions about why Salesforce.com wouldn’t just offer that technology. It also got us wondering in a report two months ago why Salesforce.com wouldn’t just acquire LucidEra. That may still happen. If it does, however, Salesforce.com will be picking up just a fraction of what LucidEra had been when they last discussed a deal. And it will be paying just a fraction of the price, as well.

Sales of tech assets are on the rise

-by Thomas Rasmussen, Yulitza Peraza

At a time when both M&A volume and deal values have declined dramatically, the relative volume of asset sales continues to rise. There are two main contributors to this. First, companies are under increasing pressure to focus on their core operations, so they’re looking to divest underperforming business units. And second, cash-burning startups often find their venture backers unwilling to sink more money into them, resulting in wind-down sales of the intellectual property they had developed.

For the first quarter of 2008, the volume of asset sales represented some 15% of total announced transactions. That number doubled in the first quarter of 2009 and has even inched up a bit in April. About one out of every three transactions announced so far this year has been an asset sale.

For all the talk of unbridgeable valuation gaps, however, we would note that the buyers often get a sharp markdown on the price of the assets. Consider Artistdirect’s acquisition of SafeNet’s MediaSentry unit this month. SafeNet, which originally paid $20m for the division in 2005, wanted the MediaSentry assets off its books before the end of the first quarter, and Artistdirect’s new management was happy to fork over less than $1m for the unit. We understand that the deal closed within a few weeks. Or look at semiconductor startup Nethra Imaging, which picked up the assets of Ambric for an estimated $1m this month. Ambric had received an estimated $30m in funding, but when investors refused to step up with another round, the startup had little choice but to sell.

Asset sales spike

Period Volume of asset sales, as % of overall M&A
April 1-24, 2009 32.4%
Q1 2009 31.8%
Q4 2008 19.9%
Q3 2008 17.4%
Q2 2008 16.2%
Q1 2008 15.8%
Q4 2007 13.7%

Source: The 451 M&A KnowledgeBase