Contact: Brenon Daly
In some ways, it was a misguided purchase last year by BakBone Software that led to yesterday’s distressed sale to Quest Software. The backup and recovery vendor made its largest-ever acquisition in May 2009, paying some $16m in cash and stock for ColdSpark. The rationale of the combination seemed sound at the time: broaden BakBone’s data-protection platform by adding ColdSpark’s messaging management. What could go wrong with that?
Unfortunately, plenty went wrong, as the two businesses never meshed. BackBone relies heavily on its indirect sales channel, while ColdSpark sold directly into enterprises. The average sales price for the messaging software was significantly higher than BakBone’s core storage products, which made for a highly unpredictable sales cycle at the acquired business. In the roughly one year that it owned ColdSpark, BakBone recorded only $1m in revenue from the business, according to SEC filings. It shuttered ColdSpark last May.
The integration struggles, however, came at a steep cost to BakBone, a Bulletin Board-traded company where cash has always been tight. Consider this: to generate the roughly $1m in sales at ColdSpark required spending of more than $3m in just R&D and sales/marketing efforts, to say nothing of the additional costs at the business. The spending drained BakBone’s treasury to just $5m, as of the company’s latest quarterly report.
Obscured by the smoke from the flameout around the acquisition is the fact that BakBone’s core storage management business actually puts up pretty decent numbers. In the latest fiscal year, it has run at a respectable 91% gross margin and 13% operating margin, while sales increased 9%. It boasts more than 17,000 customers. And Quest is getting all that for a relative bargain, paying just 1x sales for BakBone. As a final note on the deal, which is expected to close early next year, we would add that BakBone stands as the only public company we’re aware of that Quest has ever acquired