Corel erases iGrafx from its portfolio

Contact: Brenon Daly

A decade after picking up iGrafx, the private equity-backed Corel firm has divested the business process management (BPM) software company to newly formed buyout shop The Limerock Group. The move should allow new focus and resources for iGrafx, which was always an odd fit inside Corel. For its part, iGrafx sold almost entirely to enterprises, while Corel is known as a home for many faded, second-rate consumer brands, such as WordPerfect and PaintShop.

Perhaps not surprisingly, the iGrafx business suffered from a bit of neglect inside Corel. At one point, we understand the business was generating about $20m in sales, although it is probably only running at about half that level now. One area that iGrafx will undoubtedly look to expand is around consulting and other services that tend to play a not-insignificant part of BPM deployments. IGrafx may look to build that up through internal development, or the newly capitalized company could tuck-in a small consulting shop.

The move by Limerock, a firm founded by the team that built and eventually sold NetQoS for $200m, comes after a number of big-name buyers have inked BPM deals of their own over the past two years. (Limerock was advised by Northside Advisors, while Pagemill Partners worked the other side.) Significant acquirers that have bought their way into the market since mid-2009 include IBM, Software AG, Progress Software and Open Text. Valuations for these BPM deals has ranged from roughly 1x sales to almost 6x sales. Given iGrafx’s slumping sales and its awkward fit inside Corel, we suspect the business would have likely traded at the low end of that range.

At long last, Open Text makes a BPM play

Contact:  Brenon Daly

More than a year and a half ago, we noted that Metastorm was looking to buy its way into some adjacent markets such as risk and compliance or perhaps collaboration. The planned shopping trip would have come after the business process management (BPM) provider pulled its IPO paperwork. At the time, however, we wondered if the would-be IPO candidate might not head to the other exit: a trade sale.

Specifically, we floated the single name of Open Text, which we noted had consolidated much of its core enterprise content management (ECM) market but still appeared to be losing deals to rival vendors with more robust BPM offerings. However, we thought that valuation might make it tough to bridge the bid/ask spread between the two sides. In most of its dozen deals over the past decade, Open Text has paid somewhere in the range of 0.5-1.5 times trailing sales for its acquisitions. That’s true for its most visible purchases, including deals that saw it gobble up rival ECM firms Hummingbird in August 2006 and Vignette in May 2009, as well as add image capture software maker Captaris in September 2008.

As it turns out, valuation didn’t necessarily snag Open Text’s significant acquisition to bolster its BPM credentials. The company said late last week that it will hand over $182m in cash for Metastorm. In a conference call, Open Text indicated that Metastorm was generating $70-75m in sales, implying a valuation of about 2.5x sales for the BPM provider. That’s a fair bit richer than the valuation that the Canadian consolidator has paid in the past. However, we suspect that guidance assumes a bit of revenue write-downs and (perhaps) a bit of sandbagging. The reason? Metastorm said in mid-2009 that it was above that level of revenue in 2008 and targeting $90m in 2009. In its IPO filing, Metastorm reported $60m in sales for 2007.

Chordiant hits the bid

Contact: Brenon Daly

When Chordiant Software received an unsolicited offer from CDC Software in early January, we were pretty certain that deal had roughly 0% chance of getting done. We noted that Chordiant had a poison pill in place that would make it extremely difficult – and time-consuming – for CDC to finalize the deal. Since a quick close was one of the key concerns for CDC in its bid for Chordiant, we weren’t at all surprised to see the serial buyer pull its cash-and-stock offer just a week after floating it.

In addition to the timing, there was also the consideration that Chordiant shares traded above CDC’s offer the entire time it was out there. (In this case, investors agreed with Chordiant’s contention that the bid ‘undervalued’ the company.) That meant CDC would most likely have to reach a little deeper into its pocket to get the deal done. Although CDC indicated that it may well bump its bid, most observers expected the company to walk. (That’s just how the process played out three years ago, when CDC launched an unsolicited offer for another CRM vendor, Onyx Software, only to come away empty-handed.)

Flip the calendar ahead two months, and Chordiant (advised by Morgan Stanley) has pulled off a pretty rare trick: stiff-arming that unwelcome bid and then securing a richer payday for shareholders. (Most cases tend to look more like Yahoo, which is trading at half the level that Microsoft offered for the company two years ago. Yahoo shares have lost 20% of their value since Microsoft floated its bid, while the Nasdaq has flat-lined in that period.) And Chordiant didn’t just hold out for a nickel or a dime more for its shareholders. It got the highest price for its shares in a year and a half.

Under terms announced Monday, Pegasystems will pay $5 in cash for each share of Chordiant, for a total equity value of $161.5m. That’s 54% more than CDC thought the company was worth, and enough to get Chordiant’s board to (wisely) hit the bid from Pegasystems. Speaking of Chordiant’s board, we would note that chairman Steven Springsteel, who also serves as CEO, is now four for four in terms of helping to sell the companies where he held executive roles. As we noted three and a half years ago, when we first opined that Chordiant probably wasn’t a stand-alone vendor, Springsteel had seen a trio of his previous companies get gobbled up.

Bids for Chordiant

Date Suitor Offer Equity value EV/TTM sales multiple Status
January 8, 2010 CDC Software $3.46 per share $105m 0.7x Aborted
March 15, 2010 Pegasystems $5 per share $161.5 1.4x Closing in Q2

Source: The 451 M&A KnowledgeBase

Metastorm in the market in a big way

Contact: Brenon Daly

If Metastorm does re-paper an S-1, it will be a much larger company than the one that filed for an IPO last year. (The business process management (BPM) vendor put in its paperwork in mid-May and then pulled it in mid-September.) The growth will come both organically and from acquisition, CEO Bob Farrell said Monday during a presentation at the JMP Securities Research Conference.

In terms of organic growth, Farrell projected that the company would ring up about $90m in revenue this year, up from about $77m in 2008. Additionally, Farrell said he expected to add to the company’s top line with a shopping trip. We understand Metastorm has three term sheets out for possible acquisitions, with one possibly closing in the summer. One of the potential deals could double the company’s revenue. Farrell said his company has considered outside funding for a purchase, which is how it covered its 2007 acquisition of Proforma.

In terms of target markets, Metastorm is looking in several areas, including risk and compliance, collaboration and document management. In terms of possible BPM-document management transactions, we would note that we recently heard of deal flow going the other way. Open Text, having consolidated much of the content management market, said it may well look to buy its way into the BPM market.

Big Blue shops across the pond

Despite a lingering cold front in transatlantic M&A, IBM recently announced plan to shell out $340m for ILOG. We noted in a mid-year report that spending by North American acquirers of EU-based targets has declined by roughly two-thirds from mid-2007 to mid-2008 compared to mid-2006 to mid-2007. The reason: the slumping dollar and grinding bear market that has cut the value of acquisition currencies for U.S. companies. (Both the greenback and the Nasdaq have lost about 15% of their value over the past year.)

Big Blue’s purchase of the Paris-based vendor of business rules engine technology isn’t likely to signal a rebound in ‘eastbound’ M&A, at least not a significant one. My colleague Adam Phipps notes the IBM-ILOG deal isn’t even among the Top 10 transactions, when ranked by deal size. The proposed combination comes in twelfth place in terms of purchases made by North American companies of EU-based companies over the past year.