CDC Software’s rollup is rolling along

Contact: Brenon Daly

Since being spun off from its parent company less than a year ago, CDC Software has been rolling along with its planned rollup. It has done a half-dozen acquisitions of small, on-demand software companies to help expand its portfolio of ERP, CRM and supply chain management offerings. (It got bigger eyes earlier this year, when it made a short-lived run at fellow public company Chordiant Software.) In general, the technology has come from startups that have been passed over by the market. That’s certainly the case in CDC Software’s latest – and largest – acquisition, the purchase of TradeBeam last week.

Ten-year-old TradeBeam had burned through a mountain of venture backing and had snatched up the assets of three other vendors, but had struggled to actually build its business. (We understand that the company generated only about $9m in recurring revenue in 2009, and that projections for this year called for $10m in recurring revenue. That got the target around $20m in its sale to CDC Software, according to our understanding.)

Still, TradeBeam was able to develop some fairly useful software, thanks to its generous VC subsidy, that should fit well inside CDC Software. The company had two main product lines, which each accounted for about half of overall sales. TradeBeam sold global trade management software, which helps customers handle regulatory compliance and other aspects of the import/export business, as well as supply chain visibility, which provides additional capabilities around forecasting and collaboration with suppliers.

CDC Software’s recent acquisitions are part of a larger plan to slowly but steadily transition its business from selling software licenses to ‘renting’ software through a subscription model. Recurring revenue will still be a small slice of the overall $220m or so of revenue that the vendor is expected to put up this year. But if CDC Software can pull off its SaaS rollup strategy – and couple that with even a smidgen of organic growth – it could very well see a bump in its valuation. The transition to SaaS has certainly put a shine on the valuation of Concur Technologies and, to a lesser extent, Ariba. For its part, CDC Software, which is still majority owned by CDC Corp, trades at basically 1 times sales and 4x EBITDA.

A short-lived bid for Chordiant

Contact: Brenon Daly

In many ways, CDC Software’s unsolicited bid for Chordiant Software was over before it even began. As it was, the end became official late Thursday, as CDC Software pulled its $105m cash-and-stock offer for the money-losing CRM vendor just a week after floating it. It was clear that the hastily assembled ‘proactive offer’ (as CDC Software referred to it) was never going to get very far with Chordiant. Shares of the company spent virtually all summer above CDC Software’s bid of $3.46, which reflected a scant 14% premium over the closing of Chordiant shares in the previous session.

Chordiant, advised by Morgan Stanley, brushed aside CDC Software’s proposal with the ever-popular dismissal that the bid ‘significantly undervalues’ the company. (CDC Software didn’t retain an adviser, we understand.) Chordiant’s rebuff, combined with the poison pill it has in place, effectively killed the deal. CDC Software pretty much acknowledged that earlier this week when it announced that it intended to unwind its tiny 1.3% stake in Chordiant, which totaled just less than 400,000 shares. Incidentally, speaking of shares, although Chordiant stock dipped a bit when CDC Software pulled its offer, it was still closed above the bid price on Friday.

Chordiant: hunter turns hunted

Contact: Brenon Daly

Just a month ago, Chordiant Software was a hunter. Now it’s the hunted. The call-center software vendor attracted an unsolicited – and rather unsatisfying – offer from CDC Software earlier this week. The unusual twist is just the latest development in the already unusual process around the sale of fellow software company Kana Software. Recall that Chordiant, after failing to land Kana, took to sniping at the deal as an activist shareholder. None of that had any impact, as the sale of Kana to midmarket buyout firm Accel-KKR closed in late December.

Chordiant’s unsuccessful bid for Kana came up in CDC’s rationale for making what it terms a ‘proactive’ offer for Chordiant, with acquisitive CDC saying the bid was partly driven by Chordiant’s recognition that it was a ‘sub-scale’ software company. And recently, Chordiant has been falling even further away from being a software vendor of scale. In its most recent fiscal year, which ended September 30, overall revenue dropped by one-third. Granted, that fiscal year covered one of the most difficult economic periods since the Great Depression. But even in the current fiscal year, most Wall Street analysts don’t project that Chordiant will grow much, if at all.

So what does all that mean for Chordiant, which has remained silent to this point on CDC’s offer of $105m in cash and stock? We suspect it’ll probably play out similarly to CDC’s bid in 2006 for another CRM provider, Onyx Software. In that would-be acquisition, CDC was also an unwelcome bidder for Onyx, and the process unfolded fitfully. (Onyx ultimately sold to rollup Consona.) Not that we’re saying CDC will necessarily pull its bid for Chordiant, as it did for Onyx.

Instead, on the other side, we suspect Chordiant will try everything in its power not to end up inside CDC. One key defense: Chordiant has a poison pill in place that doesn’t expire until mid-2011. Also, Chordiant shares are currently changing hands above CDC’s offer of $3.46 for each of them. So if CDC, which is planning to hit the road next week to help sell Chordiant investors on the deal, really wants to add Chordiant’s front-office products to its existing back-office wares, we think it’ll have to present a topping bid. On a call discussing the proposed transaction Friday, CDC chief executive Peter Yip said he’s ‘open minded’ to raising the offer.