Contact: Brenon Daly
After being out of the M&A market for two years, Concur Technologies reached across the Atlantic earlier this week for a small Paris-based startup to help expand its business in Europe. Currently, business outside of the US accounts for about 10% of overall revenue at Concur. The company has indicated in the past that it plans to triple the level of international revenue in the coming years. Concur said it will pay up to $40m in cash and equity for Etap-On-Line (including unspecified earnouts), but guided not to expect much from the acquisition right now. (Deutsche Bank Securities advised Concur on the transaction.)
There are a number of reasons for the muted initial expectations for the purchase. First, much of Etap’s revenue will likely get washed out because of differences between French and US accounting standards. (Not that there was likely a lot of revenue to start with.) And even the sales that Etap has booked have come primarily from offering its travel and expense management software through licenses. That means Concur will have to convert the technology to its on-demand platform.
Of course, Concur knows a bit about that process, having transformed itself earlier this decade to an on-demand software provider from the license model. In the words of one banker, the transition was ‘a valley of death’ experience for Concur. But now the company has emerged from the valley and carries the rather alpine valuation of about 6 times fiscal year sales. (Concur currently has an enterprise value of about $1.5bn, compared to the projection of about $250m in revenue in its current fiscal year, which wraps at the end of September.) A number of other software firms quietly (and not so quietly) envy Concur’s makeover – and how it has played on Wall Street. Shares of Concur, which spent much of 2001 at less than $1, closed at nearly $37 on Thursday.
Contact: Brenon Daly
A little more than a half-year after striking an initial partnership, Concur Technologies recently led the second round of a $4.6m funding for RideCharge, a startup that allows users to book and pay for taxis over mobile phones. John Torrey, Concur’s head of business development, told us the company, which provides an on-demand employee spending management offering, isn’t interested in being in the content business, so an acquisition wouldn’t have made sense. Concur, which holds some $210m in cash, has done three acquisitions but has been out of the market since mid-2007.
Concur’s investment comes despite a sharp tail-off in corporate VC in the years since the Bubble era. While several tech giants have continued to support their venture wings – including Intel, EMC and SAP, among others – most other companies have wound down their venture operations. And, based on our survey of corporate development officers late last year, they don’t expect to get back into the venture business. Some 36% said they planned to do fewer minority investments in 2009, compared to 22% who expect to do more investments this year.
Contact: Brenon Daly
Given the rich premium that Wall Street awards to on-demand software companies, it’s no wonder that vendors still hawking software licenses are looking to get into the business of selling software as a service (Saas). Of course, there are many obstacles in making that transition, ranging from internal (how to compensate sales staff) to external (how to communicate to investors). As a result, most old-line software companies offer only a tiny bit of their products on-demand, if they do at all.
The few vendors that have seriously tried to transition to the on-demand model have used both organic and inorganic approaches. Concur Technologies largely stayed in-house to create a ‘for rent’ version of its expense account software. (Wall Street has rewarded the company with an eye-popping valuation of 5.5x trailing 12-month revenue.) Meanwhile, Ariba more than doubled the on-demand portion of its business when it spent $101m for SaaS supply chain vendor Procuri in September 2007.
We mention all this as a (long-winded) way of saying that we don’t understand why Callidus Software didn’t take home on-demand vendor Centive, which had been on the block for some months. Callidus has been selling its sales compensation management products as a service for about three years, with on-demand shoppers accounting for one-third of its 180 total customers. A year ago, it acquired a small SaaS vendor, Compensation Technologies, for $8.3m to bolster its transition efforts. One source indicated that publicly traded Callidus was initially interested in smaller rival Centive, but didn’t follow through. Instead, last week Centive and its estimated $10m in revenue went to fellow startup Xactly Corp in an all-equity consolidation play. Callidus making a run at Xactly probably won’t happen, for reasons both personal and financial.
For starters, Xactly is too expensive for Callidus, a money-losing company that holds some $39m in cash. An equity deal is probably off the table, given Callidus’ paltry valuation. Its enterprise value is just $46m, less than half the $105m in sales it likely recorded in 2008. (Callidus reports fourth-quarter earnings on Tuesday.) Beyond the money, there’s also the complicating factor that most of Xactly’s executives used to work at Callidus before setting off on their own with an eye to knocking out their former employer with their on-demand model. If indeed the two sides do ever start talking, we might suggest that a family therapist be on hand, in addition to the bankers and lawyers.