Contact: Brenon Daly
If nothing else, we now know the clearing price for ‘vintage’ ERP companies. (Or more accurately said, we know the proposed clearing price.) That’s at least one conclusion we can draw from the highly unusual situation where there are two deals going on simultaneously for two of the industry’s larger players, Epicor Software and Lawson Software. The two planned acquisitions – representing, collectively, $2.8bn of spending – line up almost exactly in several key metrics.
The numbers: the equity value of Apax’s offer for Epicor is $976m, with an enterprise value (EV) of $1.1bn. On an EV basis, that works out to about 2.5 times trailing sales and roughly 5x maintenance revenue. That mirrors very closely the takeout valuation that Lawson received in an unsolicited bid last month from PE-backed Infor Global Solutions, which it is currently reviewing. Lawson is being valued at 2.4x trailing sales and about 4.5x maintenance revenue. Even on an EV/EBITDA basis, the valuations are not all that dissimilar: Epicor garnering a 20.5x valuation, compared to Lawson’s 15.4x.
Contact: Brenon Daly
If Lawson Software had held its scheduled call later this afternoon to discuss its third-quarter earnings report, we suspect that attendance would have been a bit higher than usual. Instead, the old-line ERP vendor scrapped it, citing the two-week-old unsolicited offer from industry consolidator Infor Global Solutions. (Those sorts of things tend to happen to companies that count Carl Icahn as their largest shareholder.) Lawson, advised by Barclays Capital, has said only that it is reviewing the proposal.
While Lawson’s silence is entirely understandable from a company that’s been put in play, it did nothing to dampen investor speculation that another suitor would show up. The stock, which has traded above the $11.25-per-share bid since it was launched, inched a little higher to $12.14 in Thursday afternoon activity. Lawson shares haven’t seen these levels since March 2002.
Perhaps inevitably, Oracle’s name has surfaced as a potential buyer. While Lawson isn’t particularly cheap, it’s also not particularly expensive. Its current market cap of $2bn works out to about 2.6 times projected sales of $770m for the current fiscal year and roughly 15x EBITDA. Another way to look at it: the market values Lawson at about 5x its maintenance revenue. (For comparison, Epicor Software trades at 1.7x sales and roughly 3x maintenance revenue.)
For buyout shops, Lawson’s valuation is already at the upper end of the range that could still deliver a decent financial return, we would think. Of course, Infor is owned by a private equity firm, Golden Gate Capital. But in terms of bidding, Infor is more of a strategic buyer than a financial one when it comes to ‘synergies.’ After all, privately held Infor already has the corporate infrastructure in place to run a $2bn business, roughly three times the size of Lawson.