Elliott elbows Epicor

Well, that didn’t take long. Just two days after we noted who won’t be bidding for Epicor, Elliott Associates tossed an offer of $9.50 per share for Epicor. The bid comes just two months after the hedge fund disclosed a large stake and began stirring for a sale of the old-line ERP vendor. With about 59m shares outstanding, Elliott’s offer values Epicor’s equity at about $566m. Additionally, Epicor holds $132m in cash and $380m in debt, giving the proposed deal an enterprise value of $814m. Epicor, which has seen substantial executive turnover this year, has struggled to record growth recently. However, the business has two attractive assets: a healthy maintenance revenue stream and solid cash-flow generation. Epicor shares closed Wednesday at $8.93, their highest level since mid-April.

Who’s not shopping for Epicor

In virtually any other credit market, we’d be tempted to hold out old-line ERP vendor Epicor Software as an exemplary buyout candidate. The company will do about $530m in revenue this year, with $200m of that coming in the easily bankable form of software maintenance fees. (And the company is hardly expensive, with an enterprise value that’s just 3.7x this year’s maintenance revenue.) Moreover, it’ll throw off some $65m in cash flow in 2008 to help cover a hypothetical leveraged buyout.

But as we said, these are not normal days for debt. So in our report last week on an activist hedge fund pushing the company to pursue ‘strategic alternatives,’ we focused on the strategic buyers that might be interested in – and could afford – Epicor. They are, in order of likelihood: Microsoft, Oracle and SAP. Truth be told, though, none of those acquirers seems likely. And while we’re scratching potential suitors for Epicor, we can go ahead and erase M2 Technology Partners.

The buyout firm, which launched in mid-June with backing from Accel-KKR, is headed by Mark Duffell and Michael Piraino, who served as Epicor’s COO and CFO, respectively, until earlier this year. We understand that M2 is exploring other opportunities in the business applications market, and may well have its inaugural investment signed, sealed and delivered by the end of the year. It won’t be Duffell and Piraino’s old shop Epicor, but just think how much time they’d save on due diligence if it were.

Significant ERP deals

Date Acquirer Target Price
December 2000 Microsoft Great Plains Software $1.1bn
May 2002 Microsoft Navision $1.3bn
June 2003 PeopleSoft JD Edwards $1.75bn
December 2004 Oracle PeopleSoft $10.46bn
June 2005 Lawson Intentia International $449m
November 2005 Golden Gate Capital Geac Computer $1bn
January 2008 Unit 4 Agresso Group Coda $314m

Source: The 451 M&A KnowledgeBase

Hiring bankers

Once thought to be just part of the broader ERP offering, the so-called human capital management (HCM) market has come into its own in recent years. That has meant a few IPOs (going back to when there was a market for the offerings) as well as two or three HCM deals each year worth more than $100m. Recently, those twin threads came together in HireRight. The $195m acquisition of that company, which sells pre-employment screening software, closed earlier this month, almost exactly a year after the company went public.

In addition to the acquisition of HireRight by a private company serving the US government, we also noted one of the largest deals for market consolidation earlier this summer when Taleo spent $129m for longtime recruiting software rival Vurv Technology. (As opposed to consolidation, earlier HCM deals were typically done as a way for the acquirer to get into new markets or expand its product portfolio, such as outsourcing giant ADP spending an estimated $160m two years ago for Employease, an on-demand HCM vendor focused on the midmarket.)

So what does HCM deal flow look like for the rest of the year? Salary.com, which picked up a small British firm on Tuesday, has indicated that it plans to ink another deal or two before the year is out. Salary.com went public last year and has done two deals since then, including this week’s $5m purchase of InfoBasis.

More intriguing, however, is the rumor we heard from two market sources that PreVisor, a PE-backed HCM vendor selling employee screening and testing software, is looking to sell. The company was formed in August 2005 through the combination of three companies, and it has done a handful of acquisitions since then. There is no initial word on who might be bidding on PreVisor, which is owned by Veronis Suhler Stevenson.

HCM deal flow

Period Deal volume Deal value
Jan.-Aug. 2006 45 $617m
Jan.-Aug. 2007 35 $2bn
Jan.-Aug. 2008 26 $511m

Source: The 451 M&A KnowledgeBase


There will be no more tomorrows for TomorrowNow. SAP, which bought the software maintenance provider in January 2005, said Monday it’s shuttering the division. Even though the German giant is killing off TomorrowNow, the lawsuit involving its subsidiary will live on. Recall that Oracle sued SAP more than a year ago, alleging TomorrowNow illegally downloaded information about Oracle’s support program. (SAP initially acquired TomorrowNow as a way to siphon off some of the rich maintenance stream that Oracle collects for supporting its application. Ironically, SAP launched the program with the title ‘Safe Passage.’)

Since the original lawsuit was filed in March 2007, the scope of it has broadened. Oracle is now seeking $1bn in damages. With TomorrowNow facing that kind of a hit, it’s perhaps not surprising that SAP, which had been shopping the division for several months now, found no willing buyer. We can only imagine the lengths that SAP must have gone through to write around the potential $1bn liability in putting together a pitch-book for TomorrowNow. However SAP worded the ‘for sale’ ad, it failed to generate any interest, even with the person who probably knows more about the business than anyone else.

Seth Ravin, who founded and ultimately sold TomorrowNow to SAP, has since moved on and founded a similar business supplying discounted support for ERP applications, Rimini Street. Although Rimini Street may have looked at bulking up through acquiring TomorrowNow, reports indicated that the company passed on a deal. We can only imagine how much SAP wishes it go back in time and pass on the TomorrowNow deal, which has brought it so much trouble.

Troubled timeline

Date Event
Jan. 2005 SAP acquires TomorrowNow
March 2007 Oracle sues SAP, alleging illegal corporate espionage
Nov. 2007 SAP looks to sell off TomorrowNow
April 2008 Oracle expands lawsuit
Feb. 2010 Case scheduled to be heard in court