Tag: IBM

Big Blue shops across the pond

Brenon Daly

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.

A scratch-and-dent sale for Vignette?

Brenon Daly

With its shares currently bumping their lowest level in three years, Vignette has done little to help itself. In its second-quarter report Thursday, the dismaying decline in sales of its software continued. In the first half of 2008, Vignette has recorded just $20m in license sales, down from $30m in the first half of 2007. By way of understatement, CEO Mike Aviles acknowledged that Vignette’s software sales ‘are not where we want them’ but added additional marketing spending and recent changes in the company’s sales executives should help.

We’re not so sure those moves will help the struggling company. Vignette already spends one-third of its revenue on sales and marketing, and indicated that it may bump up that level for the rest of the year. (Not that the company has much insight into how business will run in the coming months. Consider its laughably broad guidance to Wall Street on its loss of the current quarter: It said it’ll lose something between 7 and 21 cents per share in the third quarter, representing a net loss in the period of $1.7-5m.)

One of the main reasons Vignette continues to struggle is that it’s going against some tough competition, including Oracle and IBM, as well as stand-alone content management players. For that reason, we could certainly see Vignette benefiting from being part of a larger company. And indeed, we’ve heard from two sources that the ongoing auction for Vignette has narrowed to two final parties. While we don’t know the specific names, we suspect Hewlett-Packard may well be one. (Don’t forget that the head of HP’s software division, Tom Hogan, knows Vignette intimately. Hogan served as CEO of the company from 2002-2006 before moving to HP.)

And the price for Vignette certainly isn’t prohibitive. With the stock having slid 40% over the past year, Vignette currently garners a market capitalization of just $280m. However, the debt-free company also has $90m in cash and equivalents in its bank account, lowering the net cost of Vignette to just $190m. That’s about the same level of sales it is likely to report this year. In the past, shoppers have paid 2.6 to 2.9 times enterprise value/revenue for their purchases of other publicly traded content management vendors. However, we doubt Vignette – with its slumping software sales and spendthrift marketing plans – will command that kind of multiple.

Selected significant content management deals

Date Acquirer Target Price EV/sales multiple
August 2006 IBM FileNet $1.6bn 2.6x
November 2006 Oracle Stellent $440m 2.9x

Source: The 451 M&A KnowledgeBase

Courting deals

Brenon Daly

Just how often is legal discovery a form of M&A due diligence? We asked ourselves that question on July 2 when IBM shelled out an undisclosed amount of money for Platform Solutions (PSI) after the two companies had battled each other in the courtroom since late 2006. Big Blue’s initial suit alleged patent infringement, while PSI’s countersuit raised questions of antitrust concerns.

Of course, we would never suggest that Big Blue simply bought off PSI, using its vast cash reserves to quiet a critic. And even if that was IBM’s motivation, we can hardly fault the company for determining that money spent to move its mainframe business ahead through acquisition has a higher potential ROI than just writing checks to lawyers.

With that case closed (as they say in the courtroom), we wonder if a similar scenario will play out at i2 Technologies. As we’ve noted in the past, the supply chain software vendor has run into a heap of problems, prompting it a year ago to hire JPMorgan to advise it on ‘strategic alternatives.’ One of those problems got resolved recently when SAP agreed to fork over $83m to settle a nearly two-year-old patent infringement suit. (To put i2’s legal windfall into perspective, consider that the settlement is twice as much as the company has earned in the past two years combined.) While we initially figured a buyout shop as the likely acquirer for i2, we now wonder if the settlement from SAP is merely a down payment on an acquisition of i2.

Courtroom drama

Parties Legal issue Outcome
IBM-Platform Solutions Patent infringement IBM acquires PSI, undisclosed amount
SAP-i2 Patent infringement SAP pays $83m settlement, all charges dropped

Source: The 451 M&A KnowledgeBase and SEC

Will Larry buy Switzerland?

Brenon Daly

Informatica’s acquisition of Identity Systems, which closed last Thursday, brought the data integration specialist even closer to Oracle. The two companies have had an odd relationship, with Informatica competing against the behemoth virtually since it opened its doors some 15 years ago. (Despite the fact that Oracle gives away its bare-bones Warehouse Builder, Informatica has been able to build up a business that rang up nearly $400m in sales last year, having grown revenue more than 20% for three straight years.)

Through its non-stop acquisitions, Oracle actually OEMs three bits of technology from Informatica, including the just-acquired Identity Systems. Mantas – an anti-money-laundering vendor acquired by Oracle’s i-flex solutions – includes the identity resolution technology from Identity Systems. (Informatica had older OEM arrangements with Hyperion Solutions and Siebel Systems, both of which were gobbled up by Oracle.)

Recently, rumors have been picking up that Oracle may be looking to own Informatica outright. Making such a move would dramatically strengthen Oracle’s data-quality offering, as well as beef up its semi-structured and unstructured data integration story. (Those are areas where IBM has a pretty solid portfolio.) Oracle has already made a small acquisition in this market, spending an estimated $45m on Sunopsis in October 2006. But it still trails the business that rival IBM has acquired through its purchases of Ascential Software and DataMirror.

Of course, one of Informatica’s main selling points is that it’s a neutral party and doesn’t push other applications. That pitch has resonated with customers. Last year, Informatica posted license revenue growth of 20%. Of course, that neutrality would be gone if Oracle gobbled up Informatica. However, Ellison and the rest of the sharp-penciled M&A group at Oracle are realists at the bottom line. Financially, it may be worthwhile for them to give up several hundred of Informatica’s 3,000 customers as a way to protect a database revenue stream. 

Selected data integration deals

Acquirer Target Announced Deal value
IBM Ascential March 2005 $1.1bn
IBM DataMirror July 2007 $162m
Oracle Sunopsis Oct. 2006 $45m*