A scratch-and-dent sale for Vignette?

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


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

Will Larry buy Switzerland?

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*

Crisis averted

After three months of nonsense, Ballmer’s folly is over. Microsoft’s CEO said over the weekend he will not pursue Yahoo, a move that shareholders applauded right from the opening bell on Monday. (Microsoft stock never traded below Friday’s close, while shares of Yahoo, which had been abandoned to trade on the company’s fundamentals, were slashed 15% in early Monday afternoon trading.) In our view, the ‘relief rally’ in Microsoft stock solidifies our view that the company was wrong-headed — both in decision and execution — to go after Yahoo.

We need only look back in Microsoft’s own M&A history to see how unlikely it was to get the kind of returns it was hoping from Yahoo. In early part of this decade, Microsoft inked a pair of deals for business software companies that was supposed to narrow the gap to the long-dominant vendors. In quick order, Microsoft shelled out a combined $2.4bn for Great Plains Software and Navision Software and set about knocking off SAP and Oracle. Executives talked about Microsoft’s division, which sold ERP and CRM software, growing into a $10bn business. That hasn’t happened – not even close. More than a half-decade later, it barely scratches out $1bn in annual sales and increasingly appears technologically and competitively irrelevant. The acquisitions did nothing to make up ground on SAP or Oracle, much less the new breed of rivals including Salesforce.com and SugarCRM. (We recently made the case that Microsoft should divest this unit, called Dynamics.)
Adding Yahoo to Microsoft’s online division would have simply repeated the mistakes of Dynamics. The protracted and messy acquisition of Yahoo would not have gotten Microsoft any closer to knocking off Google from its top spot in online search advertising. To their credit, the folks in Redmond, Wash. saw the past as prelude. And if the cautionary tale served up by Dynamics was a little too close to home, Ballmer could always pick up the phone and call Jerry Levin to ask how Time Warner’s ‘transformative’ $185bn purchase of AOL worked out. Of course, Ballmer tabling the Yahoo bid does leave one question unanswered: Which transaction destroys more shareholder value? Trying to graft a sprawling Internet property onto a media company or trying to graft a sprawling Internet property onto a software company? Even though Ballmer left the door open for a future bid for Yahoo, his shareholders have already indicated they don’t want to pay to find out the answer to that question.    

Short and sour

Date Event Yahoo stock price
Feb. 1, 2008 Microsoft unveils $31 per share unsolicited offer for Yahoo $28.38 (up 48%)
May 5, 2008 Microsoft pulls offer $24.24 in afternoon trading (down 16%)