Valuations separated by more than the Atlantic

Contact: Brenon Daly

Comparing the valuations of US tech companies with their European counterparts, we can’t help but notice the fact that the recovery hasn’t been enjoyed equally on both sides of the Atlantic. We noted a few months ago that the strong US dollar had opened the way for some opportunistic shopping on the continent. Although most European currencies have inched back up since then, there are still discounts available because the valuations of the companies are still lagging their US peers and rivals.

Earlier this summer, we pointed out that discrepancy in Deltek Systems’ purchase of Maconomy, which valued the Danish ERP vendor at twice the level it started the year – but still below Deltek’s current valuation on the Nasdaq. Similarly, Adobe acquired Day Software at a price that was four times higher than the Swiss company’s own valuation last summer. However, Adobe’s own valuation is higher than the take-out valuation for Day, which included a 60% premium. (Adobe is still valued higher, even though it lost 20% of its value Wednesday after forecasting weaker-than-expected results.)

But those deals pale in comparison to the arbitrage that OpenTable did in its reach across the Atlantic for OpenTable values the British restaurant reservation service at basically 6 times trailing sales, while the San Francisco-based company trades at 19x trailing sales. (For those of you who haven’t looked lately, OpenTable trades in the mid-$60 range, commanding a market cap of some $1.5bn. Incidentally, various measures of OpenTable’s valuation – specifically, both trailing and forward price to earnings ratio – line up almost exactly with those of

Deltek deal shows Atlantic trade winds are blowing

Contact: Brenon Daly

As the hackneyed old phrase goes, there is opportunity in crisis. We were musing on that as we watched the euro plummet at the end of last week to a four-year low against the dollar. With countries such as Greece, Portugal and, most recently, Hungary unable or unwilling to run balanced books, much of the continent looks shaky. Reflecting the worries caused by the ballooning debt in many countries, the euro has shed 15% of its value compared to the US greenback.

While it is undoubtedly a tough time for many of our cousin countries across the Atlantic, some US companies might be having a different take on this period of European malaise: it’s a great time to do some opportunistic shopping. For starters, US buyers are getting a nice little discount thanks to the dollar. If, for instance, a US-based company was eyeing an acquisition in Europe that would have run it $150m at the start of the year, the current cost is less than $130m. And don’t forget that a lot of US companies have a lot of wampum sitting over in Europe that can’t be brought home without a heavy tax hit.

There’s also the fact that the recession hasn’t actually ended for many of the European companies, at least not based on their stock prices. Consider the smartly frugal bit of shopping that Deltek Systems did late last week. The project management software vendor had been looking to expand across the Atlantic, and found a handy bargain in picking up Danish ERP provider Maconomy. (Deltek was advised by Arma Partners.)

In its largest acquisition ever, Deltek will pay around $72m in cash for Maconomy. Even though the premium is substantial (Deltek’s offer is more than triple where Maconomy shares traded a year ago, and twice the price of the stock at the beginning of the year), the valuation of the target is actually lower than that of the acquirer. On an enterprise value basis, Deltek itself trades at about 2.1 times trailing sales, while it is paying just 1.5 times trailing sales for Maconomy. (And again, the valuation of the Danish software firm includes a generous premium.) Bargains like that may well get the trade winds blowing again across the Atlantic.

Marked-down leftovers

When Oracle snapped up Primavera Systems last week, we had to spare a thought for the surviving project and portfolio management (PPM) vendors. That thought almost became the start of a eulogy as we saw Primavera’s publicly traded rival get trounced on the Nasdaq and its direct competitor still out on the market seeking a buyer.

Let’s start with the biggest of the big, Deltek Systems. Since the company, which is majority owned by buyout firm New Mountain Capital, went public a year ago, its shares have lost three-quarters of their value. That has reduced Deltek’s market capitalization to just $190m. Deltek also carries about that same amount of debt, along with a stash of roughly $33m in cash. Altogether, Deltek’s enterprise value is around $350m. That for a company that will do about $300m in revenue this year, including approximately $100m in maintenance revenue, while running at a mid-teens operating margin.

Next is Planview, another privately held PPM vendor. The Austin, Texas-based company is roughly the same size as Primavera, running at about $175m. More than a few sources have indicated that Planview has been for sale for some time, but for whatever reason, it hasn’t found a taker. Not that we imagine it would be prohibitively expensive at this point. If Plainview went for the same valuation as Primavera, it would fetch $350m; pegging the purchase price to Deltek’s current multiple would put it closer to $200m. That’s mere pocket change for IBM, which we hear may have been interested in Primavera, a partner company.