Tag: unsolicited offer

A Double-Take takeout?

Brenon Daly

Contact: Brenon Daly

Never mind the business, somebody has their eye on Double-Take Software. The file-replication software vendor said Monday that it came up short in its first-quarter performance, continuing the struggles that it saw throughout 2009. Last year, maintenance revenue flat-lined, while license sales dropped by one-quarter. And although the first quarter is starting off a bit underwhelming, Double-Take is still projecting that it will grow this year. However, even if the company hits the high end of its estimate of $95m, sales for 2010 will still fall just short of 2008’s level of $96m.

Apparently, that lackluster performance hasn’t dimmed the company’s appeal. As Double-Take was announcing its Q1 miss, it also said – in an ‘Oh, by the way…’ manner – that it had received an ‘unsolicited, non-binding’ expression of interest from an unnamed suitor. No terms were revealed so it’s hard to know, specifically, what’s on offer to Double-Take shareholders. The company says only that the bid is ‘above recent trading prices.’ Does ‘recent’ mean a bit under $9, where shares have been since early February? Or does ‘recent’ also include the period in January when shares changed hands above $10, before the company warned (for the first time) that the quarter was coming in a bit light? On the report, Double-Take stock jumped 15% to $10.05 in Monday afternoon trading.

As to who might have floated the bid, it strikes us that this looks like a private equity (PE) play. If a strategic buyer wanted Double-Take, we don’t see it approaching the company in such a fast-and-loose way. Besides, there are basically only two companies that would make obvious bidders: Dell and Hewlett-Packard. The two tech giants are Double-Take’s main channel partners, with Dell accounting for a full 17% of the company’s revenue on its own. Also, both vendors could presumably benefit from Double-Take’s large customer base of SMBs, which numbers more than 22,000. Of course, an auction could draw out any interested strategic player, so the potential bidders aren’t necessarily limited to HP and Dell.

But as we say, we think this offer came from a buyout shop. And we can certainly understand Double-Take’s attractiveness to a financial buyer. In short, it’s cheap. Even with the stock’s pop on Monday, the company still only garners a market cap of about $220m. And the net cost is even cheaper, because the debt-free, profitable vendor carries almost $100m in cash on its balance sheet. At an enterprise value of just $120m, Double-Take is valued at less than three times its maintenance stream. That’s a valuation that any number of PE firms probably figure they could make money on.

Tech buyers shop locally

-by Yulitza Peraza, Brenon Daly

Although the Delaware Court of Chancery was slated to rule this week on Emulex’s poison pill, the court punted on the decision. In postponing the ruling on the poison pill, which has been a key part of Emulex’s defense against the unwanted advances of Broadcom, the judge indicated that the two sides may well be able to work out a deal over the next week. Broadcom, which took its bid public on April 21, recently extended the deadline of its tender offer until July 14. The extension came as Broadcom also raised its bid to $11 per share for Emulex, up from $9.25. That added about $150m to the price of Emulex, which is currently valued at some $912m. As we noted earlier, Broadcom’s initial offer essentially valued Emulex where it was trading last October.

Unsolicited offers for tech companies, while increasing, are still relatively rare. However, in one regard, Broadcom’s bid for Emulex is rather typical. Scouring our data, we noticed a significant trend among California tech vendors: they tend to shop locally. That’s certainly true for these two southern California firms, which are only about 10 miles from one another. In the last seven years, about half of total tech M&A spending by California-based buyers went toward acquiring other Golden State tech companies. We would add that the ‘shop local’ trend isn’t limited to California, which stands as the most-developed tech region in the world. It’s also true on the other side of the country, where tech vendors based on the East Coast have spent more on acquiring neighboring tech firms than they have on companies from anywhere else.

There are a number of reasons for this trend, both formal and informal. For starters, the two sides are more likely to have a number of connections, sharing financial backers or board members, for instance. Additionally, executives at the companies may belong to the same local tech organizations or business groups. (Or, more informally, they may frequent the same restaurants or belong to the same clubs.) In some ways, our finding flies in the face of the oft-repeated notion that the world is flat, with business flowing around the globe without regard to borders or geography. That may well be true in some aspects. But when it comes to M&A, business is still largely done locally.

Geographic tech M&A, 2002-2009

Acquirer state/region Target Number of deals Percentage of total deals Total value Percentage of total value
California All 2,389 100% $247bn 100%
California California 879 37% $126bn 51%
East Coast All 2,391 100% $282bn 100%
East Coast East Coast 758 32% $83bn 30%

Epicor: Thanks, but no thanks

Brenon Daly

Epicor has shot down an unsolicited offer from a hedge fund, confirming a move that the market had been expecting in the wake of the credit market collapse. The ERP vendor, which is being advised by UBS, told Elliott Associates that it wasn’t interested in the two-week-old bid of $9.50 for each share of Epicor. Although shares initially approached the $9 level on the news, the stock bottomed out at $6 last week. The gigantic spread reflects widespread doubt that Elliott and Epicor would strike a deal. With about 59 million shares outstanding, Elliott’s offer values Epicor’s equity at about $566m. In addition, Epicor holds $132m in cash and $380m in debt, giving the proposed deal an enterprise value of $814m. Elliott owns 12% of Epicor. We noted even before the credit bubble burst that Elliott might have a tough sell with Epicor.