TMT Blog – June 2008

Date

Welcome to the June report on M&A activity from Clearwater’s Technology team. This month the team visited the Software & Information Industry Association’s second European conference for the On-Demand (or Software-as-a-Service) sector in Amsterdam. The event was attended by a range of ISVs, service providers, private equity investors, market commentators and advisers like ourselves, the attendance highlighting the fact that SaaS is one of the hottest areas in the technology sector now.

The observations of those at the conference appear to be backed up by the data. US merchant bank Mufson Howe Hunter & Co recently reported that valuations of US public SaaS businesses averaged 3.8x Enterprise Value/Revenues versus 2.3x for traditional software companies. In addition to this, the EV/Sales ratios of SaaS favourites Netsuite and Salesforce.com are currently 2 times greater (at 10.2x and 10.0x respectively) than those of enterprise software leaders Oracle (5.3x) and SAP (4.5x). The UK market is still someway behind the US in terms of SaaS penetration but for the time being we can expect to see similar premiums attached to public companies following the SaaS model as well as any M&A activity involving on-demand players.

Deals completed in the UK

Clearwater advised UK SaaS business AST Check on its acquisition by Northgate Information Systems. AST Check is the leading provider of reference-checking software for candidate and tenant referencing, and Northgate’s extensive UK corporate customer base will now benefit from this technology. Northgate itself was recently taken private by PE firm Kohlberg Kravis Roberts (KKR).

UK listed IT solutions provider Maxima Holdings plc announced that it had acquired DXI Networks Limited in a £8.5 million deal. DXI is a provider of converged Information and Communications technology services to business customers in the UK and offers 24×7 fully managed IT infrastructure and communications solutions. DXI is based in London where it has 50 staff and its own data centre.

The Capita Group plc announced its intention to acquire UK listed public sector software specialist IBS OpenSystems in a £77.7 million deal. IBS is a leading provider of software systems and related services for the management of social housing and the collection and payment of revenues and benefits. Its customer base and range of products and services will extend Capita’s current offering for local authorities and housing associations.

CMD Limited, a provider of cable management systems to the commercial office market, has undergone a management buy-out valued at £13 million and backed by a funding package from the Royal Bank of Scotland. CMD owns two brands – DPG/Form Fittings and Powerplan and employs around 150 people at two factories and a distribution centre as well as a design centre in London.

India-based Business Process Outsourcer WNS Global Services announced that it would acquire UK business Business Applications Associates Limited (BizApps). BizApps is a provider of SAP solutions which help to optimise ERP functionality for finance and accounting processes. The acquisition supports WNS’ strategy to enhance its service offering and extend its global footprint.

Enterprise Application Management specialist Micro Focus International announced that it would acquire US business NetManage Inc, a NASDAQ-listed provider of software to transform core applications into web-based solutions. The consideration was £37.5 million and the acquisition will strengthen Micro Focus’ position in the growing Application Modernisation market.

US-based Parexel International announced that it would acquire UK business ClinPhone plc in a £91 million transaction. ClinPhone is a leading clinical technology business providing software and services for clinical trials.

Other Deals

US web-based business software provider NetSuite Inc has acquired OpenAir Inc, a provider of on-demand professional services automation software, for $26 million in cash. The acquisition accelerates NetSuite’s development of a suite of products for the professional services, business and IT consulting, legal, accounting and government contracting markets.

Oracle Corporation announced that it has acquired Skywire Software’s application software business which assists insurers in managing the life cycle of an insurance policy. The acquisition, along with that of AdminServer, has helped Oracle to quickly develop a software suite for the insurance enterprise. Financial details were not disclosed.

IQNavigator, a leading US provider of services procurement software and managed service programs announced that private equity investor GTCR Golder Rauner has invested over $100 million in the business in return for a majority stake. The business will now look to make acquisitions on the back of the investment.

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