Workbrain punches the clock part 2

Here is the ever brainy Scotia Capital software analyst on yesterday’s Workbrain (WB:TSX) acquisition by Infor.

“Workbrain announced that it has entered into an agreement to be acquired by private software firm Infor Global Solutions (Infor). The transaction will see Infor pay ~$227 million (or $12.50 per share) in cash for Workbrain with an expected closing date in June 2007. The transaction is being supported by the firm’s board of directors with CEO David Ossip and Director Alon Ossip agreeing to vote their ~22% share in the firm in support of the transaction.

The transaction is subject to a customary break-fee of 3% of the deal value (~$7 million) with Infor not holding any direct ownership in Workbrain. Management indicated that the firm had concluded a strategic assessment at the beginning of 2007 with the decision that the firm should continue as an independent firm. Subsequently, Infor approached Workbrain with an unsolicited offer to acquire the firm which was approved by Workbrain’s board of directors. CEO David Ossip indicated that he would be seeking to continue with Infor after the close of the transaction but no agreement has been reached at this time.

? Multiples mixed relative to Kronos acquisition. The acquisition purchase price represents a 22% premium over Friday’s closing price and reflects a discount of ~11% to the firm’s initial public offering price from December 2003. Table below provides a comparison of the implied multiples on the purchase price offered for Workbrain with the recent purchase of Kronos. Kronos is the largest competitor to Workbrain and on March 22, 2007 entered into an acquisition agreement with private equity firm Hellman & Friedman.

Slowing growth & poor profitability a challenge to creating shareholder value. For the past two years, Workbrain has struggled to deliver shareholder value as its revenue growth has stalled in recent quarters and improving profitability has remained problematic. Our view is that the acquisition of Workbrain by a larger strategic buyer is the clearest path to improving results at the firm.

? A good deal for Infor. Our view is that Infor, as a strategic buyer, is getting the better part of this transaction through their ability to leverage the Workbrain product and customer base within their organization. We would anticipate that Infor will be able to recoup significant synergies from removing public company costs and undertaking an aggressive streamlining of the organization.

? Limited list of potential bidders. We believe that given the existing bid by Infor the number of other potential strategic bidders that could outpay the firm is limited to a short list of firms including: Lawson, Oracle and SAP. While the overall purchase price is disappointing the likelihood of a hostile bid emerging for Workbrain remains relatively slim given the limited number of potential purchasers.”

Comparison of Workbrain and Kronos acquisition multiples:

Workbrain
2007E 2008E
P/Sales 2.0x 1.8x
P/E 48.8x 35.0x
EV/EBITDA 26.4x 19.6x

Kronos
2007E 2008E
P/Sales 2.7x 2.5x
P/E 43.4x 35.8x
EV/EBITDA 14.9x 13.1x
Note: Workbrain multiples based on SCI estimates, Kronos multiples based on Capital IQ estimates.

MRM