Could the days of software LBOs be over?
It wasn’t so many months ago that enterprise software firms were one of the primary foci of buyout deals. They had beautiful deal dynamics: wonderous maintenance streams, no debt on their balance sheets, diversified customers, finely-tuned research & development teams, multi-currency / jurisdiction revenues to counter swings in the U.S. dollar.
Entities such as specialty tech funds (Silver Lake), hedge funds (Crescendo Partners), and money centre banks (J.P. Morgan) all played their role. Fueled by US$2.5 billion of debt from J.P. Morgan, Infor swallowed up countless software plays, including Geac, Workbrain and Sierra Systems (see post “Workbrain punches the clock“, April 2-07). Word was that the buyout guys were paying more than the traditional strategic partners, all with the benefit of five and six time EBITDA/debt multiples.
What a different a credit crunch makes.
In the past few weeks, Longview Solutions (see post “Longview Solutions to be acquired by Exact Software“, September 17-07), Business Objects (see post “Scotia research on SAP / BOBJ / Cognos“, October 9-07) and BEA Systems have all been snapped up by strategic buyers. Not being privy to the confidential details, one can’t be sure that financial buyers were at the table to start with, but they certainly weren’t there at the finish.
Now, three deals may not a trend make, but I suspect this is just another example of the impact of the credit crunch — and it is probably good news for the global software firms (acquisition prices will drop) that historically have driven all of the tuck-under deals.