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Thursday, February 01, 2007
It is a common thing to see private-equity-financed rollups in established industries, but till recently, we have not seen much of its impact in the enterprise software industry. Bill Burnham finds that of the 32 acquisitions of listed software companies that he has tracked last year, private Equity firms accounted for 25% of them, up strongly from 11% of deals in 2005. He goes on to predict that private equity may account for over 50% of deals in a couple years.Rather than targeting fast growing software firms, PE shops typically target "mature" software companies as they not only tend to have lots of cash but they also derive a large percent of their revenues from maintenance revenues. These revenues are seen by private equity investors and, more importantly their lenders, as a stable source of cash flow that can be used to finance lots of debt.
Seven Steps To Carry
While admitting that this is a bit of snarky characterization of PE software deals because software offers some unique scale effects in SG&A, Bill thinks that this characterization is probably closer to the truth than a lot of mumbo jumbo about "value add" "synergies", etc. While the attempted Hummingbird deal did not materialize, the Intergraph acquisition seems to be progressing satisfactorily. Infor’s acquisition spree spurred by private equity financing has made it a noticeable integrated solution provider. In a way the number of rollups that Infor has pulled off is amazing – such attempts on a scale and range is perhaps unparalleled. The early results look encouraging.
Category :Private Equity, Enterprise Software, Emerging Trends |
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