I don’t usually weigh in on this sort of question — especially since we don’t have the proxy material that details the Board’s decision criteria in selling the company to Symphony Technology Group — but there is so much flying around out there that I’ll try to … add my opinions to it all:
1. Lots of press releases about possible shareholder suits — not at all unusual. Whenever a company is sold at what someone deems a less-than-stellar price, lawyers try to get shareholders to sue the company to reopen the deal and argue for more. I presume that they are sometimes successful but could find no case in the PLM world where a sale was changed because of the suit. But Symphony has been stung before — see below.
2. It is important to note that the single largest activist shareholder in MSC believes this is a good deal. Of course, Elliott will also make money on the debt financing they are providing as part of the offer, but if the deal was truly bad, why would they agree to it?
3. The price: $7.63 per share. A total of $347.3 million for a company with 12-month trailing revenue of $246.79 million — a revenue multiple of 1.4, quite low for a technology company with a high proportion of its revenue coming from repeatable sources.
4. But looking at it another way, $347.3 million for a company with a net loss over the same period of $18.93 million with, as some investors have pointed out, cost elements that are too high when compared to competitors.
5. On March 31, 2009 MSC had cash on hand of over $150 million and current assets exceeded liabilities by over $100 million so, mathematically at least, Symphony could recoup its acquisition cost reasonably quickly, assuming it could make MSC’s cost structure more appealing.
6. What will Symphony do with MSC? We don’t yet know, but it is clear that they know the business side of the software world. Symphony was created in 2002 by Romesh Wadhwani, who had closed the largest merger in software history when he sold Aspect Development to i2 in 2000 for $9.3 billion. Here’s what is known about some of the companies in Symphony’s portfolio:
• IRI: Symphony says that, since acquisition in late 2003, it has turned the company’s client renewal rate around, grown revenue, and made the company profitable.
• Capco: Symphony acquired 100% of shares in management buy-out in 2006. According to the CEO at the time, the deal put a billion dollar enterprise behind a small consulting firm.
• Aldata: Symphony bought a 29% share in 2007 for what one analyst said at the time was a “moderately low price”. Aldata’s CFO said that the partnership with Symphony enabled the tiny Aldata to be a “more credible partner” to its customers and prospects and that the company’s Board welcomed the offer. Symphony did try to buy the entire company but its bid was unsuccessful.
There are more — a total of 9 companies — but it seems as though Symphony identifies the problems in a company’s operations, resolves them in the way that only an outsider can (perhaps ruthlessly), and brings in expertise as needed to turn the company around. If you go to the website of any of the companies in the portfolio, you’ll see modern, customer-focused, benefits-driven content. Judging by the progress of the public companies in the portfolio, it’s not all flash and the marketing seems supported by products and services that meet customers’ needs.
Symphony did have two aquisition-related debacles (that I could find). The first came when it tried to acquire Hummingbird, the Canadian document management company, in 2006. Symphony offered $465 million in cash, or $26.75 per share, which seemed like a good deal given that the stock price had been moving between $20 and $25 a share and that the offer was about 12% higher than the stock was trading at the time of the offer. I’m not sure if the polite Canadians sued one another, but shareholder pressure led Hummingbird management to look elsewhere, ultimately resulting in a sale to Open Text which offered $0.10 more per share or $489 million in total. The other failed deal was when Symphony tried to buy the remaining shares of Aldata in 2007.
So, is the MSC/Symphony deal a good one? It depends upon point of view and constituency. Yes, it is a good deal for customers because it will enable MSC’s employees to concentrate on products rather than wondering what’s going to happen next. Perhaps for employees — I’m sure a lot of people are nervous about job losses, changes in roles and responsibilities, and changes in the leadership team. Unclear for investors until we find out what the Board knew when it made its decision. Scary for other software companies looking to be acquired because the multiple is so low.
MSC’s Board will lay out its rationale for assenting to the deal in the proxy materials that should be filed with the SEC sometime soon.