Deal Focus: Cerberus Buys U.S.-based Unit of 3i Infotech

May 17, 2011

3i Infotech, a global information technology company, announced yesterday it agreed to sell its U.S.-based global billing and payments unit to an affiliate of private equity firm Cerberus Capital Management. Cerberus is paying $137 million for the unit which includes Regulus Group and J&B Software — two companies 3i Infotech acquired less than three years ago.

In April 2008, 3i Infotech acquired Regulus for $80 million (with $20 million earn-out); just a few months earlier it had snapped up J&B Software for $25.25 million in October 2007. Both acquisitions were part of a strategic acquisition push to strengthen its position in the payment processing industry. At the time, Regulus was the largest independent remittance provider as well as one of the top providers of bill processing services in the U.S. J&B provides software products and services related to remittance processing in the USA and had revenues of around $25 million when it was acquired in 2007. After the acquisitions, the companies were integrated to form the global billing & payments unit of 3i Infotech.

Interestingly, ICICI Group (a partial owner of 3i Infotech) was recently rumored to be in talks with IBM to sell its 20% stake in 3i Infotech, valuing the company around $240-$300 million (its current market cap is about $212 million). Today’s announced unit spin-off could be the firm cleaning up its portfolio before a larger investment in the entire company takes place. 3i currently offers solutions and services on IBM pSeries, xSeries and IBM Total Storage servers, so a strategy investment on IBM’s part would not be farfetched.

Revenues at 3i Infotech also more than doubled over the past three years, partly boosted by the acquisitions. This is certainly a lure for investors, and as 3i says, a testament to their M&A strategy.  According to 3i CEO V. Srinivasan, the divestment of the billing and payments unit reduces the leverage and strengthens the balance sheet of the company, as well as enables it to go back to its roots as a significant IT products and services player.

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Posted by Signal Hill

Will Perot Deal Spur EMC To Join The Services Acquisition Game?

September 21, 2009
EMC could be next in line with plenty of cash in pocket for acquisitions.

Dell announced today it plans to acquire Perot Systems Corporation, the IT services provider founded by former presidential candidate Ross Perot, in a transaction worth $3.9 billion. Dell is paying $30 per share for the outsourcing company, a huge 67.5% premium over Friday’s stock price, with an EV/trailing revenue multiple of 1.4x. With HP’s 2008 acquisition of services firm EDS for $13.9 billion and now Dell’s acquisition of Perot, we wonder whether EMC could be next to enter the race.

The Perot transaction marks Dell’s 7th IT services acquisition since 2006, although it is by far the largest and most prominent.1 Some would argue it still does not put the computer manufacturer in the same arena as HP or IBM, but Dell CEO Michael Dell made it clear he has no signs of stopping the acquisition program. “I wouldn’t be surprised to see other smaller potential acquisitions as a result of this after a successful integration,” he said on a conference call Monday morning.

Even after the Perot deal, Dell still has about $8 billion for acquisitions and to continue growing its services business. CFO Brian Gladden also noted Dell’s appetite saying the company has “a strategy to continue to build out our enterprise portfolio through organic investments, partnerships and select acquisitions.”

EMC is potentially the next big acquirer of IT Services companies. If the company wants to take a seat at the table with IBM, Accenture, HP and Dell, it will need more than BusinessEdge, the consultancy it acquired in 2007 that now forms the core of EMC Consulting. Like Dell, EMC has about $7.3 billion in reserves to deploy on acquisitions. The list of interesting potential acquisition targets could encompass Computer Sciences Corporation (CSC), Capgemini, Affiliated Computer Services (ACS), Unisys, CGI, CIBER and Sapient, to name a few.

Potential IT Services Acquisition Targets

The fact that companies such as Dell are investing in their IT Services businesses is a good sign for future M&A activity in the sector. We expect to see continued M&A activity as companies realize the benefits of combining the brain-power of strategic solutions with traditional product sales, for increased pull-through and higher value-added revenue. The Perot deal boosts Q3 total M&A enterprise value over 600% from Q2 for sector deals tracked by Updata, and if EMC decides to make a move in the foreseeable future, we could see further upside in the sector.

1Dell services acquisitions since 2006 include: MessageOne, ASAP Software, Everdream, Allin’s Microsoft Services division, Networked Storage Company, ACS (UK), Perot

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Posted by Signal Hill

Updata Advises ClinPro In Its Combination With Pacific Data Designs

November 7, 2008

Deal Marks Eighth Since Beginning Of Summer

ClinPro, a leading contract research organization (CRO) based in New Jersey, has combined with San Francisco-based CRO Pacific Data Designs, a portfolio company of DW Healthcare Partners. Updata Advisors was pleased to have served as the sole financial advisor to ClinPro and its shareholders in this transaction.

The combination of ClinPro and PDD creates a best-in-class organization that specializes in data management and biostatistical programming services for the pharmaceutical, biotechnology, and medical device industries. Both organizations are known for the excellence of their client service, their outsourcing solutions, and the processes and technology they deploy during sponsor clinical and post-marketing trials. Combined, they offer a bi-coastal platform for expanded client reach and offerings.

This deal underscores Updata’s strength in mergers and acquisitions advisory for companies in the business services sector, particularly technology-enabled outsourcing organizations focused in verticals like pharmaceuticals and healthcare. Updata expects to see ongoing consolidation among companies in the fast-growing CRO space as pharmaceutical and biotechnology firms seek to speed FDA approval initiatives while focusing on core competencies.

Off the heels of other recent Updata transactions such as Managed Objects’ sale to Novell and Secure Computing’s acquisition of Securify, this deal marks the eighth transaction Updata Advisors has announced since the beginning of the summer and the thirteenth of 2008. Amid the current economic turmoil, we continue to announce and close deals and guide our clients toward Greater Outcomes®.

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Posted by Signal Hill

Despite Economic Woes, Deals Are Still Being Struck

October 8, 2008

Lorie Roscitt

Lorie Roscitt

This Week Sees A Flurry Of IT M&A Activity

by Lorie Roscitt

While all attention is fixated on worldwide economic problems, M&A transactions continue to occur under the radar. This week alone, as stock markets around the world continue to decline, several significant deals have been struck — and at multiples favorable to the target companies. Furthermore, these transactions cut across all sectors that Updata Advisors covers.

For example, in the Internet sector, eBay announced Monday that it was spending over $1 billion to acquire three companies; two online classified websites in Denmark for $390 million and $945 million for Bill Me Later, Inc., a provider of online credit. eBay anticipates that Bill Me Later will generate an estimated $150 million in revenue in 2009, which represents a deal value multiple of 6.3x 2009 revenues. Not shabby.

In the IT services sector, Tata Consultancy Services today announced its intention to spend $505 million to acquire Citigroup Global Services, an India-based BPO firm which expects to generate revenues of approximately $278 million in 2008, representing a multiple of 1.8x 2008 revenues. This is above the 1.1x median trailing revenue multiple Updata Advisors has observed for companies in the BPO-sector over the past 12 months.

Also this morning, Symantec announced it has signed a definitive agreement to acquire MessageLabs, a SaaS-based provider of online messaging and Web security services for a purchase price of approximately $695 million in cash. MessageLabs generated approximately $145 million in revenue during fiscal year ending July 31, 2008, representing a multiple of 4.8x trailing revenues. This compares favorably to the median 2.0x revenue multiples paid for security companies and 3.5x paid for SaaS firms over the past year.

The financial technology sector also saw a deal struck this morning as Fundtech Ltd. announced the acquisition of Synergy Financial Systems Ltd. for $6.3 million (including earnouts) which had $2.5 million of trailing 12 months revenues, representing a trailing revenue multiple of 2.5x. Updata Advisors has observed a 2.1x median trailing revenue in the financial technology sector during the past year.

Finally, Oracle, who is already a serial buyer of companies, announced the acquisition of Primavera Software this morning. Primavera is a provider of project portfolio management (PPM) solutions. In this case, the deal value was not disclosed. In the past 12 months, Oracle has acquired 11 companies at a total cost exceeding $9 billion.

While these transactions are merely anecdotal and the volume of M&A transactions has clearly declined during the current economic and financial malaise, it is heartening to note that good things can happen during bad times.

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Posted by Signal Hill

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