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Is The Winter of Tech Liquidity Event Discontent Over?

Like all bloggers I occasionally steal another successful blog’s format when I have an idea for a post.  Abnormal Returns is the king of the link fest post and perhaps one of the better blogs on finance, public/private equity, and investing.  Their original tag line “A wide-ranging, forecast-free investment blog” still holds true today. 

There are some small signs that liquidity events in the tech market are beginning to return.  Don’t confuse this with the Internet bubble heydays of the late 90’s or the private equity cheap debt fueled boom of 2003 to 2007.  But even a few signs of liquidity after this long winter of discontent are welcome in today’s gruesome market. 

A bidding war between Accel-KKR and Vista Equity Partners has broken out over SumTotal Systems (SUMT) – the #1 player in the mature Human Capital Management marketplace.  SUMT is trading at <1X EV/Revenue and has <3% EBITDA.  Perhaps private equity firms are finding restructurable bargains in companies with strong market positions, similar to how the last private equity tech boom started.  Check out PEHub’s assessment here.  Vista’s bid has been subsequently topped by Accel-KKR. Update: On May 26 SUMT accepted a revised bid from Vista and paid Accel-KKR a $6.67M breakup fee.  Nothing like a good auction between a couple of private equity firms.

Cisco continues to pay significant premiums for acquired properties.  Cisco’s recent acquisitions of Tidal Software and Pure Digital generated 7.2x and 6.7x returns for their VC investors.  The deals were priced at 8.4x and 6.1x revenue multiples versus the typical 1.5x ttm revenue valuation most public software companies trade at today.  Cisco’s strategy ensures that Bay area VCs will continue to give them access to the best deals and technology to sustain Cisco’s meteoric growth rates.

The door to the tech IPO market has cracked open a little bit with the recent IPO of OpenTable.  OpenTable delivers reservation management software to restaurants through a Web browser and collects monthly subscription revenues.  As TechCrunch’s Eric Schonfeld noted “This is an extremely healthy IPO. OpenTable is not a blowout Internet company. But it is a solid Internet company that matters. It pulled in $55.8 million in revenues last year and a net loss of $1 million (largely due to expansion-related costs). In the first quarter of 2009, it managed to turn a net profit of $366,000 on revenues of $16 million. (For a deeper financial analysis, see this earlier post).

Who says tech-related debt refi deals are dead?  Recently EasyLink Services International Corporation successfully refinanced the senior portion of their convertible debt.  Quarterly interest payments were reduced by over 70% and quarterly principal payments were reduced by almost 50%.  As a bonus the equity dilution posed by York Capital’s conversion options were significantly reduced which will eventually help lift ESIC’s share price. 

Technology roll ups start rolling again.  American Software (AMSWA) recently announced that it would acquire the remaining interests in its publicly traded subsidiary Logility (LGTY).  While on one hand it’s an admission that the spinout of Logility from AMS in 1997 has failed to deliver long term value.  On the other hand, the efficiencies that can be gained from eliminating the public company costs of Logility should bring some solid benefits to AMSWA.

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