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SaaS Acquisition Targets For Biggies

Posted on Wednesday, May 19th 2010

The big names in enterprise software are focusing their acquisitions on the SaaS sector. IBM says that it is going to spend $20 billion on acquisitions over the next five years, and SaaS is going to be one of the focus areas. Let’s take a look at how the acquisition spree of these major companies could affect SaaS companies NetSuite, Citrix, Concur, and athenahealth.

Following IBM’s acquisition of Cast Iron, NetSuite announced a partnership with IBM to connect and integrate its cloud solutions. Cast Iron provides a platform for integrating cloud applications. With this acquisition, IBM will have a finger on the pulse of the SaaS sector.

NetSuite (NYSE:N) recently reported first quarter revenue of $43.9 million, up 5%. Net loss widened to $7.1 million or $0.11 per share from $3.7 million or $0.06 per share last year. Non-GAAP EPS was $0.01. Analysts expected earnings of$0.01 per share on revenue of $43.7 million. The company ended the quarter with $96.5 million in cash. Q4 coverage is available here.

For the second quarter, NetSuite expects adjusted EPS of $0.01 on revenue of $44.5 million to $45.5 million. It slightly raised its 2010 revenue guidance to $181 million to $185 million, up from $180 million to $185 million. It also announced that current chief financial officer Jim McGeever will take over as chief operating officer, and Ron Gill will be the new chief financial officer effective July 1. The stock is trading around $15 after hitting a 52-week high of $18 on January 14. Market cap is about $947 million.

Chart forNetSuite, Inc. (N)

Citrix is a definite possibility for IBM this year, although I would rather like to see it acquiring smaller SaaS players and become a consolidator itself. Last month Citrix, (NASDAQ:CTXS) with annual revenue of $1.58 billion, reported first quarter revenue of $414 million, up 12%. Net income was $47 million or $0.25 per share versus $7 million or $0.04 per share last year. The company repurchased shares worth about $100 million, and its board authorized $400 million for repurchasing stock. Citrix ended the quarter with more than $1 billion in current assets. Q4 coverage is available here.

Citrix recently upgraded its flagship virtualization product XenApp 6, expanding its access from any device, including PCs, Macs, laptops, and smart phones. It also launched XenClient, which can support more than one virtual desktop on the same laptop. This will allow users to separate corporate files and apps from consumer-based apps and private data. Analysts estimate that about 72% of corporate endpoints will be laptops by 2014. CEO Mark Templeton says that Citrix is focusing on pulling down the dividing wall between corporate and consumer IT. He said that staff working from home, on the road, part-time, and often with their own equipment, should be allowed to access any apps they choose to get the job done.

Citrix expects second quarter revenue of $430 million to $440 million and EPS of $0.28 to $0.29. It raised its fiscal 2010 revenue guidance to $1.765 billion to $1.78 billion from $1.74 billion to $1.76 billion. It expects EPS of $1.29 to $1.34 versus earlier guidance of $1.33 to $1.34. The stock is currently trading around $45 after hitting a 52-week high of $49.98 on April 21 after its strong results. Market cap is about $8.4 billion.

Chart forCitrix Systems, Inc. (CTXS)

A recent FBR capital report speculates on the various M&A possibilities in the SaaS sector and says Citrix could be acquired by Microsoft. I earlier listed Microsoft as well as SAP, HP, and Oracle as possible suitors. The report also suggests M&A possibilities for Concur (NASDAQ:CNQR) and athenahealth (NASDAQ:ATHN). It says that American Express or ADP could buy expense management software maker Concur, while Oracle could buy athenahealth.

Concur recently reported second quarter revenue of $72.8 million, up 17%. Net income increased 1% to $6.8 million, or $0.13 per share from $6.7 million, or $0.13 per share last year. Analysts expected earnings of $0.18 per share on revenue of $70 million. The company ended the quarter with $118 million in cash. Q1 coverage is available here.

Concur recently released Concur Breeze, which targets small and mid-sized businesses. As unemployment rates stabilize and travel spending increases, things seem to be looking up for Concur. Concur also announced some management changes: William W. Canfield retired from the board of directors. The company appointed Frank Pelzer as chief financial officer and Michael T. Koetting as executive vice president, supplier management and advertising. My interview with CEO Steve Singh is here.

Concur expects net income per share for the third quarter to be $0.06 and for fiscal 2010 to be $0.39. Non-GAAP EPS is expected to be $0.17 for Q4 and $0.76 for 2010 below the analyst estimate of $0.20 for Q4 and $0.80 for 2010. The stock is trading around $41 with market cap of about $2 billion. It hit a 52-week high of $43.84 on December 24.

Chart forConcur Technologies, Inc. (CNQR)

athenahealth recently reported Q1 revenue of $54.5 million, up 33%. Net income declined to $0.3 million or $0.01 per share from $1.5 million or $0.04 last year as a result of increased investments in sales and marketing as well as higher general and administrative expense of approximately $1 million related to the company’s recent accounting review and restatement process. At the end of the quarter, the company had cash, cash equivalents, and short-term investments of $79.1 million and short- and long-term debt and capital lease obligations of $11.9 million. Q4 coverage is available here.

The stock is trading around $28 with market cap of about $928 million. It hit a 52-week low of $27.85 on April 30 following its Q1 results.

Chart forAthenahealth, Inc. (ATHN)

Overall, as I have said for a while, a SaaS consolidation spree is coming up. It should be an exciting year!

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Great analysis of these M&A possibilities. I think that Citrix has been available for purchase since my grandfather was in high school 🙂

aaron Wednesday, May 19, 2010 at 8:15 AM PT

Great insights! IBM has been slow to capture share in the Saas space, and inorganic growth might be the way to grow. However, Netsuite might be a tricky acquisition, because it is owned by Larry Ellison. With Netsuite being loss making, its valuation would be interesting.
Citrix, being a direct competitor to Vmware, might be a very strategic acquisition for IBM,HP. I agree, it is going to be an interesting phase in Saas this year. Adobe’s acquisition of Omniture could be the trendsetter for M&A deals in the space, being the only $1Bn deal.

Saurabh Mallik Wednesday, May 19, 2010 at 11:15 PM PT

Good Analysis Saurabh Bhai…____-Praveen

Praveen Tuesday, September 28, 2010 at 9:53 PM PT

Yes, virtualization is very big. As I am speaking with the TLCC CIOs, they are all raving about how much virtualization is saving them, and they're all raving about VMWare. Both VMWare and Citrix are acquisition candidates, and yes, IBM and HP need to get their hands on virtualization technologies for sure.

sramana Wednesday, September 29, 2010 at 3:29 PM PT