Selectica Acquires Iasta – Key Facts and Initial Analysis

and - June 5, 2014 5:33 PM
Categories: Breaking News, Contract Management, M&A, Solution Providers, Sourcing | Tags:

Selectica announced after market close that it was acquiring Iasta, a sourcing suite provider. Here are some of the highlights from initial Spend Matters Plus coverage of the transaction:

“After market close today, Selectica, one of the few leaders in the contract management market (along with Novatus, IBM/Emptoris, SciQuest and Symfact, among others), announced its intent to merge with Iasta, a sourcing suite provider that has also managed to differentiate itself and reach profitable growth, albeit in a much more crowded field (including IBM Emptoris, BravoSolution, SciQuest, MarketMaker4, Ariba/SAP, Oracle, Zycus, Scanmarket, GEP, Ivalua, Trade Extensions and many, many others).

At its core, the transaction represents a “stealth IPO” for Iasta and dramatic expansion of Selectica’s value proposition and target customer set. Iasta will now have a public currency, without having to go through the initial filing process (Iasta was also too small, by US standards, for a typical NASDAQ listing, although smaller competitors, such as Rosslyn Analytics, have recently floated on the AIM).”

Deal Highlights and Initial Analysis (from Selectica and Iasta)

 “A definitive agreement was signed on June 2, 2014  and we are collaborating to expedite the close with a target date during Selectica’s fiscal Q2 FY15.”

“Selectica entered into a definitive agreement to acquire Iasta for an aggregate purchase price of 1 million shares of Selectica common stock and $7 million cash. In addition, in connection with the acquisition, Selectica would provide grants of options to purchase 700,000 shares of its common stock to the employees of Iasta. The deal is anticipated to close during Q2 of Selectica’s current fiscal year. Lake Street Capital Markets, LLC served as the financial advisor for the transaction.”

“Initially during a transition period, Iasta products will be sold separately with Iasta operating as a Selectica Business Unit … Over time, we will collaborate on ways to integrate the applications and provide our customers with a seamless solution.”

Spend Matters Analysis

  • From a user perspective, Selectica and Iasta have very little overlap in their customer bases. They believe the chance for up-sell/cross-sell synergies are very significant. We think the synergies may be stronger on the Iasta side …
  • The valuation of the deal (by current standards) is low: roughly 1.5 times Iasta’s trailing revenue (note the valuation is based on Selectica’s closing market capitalization of around $34 million today, given the equity components of the transaction). The valuation would seem comparatively under market compared to most other recent transactions and listings, but this is not the whole story …
  • Product and solution integration will be a critical component for Selectica and Iasta to ultimately realize synergies and create a true integrated leader – as opposed to Frankenstein’s sourcing/contracts monster (more on this point in the Plus research brief) …
  • To maximize value from the merger, the product/solution integration will not be simple. Consider that those have gone before in a similar combination (Emptoris & diCarta and SciQuest & Upside) have not yet managed …

Raising Key Questions

We’ll continue our coverage and analysis of the Selectica and Iasta combination on Spend Matters PRO this evening and tomorrow, looking closely what the combination will mean for customers, competitors, and prospects. We’ll also discuss the opportunities and challenges presented by the deal and share our views as to why the two really came together. Of course there are many ways to look at the deal!

  • Was either provider (or both) struggling on a standalone basis (especially Selectica, which appeared to have stagnated before recently bringing in new management)?
  • Was Iasta losing deals because its own contract management capabilities were not up to snuff?
  • Is there a new buy/sell vision for the market that the two can execute on?
  • Did Iasta take a “pay me now” dynamic discount to create liquidity for the founders?
  • Are the two management teams looking at SciQuest and IBM Emptoris and saying “we can pull off this vision better”?
  • Are they looking to do an arbitrage on their individual multiples much as Basware has done in recent quarters in pulling off a stock market appreciation in its transition from legacy business models to new?
  • Is there a “P2P” tuck-in up their sleeve?

Spend Matters Plus subscribers can access the full research brief on Spend Matters. Further Spend Matters PRO commentary and analysis will be posted in the next 24 hours.

Comments

  • Anurag Dixit:

    Whoa! undervalued would an overstatement for a 13 Million deal. I am not sure what was the driver for the Iasta team to make an exit at this valuation. May be they got bored or fed up of the sector? I fail to see the rationale, unless Iasta had huge debt and they were not able to sustain on the cash flow they were generating. if this was the case, then they did well in hiding the fact from everyone. Including an ex competitor like me.

    This valuation also means that competitors like Zycus and Coupa missed a fire sale that could helped them add a cool top line for 13 million. This would have been very attractive as most of the SaaS companies in this space spend approximately 0.9 to 1.2 X of new recurring revenue only in sales and marketing. Well! I can keep speculating but let’s all wait for details to uncover. Personally, looks like it is time to dust off the batsmobile sitting in my cave’s garage

  • Charles Dominick, SPSM, SPSM2:

    I always enjoy Spend Matters’ M&A coverage. This particular transaction is pretty thought-provoking. Iasta has been a stand-alone provider for a long time, even through previous M&A feeding frenzies. So, why be acquired now?

    When I see smart execs like those at Iasta decide to sell, it makes me wonder if there is an unstated sentiment that we are reaching the peak of these “good economic times.” Could this be the time for “selling high?”

  • Jason Busch:

    Charles,

    As one entrepreneur to another, I “hope not” !!!!

    We’ve spent some time doing our own economic forecasting around timing to sell our holding company based on macro-trends and while we might see a capital markets blip and a quarter or two and downturn/stagnation in GDP, I think we have 3-4 years left of good times. But get out well before Hilary’s second term starts :-)

    As to Iasta’s valuation, look at it as their getting a public currency and a few bucks in the meantime. The rest is to come … I hope the bet pays off for them as they’ve been at this for a very, very long time.

  • Pierre Mitchell:

    These are some understandable comments. I had the same one-word question as you: WHY? The answer you’ll get nominally for these types of things, which are often true (as in this case), is the synergy from a customer point of view where the customers want to see bigger/better things from the provider – and want the provider to succeed. Skeptics (not in a bad sense) will view it as “they cashed out at a discount because the sector is tanking or because they couldn’t hack it or because they are trying to acquire themselves into a suite to raise the valuation multiple for those who previously owned the piece parts. This last strategy doesn’t work well whether you are BoB or an ERP vendor (as I wrote about in my “Myth of Integrated ERP Procurement” post). There needs to be synergy – especially to the Iasta shareholders who could easily just milk their business as SaaS cash cow lifestyle business. But, who wants that?! There needs to be something more compelling – and a platform for growth and something bigger. And in this case, there is, and ‘platform’ is the right word for it. And it will be revealed over time.
    Net-net: everybody remain calm. This doesn’t portend the doom of this sector by any means.

    • Anurag Dixit:

      Keep Calm and run those reverse auctions!! :-)

  • kris colby:

    Keep calm and run an auction. Great advice and suitable for a t-shirt!

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