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.