Behind the Emptoris Buyout — the Company Perspective

Yesterday, I had the chance to talk to Emptoris' CEO, Avner Schneur, about the recent buyout. The purpose of my call was not to get into specifics regarding deal numbers or to confirm information from outside sources (though some of this did come up, albeit indirectly). Rather, it was to better understand some of the surrounding elements of the buyout and where Emptoris is headed -- from their perspective. Please note that in this write-up, I'll try to keep my editorial analysis to the side. You're getting the Emptoris message in this post -- something which I think is important for customers and the market to hear. I'll offer some final commentary and perspective as part of my Friday Rant tomorrow.

At the beginning of the call, Avner thought it was important to emphasize the customer impact of the deal. In his words, "The big winners here are our customers because their investment is secure, and they will continue to benefit from future investment in innovation. This is also a big win for prospects who continue to have choice and an opportunity to work with a best of breed vendor highly focused on supply and contract management excellence."

In addition to the organic growth this investment will enable, Emptoris now has the bandwidth and access to capital to undertake (according to Avner) strategic acquisitions. The MEP relationship will provide more than just working capital to Emptoris. Avner told me that the MEP team is committed to vetting and analyzing new deal options for Emptoris. "We now have a strategy guy, two financial types (ex-CFOs) and two analysts who will help us to examine non-organic opportunities that can extend the value of Emptoris." Emptoris is not, however, looking to become a financial roll-up following the MEP buyout. "We will do discovery aligned to our growth and strategy," Avner notes.

"Emptoris enters 2009 perhaps in its best position in years. It is cash flow profitable, has no major liabilities, just came off a year where it grew 20%, and with this investment from Marlin, the company has become stronger and more independent," said Avner. In Emptoris' view, the capital allows the provider to show that "we are committed and forceful about the fact that if our customers are not successful, we are not successful." Avner noted that since Emptoris was able to do this deal "in a very tough market" it "validates that companies doing due diligence (both customers and investors) definitely have confidence in us."

But what about the employees -- the core link between customers and the business? Emptoris will keep the 135 people it has in development. When I confronted Avner on the call about the news that Emptoris had a layoff in December, he told me that it was part of a longer-term strategy to reposition the team and focus the team on the areas of growth. Avner told me that these numbers represented 2-3% or less of the employee base (the numbers I heard were slightly higher, but not by much). According to Emptoris, overall head count stayed constant from the start of 2008 through 2009.

While Avner would not discuss the specific financial terms, I have it on good authority from a range of sources that Marlin Equity Partners (MEP) bought their controlling interest (with some shares remaining for employees and management) for $25 million. I am led to believe (but I am not 100% certain) that this number does not account for the assumption of liabilities related to Ariba litigation and some debt. If this is the case, the actual valuation is higher than the deal size suggests.

In our discussion, Avner did provide some additional context on the deal itself. He confirmed some of my previous comments. DeutscheBank was retained well over a year ago to help Emptoris get to its next stage of growth. Until this investment, they noted that "we had not taken funding since 2004. In 2007 there were more options for raising funds to grow but unfortunately that all changed with the credit market meltdown." The investment bank came through in the end when Emptoris needed to raise more capital to fund the costs and liabilities of the lawsuit. "Of course, the litigation impacted the timing of the funding,” Avner noted. "But that was not the reason for doing it. Moreover, DB was able to help us find a partner to align with our goals from a growth perspective and an acquisition perspective." Avner told me that Emptoris had "many options" during the funding/buyout process and picked MEP because "their goal was inline with ours -- to expand and increase value."

At the end of the call, Avner once again emphasized that the "clear winners here are customers and prospects" as the company is "now well funded and will move aggressively to continue be the leader in the space."

For recent Spend Matters analysis of the Emptoris deal and the Ariba litigation, you can read our previous posts on the subject:

Marlin Equity Partners Buys a Controlling Stake in Emptoris

Protecting Yourself from Providers: Emptoris and Beyond

Emptoris Starts the New Year in New Hands

A Community Discusion -- What is the Latest at Emptoris

Emptoris and Ariba -- The Final Judgment is Complete

The Emptoris Sourcing Patch -- What it Means for Users

A Few Additional Thoughts on the Emptoris/Ariba Patent Settlement

Ariba Prevails in Patent Litigation Against Emptoris

Ariba Files Patent Infringement Suit Against Emptoris

Jason Busch

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