Marlin Equity Partners Buys a Controlling Stake in Emptoris
The news is official. Marlin Equity Partners has bought a controlling stake in Emptoris. According to the announcement, "Marlin Equity Partners has acquired a majority equity position in Emptoris, Inc. and becomes the primary investor in the company, alongside Emptoris' management and employees ... the company will retain the existing management team, led by Avner Schneur, Chief Executive Officer and founder of the company." Funding details and deal valuation numbers were not released, but based on a letter that circulated to previous shareholders and also on various conversations I've had with those privy to some of the details, it appears that MEP's investment was in the $25 million range. According to my sources, the deal wipes out many or all of the common shareholders who will receive nothing upfront. Based on what multiple sources had to say, I've heard that this group was not consulted in the funding process (and learned about the deal after it was negotiated).
While it is hard to assign a specific multiple to the deal because MEP assumed Emptoris' liabilities from the Ariba lawsuit, it looks on the surface as if the deal was done at less than a 1x revenue multiple. What are the reasons for this low valuation? Stay tuned for further analysis further in the coming days, but at this point I'd speculate that the Ariba liability played a large part, not to mention the general capital market conditions which are about as bad as they’ve ever been. It's also worth noting that based on multiple discussions that I've had with Boston/128-area investors over the years, that Emptoris' CEO, Avner Schneur, has not endeared himself to at least some individuals in the local venture community. Whether this played a role or not is unclear.
I am talking to Emptoris later this morning to get their perspective and plan to share what I learn from this conversation later in the day. In the meantime, please keep your comments to this post, especially those regarding individuals, civil.
- Jason Busch
While it is hard to assign a specific multiple to the deal because MEP assumed Emptoris' liabilities from the Ariba lawsuit, it looks on the surface as if the deal was done at less than a 1x revenue multiple. What are the reasons for this low valuation? Stay tuned for further analysis further in the coming days, but at this point I'd speculate that the Ariba liability played a large part, not to mention the general capital market conditions which are about as bad as they’ve ever been. It's also worth noting that based on multiple discussions that I've had with Boston/128-area investors over the years, that Emptoris' CEO, Avner Schneur, has not endeared himself to at least some individuals in the local venture community. Whether this played a role or not is unclear.
I am talking to Emptoris later this morning to get their perspective and plan to share what I learn from this conversation later in the day. In the meantime, please keep your comments to this post, especially those regarding individuals, civil.
- Jason Busch
The trends in the supply management technology industry play to Emptoris' strengths if they can evolve their products to match these trends. The delivery model needs to be SaaS and leverage their customer "content/knowledge" asset that they have built up over the years...
I think with the market the way it is you are going to see some more consolidation in an industry that was already consolidating.
I think when we get through this cycle, you'll have SAP, Emptoris and Ariba as the suite providers in this space ... with not too many well-established best-of-breed software companies left in the purchasing/supply management world ...
Comments in this and the previous threads refer to this acquisition as providing cash and investment to fund acquisition strategies or technology innovation - but I read this as an equity buy out (at firesale prices), not an investment of cash.
Granted, a PE buys out original investors with either an upfront infusion of additional cash beyond the acquisition price for investment in growth, or the promise of future investments based upon business strategies, acquisition plans, or other business cases.
If Emptoris has received a $25 million investment to put towards growth, did the ownership change hands without any compensation to original ownership? I think Emptoris is too tired of legal problems to go down that route.
So, how much of that $25 Mill was buy out, and how much investment for growth strategies? I can buy the idea that $25 million went to a buy out, and that there may be more from MEP as warranted by whatever business case Emptoris can make for further investment, but I don't think that this $25M provides anything for future growth. Time will tell.
If MEP has deep pockets and a real passion for Emptoris' business, then I agree with Jason that this could be better for Emptoris' customers than an acquisition by a competitor.
As Dave points out, there has been some consolidation here, and I for one want to see more independence and competition. The more consolidation, the less choice for software-buyers.
Emptoris keeps Ariba on its toes, and vice-versa. The competition keeps pushing the envelope on development and service improvements. (Although I don't like the legal competition Ariba tends to engage in, that hinders competition in my view.)
Dave C, let me help you to understand.
1) There's no cash to buy a competitor.
2) Emptoris sold itself to a bottom-feeder PE firm for a fire-sale price, in a desperate attempt to stay solvent.
3) There's no good news here, only bad.
Additional FACTS that point to real issues at Emptoris that counter the claim that this is good thing that will enable additional growth include:
- 70% of the pre-sales staff was cut in recent months (how can a company innovate, expand a product suite, and still sell with only 30% of the pre-sales staff? Do they really think they can sell 6 products and fully participate sales cycles with 3 or 4 SEs?)
- More recently they had some cuts in R&D that have not been mentioned. Again, this does not point to expanding or innovation.
- Beyond the sale at less than 1x revenue, what about Emptoris' huge amounts of backlog. Rumor was that they had more than $40M in backlog due to signing multi-year deals. That makes the sale price even more interesting.
The fundamental problem with Emptoris is their leader. He does not understand sales, marketing, leadership, or how to run an organization. You can have the best technology in the world but you still need to market and sell it...unfortunately Emptoris' technology is not the best in several applications.
Finally, who's not doing a little cutting or restructuring these days. If you're numbers are correct NBTT, perhaps something to question in a RFP process. However, your credibility is lacking, and your bias quite evident.
As for Jason, Spend Matters and my fellow blogites, I think this blog and most commentators on it are quite independent, impartial and contribute to a healthy discussion. Obviously something your not comfortable with
These sources break down the capital investment in Emptoris a bit more:
"Marlin's investment in the company was structured to include 1.) a buy-out of the existing venture capital investors, 2.) extinguish certain liabilities, and 3.) fund an additional $20 million in working capital to ensure the company's continued growth ....
4.) additionally, Marlin has allocated a significant amount of capital to fund future strategic acquisitions."
Sounds like a healthy committment to me.