Tuesday, September 12, 2006

Potential Software Takeovers

I recently mentioned CKCM, and just two weeks later it caught a takeover bid which puts the stock at a 40% premium from where it was mentioned on 08/21. With large IT companies sitting on so much cash they could very well be looking to put it to work buying one of these companies. The key thing is a profitable company with good prospects, little debt and experienced management.
When it comes to software I can't stress enough the value of having experienced management. In the highly niche, sophisticated and competitive software market experienced management is the difference between a deal maker or breaker. Product lifecycles are very short in the software industry, so if your buying a software company, your buying into the people running it.

Here a list of software companies that fit the bill.

BOTTOMLINE TECH (NasdaqGM:EPAY) - Electronic banking is a growing market, and EPAY has demonstrated they can be profitable in this space. The CEO has been with the company since 1996 & the COO since 1998.

COVANSYS (NasdaqGS:CVNS) - Profitable software smallcap with a CEO who has stuck with it since 1985.

MOLDFLOW CORP (NasdaqGS:MFLO) - Makes computer aided engineering software. I think this company would better complement Illinois Tool Works core businesses then CKCM, but then again I thought someone like ORCL would have bought CKCM. CEO has been with the company since 1997.

PEGASYSTEMS (NasdaqGS:PEGA) - Probably the highest risk stock of the four, but also has the most committed CEO who has been with the company since 1983. With a marketcap of 286mm, but only an enterprise value of 159mm, it could easily be taken over by one of its many impressive partners.