Unify Buys AXS-One for $8M
On April 16, 2009, application solutions vendor Unify announced it would acquire records management and archiving company AXS-One in an all-stock deal.
Products, Facilities, and Competitors:
- Unify offers software tools and services that modernize old database applications, support modern applications, and migrate from Notes to Exchange.
- AXS-One has an email-and-other-content archiving/records management/e-discovery product. The company has had its greatest success among large Notes users.
Recent Trading Performance:
- Unify is in a healthy financial state:
- Has $5M in cash.
- Roughly $20M/year in revenues, with respectable profitability. Revenues for the nine months to January 31, 2009, were up by 9% to $16M. Net income was $2.2M, up from $1.6M in the prior year.
- However, in the quarter to January 31, revenues were down 11% quarter over quarter on 2008 at $5.2M, while net income remained constant at $1.1M.
- AXS-One has roughly $13M/year in revenues, with a long history of substantial losses:
- AXS-One revenues for the year ended December 31, 2008, were up by 12%, to $13.4M; a net loss of $10.1M was incurred, a reduction from a net loss of $14.9M in 2007.
- However, in the quarter to December 31, revenues were down 24% on 2007, at $2.5M, as a result of license income falling by 85%. Nevertheless, the operating loss in Q4 2008 reduced to $2.4M from $3.5M in 2007.
- Unify will acquire AXS-One in an all-stock deal valued at $8M; or a price/trailing 12-month revenue ratio of about 0.6.
- Common stockholders in AXS-One will receive Unify stock worth around 6 cents per AXS-One share, which is the current AXS-One stock price.
- Holders of $13M of convertible debt will get stock worth around 42 cents on the dollar. There is also an earn-out that may enable the debt holders to recoup their investment based on the performance of AXS-One license revenues over the next year, and with Unify stock appreciation.
- Unify says current Unify stockholders will own around 73% of the combined company and existing AXS-One stockholders 27%.
Reasons for the Deal:
- To finance trading losses, AXS-One has had equity and convertible debt funding of over $100M, including $13M of new funds in mid-2007 to early 2009.
- The restructuring of its business in 2007, with $8.5M convertible debt raised, did not bring the success in 2008 that AXS-One was hoping for, and ongoing losses had to be funded by additional convertible debt of over $4M in 2008.
- The general economic situation impacted heavily on AXS-Ones trading performance in the final quarter of 2008, and the company needed a further injection of funds early in 2009.
- AXS-One's stock price has fallen by nearly 90% since June 2008.
- Generally, AXS-One's technology assists in email migrations from Notes to Exchange, which is an important element of Unify's business.
- Unify has taken advantage of AXS-Ones extremely fragile financial position to acquire the company for a very good price and without any cash outlay.
Ferris Research Comments:
- Given the competition that Unify faces in the marketplace, its present cash resources of $5M will not enable it to make the impact it needs to become a leading archiving player.
- AXS-One has attractive and highly scalable archiving technology. However, its shaky finances have greatly discouraged prospective customers from engaging with the firm. The merger helps to allay such fears.
- AXS-One has major customers in the U.S. military-industrial complex. Our sources indicate that the value of AXS-One technology to these customers is such that they would not allow it to disappear. In our view, it is likely that these customers have been a major driver for this acquisition by Unify.
- It's worth looking at the recent Ferris Research gossip on AXS-One.
- It's imperative that AXS-One's ongoing and substantial losses be stemmed. Unless this takes place, Unify's healthy financials are likely to be very adversely affected.
... Mike Stackpoole
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