M&A activity tops and tails the week

There was plenty of merger and acquisition activity this week with equity firms and IT companies prepared to pay substantially over the odds to gain expertise in e-commerce, imaging, and SOA, moves that were largely applauded by the investment community.

Straight out of the gate on Monday, electronic commerce and payments technology provider First Data announced it had agreed to be acquired by an affiliate of private equity firm Kohlberg Kravis Roberts & Co. (KKR) for a cool $29 billion.

First Data’s shares leaped 20.6 percent on the proposed deal, which valued the company at $34 per share, a 26.4 percent premium on its Friday closing stock price of $26.90. The company provides a wide variety of payment products and services to help merchants and financial institutions validate and process payments. First Data has been undergoing a major restructuring initiative since late 2005 to cut costs and improve its competitiveness and eventually intends to offload its check and money order operations.

Although the terms of the deal allow First Data to actively solicit other bids within a 50-day period, analysts believe the company is unlikely to attract another suitor prepared to make a higher offer than the one already laid out by KKR.

On the same day, Xerox announced its plans to buy Global Imaging Systems for $1.5 billion. With the U.S. office imaging equipment reseller and services provider under its belt, Xerox hopes to appeal more to SMBs. Xerox’s offer represented a 49 percent premium on Global Imaging’s Friday closing price of $19.50 per share. Shares of Global Imaging closed Monday up 46.9 percent, or $9.14, at $28.64, while Xerox’s shares ended the day $0.19 higher, up 1.1 percent, to close at $17.08.

On Thursday, shares of WebMethods rose 26 percent on news that German middleware vendor Software AG plans to acquire the U.S. SOA company for $546 million. The all-cash transaction of $9.15 per share represents a premium of 25.7 percent on WebMethods’ Wednesday closing share price of $7.28. WebMethods President and CEO David Mitchell hinted that other unidentified companies might have been bidding for his firm but concluded that Software AG’s offer was the “most compelling.”

Analysts welcomed the move, pointing to WebMethods’ sales distribution problems in the first half of its most recent fiscal year and the more global reach the U.S. company will gain once it becomes part of Software AG.

The two companies said there’s only 10 percent overlap between their respective customer bases, enabling the cross-selling of technologies to each other’s users. At the same time, Software AG hopes that the purchase will make its SOA offerings more attractive to new customers who might otherwise have opted for rival software from IBM, Microsoft, or Oracle.

The acquisition, the largest by far in Software AG’s history, will also position the company to achieve its stated goal of joining the elite club of the 10 to 15 ISVs around the world with annual revenue above $1 billion. That $1 billion is something of a magic figure, according to Matt Durham, vice president of market development for Software AG, because it can tend to make large companies feel more comfortable about doing business with an ISV.

Meanwhile, shares of another SOA company Iona Technologies PLC fell 6.3 percent to $5.85 on a first-quarter profit warning Iona issued saying that it hadn’t closed some expected transactions during the quarter.