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Brawn Meets Braun

September 21

Credit-scoring giant Fair Isaac, lately on somewhat of a buying binge, has purchased Chicago-based Braun Consulting for a whopping $40 million, a figure that includes about $9 million in cash carried on Braun’s balance sheet.

Nasdaq-traded Braun is an IT consultancy that helps its clients integrate and operate business intelligence, customer and Web analytics, SCM, CRM and “multi-channel integration” systems.

The price is an 80%+ premium over the stock's pre-announcement price of $1.28 per share. Braun shares naturally popped to nearly $2.30 immediately post-announcement.

The deal represents a remarkable deus ex machina for Braun shareholders, particularly for chairman and CEO Steve Braun who owns 48% of the firm. For example, the company had been losing money -- about $8 million in the last 12 months -- and revenue last quarter, $7.6 million, was down about 7% compared to same quarter last year. Bad as this revenue decline may have been, the company’s prior revenue losses had been much worse -- 31% in 2003.

Disregarding the excess cash on Braun’s balance sheet of about $8 million gives a purchase price of about $31 million for Braun’s operating business. This price therefore represents a sales multiple of about 0.86 on trailing 12-month revenue of $36 million.

Braun, a former darling of the dotcom era, hit a stock price of $100 back in January 2000, but then trended steadily downward, skirting delisting territory at under $1.00 per share in January through May of 2003.

After a partial recovery to a stock price high of about $3.50 per share in January of this year, the slide resumed again, fueled by continuing sales and operating profit losses, slipping once more into the sub-$1.00 delisting zone. That is till Fair Isaac appeared.

Fair Isaac, with about $630 million in sales, has been attempting to repeat its success in credit scoring by largely inventing a new market for “market scoring”: that is, rating the value of companies and individuals as sales prospects. Perhaps Braun’s expertise in CRM and customer analytics advances this Fair Isaac drive. But while of course time will tell, it seems to us a dear price to pay for early-stage market development. Three cheers for "strategic premium".

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