KUHN CAPITAL Saturday, February 24, 2018
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Golden Gate Has a Blue Martini

March 2

Golden Gate (GG), the $2.5 billion San Mateo private equity group, has spent about $50 million of its treasure to buy Blue Martini, the troubled sales management software vendor. GG plans to gain product functionality and market scale advantages by integrating Blue Martini with its Ecometry portfolio company, a catalog sales management software vendor, and other GG units.

What’s interesting about this deal is its apparently rich price: $4.00 for shares that traded immediately before the announcement for about $2.00. Former dotcom phenom Blue Martini once had a hallucinatory mid-2000 share price of $500, then went on to lose $150 million in the years 2001 – 2003, with the death spiral continuing in 2004.

Historically, many of GG’s software forays are better described as bottom fishing. The firm purchased the bankrupted fragments of divine’s customer management software unit, Peregrine’s battered SCM unit, and bruised Systems and Computer Technology’s process manufacturing software business, all for bargain basement values.

So why the huge premium paid for Blue Martini stock? Well, we note that the company carries about $30 million in excess cash, a value substantially greater than its pre-announcement market cap of $20 million.

And why was Blue Martini’s market cap lower than its excess cash reserves? Because investors will discount even the value of cash when they perceive that company management is content to ride the business down indefinitely. So this deal frees Blue Martini’s hapless investors and deploys the firm's wasting capital into more productive uses under GG’s management, a good thing.

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