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Anatomy of Two Leveraged Software Deals

9/12/06

Intergraph makes software used to create “intelligent” maps, or maps that embed spatial information. In the last 12 months, the company generated sales of about $590 million with an EBITDA of about $84 million and an operating cash flow of about $54 million. It’s been growing at about 7.5% and holds almost no long-term debt.

PE firms Hellman & Friedman and Texas Pacific have agreed to buy Intergraph for $1.3 billion, a 15% premium over the company’s pre-announcement marketcap. Figure that the PE buyers will use bank debt to cover 80% of the purchase price, therefore investing about $260 million in equity, that they will give management 10% of this equity, and that – by going private – the company saves about $2.5 million per year in regulatory expense. When the dust settles, this leaves the buyers with 90% ownership of about $86.5 million in EBITDA for all-in purchase costs of about $265 million. That’s a 3.5-year payback.

Low-key Embarcadero makes software that builds, optimizes, tests and manages data. In the last 12 months, the company generated sales of about $60 million with a $10 million EBITDA and $12 million in operating cash flow. It’s been growing at the rate of about 6.5% and holds almost no long-term debt.

Thoma Cressey has agreed to buy Embarcadero for $234 million, a 25% premium over the company’s pre-announcement marketcap. Figure that TC will use bank debt to cover 80% of the purchase price, therefore investing about $47 million in equity, that TC will give management 10% of this equity, and that – by going private – the company saves about $2 million in regulatory expense. When the dust settles, this leaves TC with 90% ownership of about $12 million in annual EBITDA for all-in purchase costs of about $50 million. That’s a 4.5-year payback.


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