Rocket Software has just purchased itself a place in history, computer history. Today, Rocket closed its acquisition of Computer Corporation of America which has been in the database management business since 1965, that’s four and a half decades, an extremely long time for any software company. To put that into perspective, Oracle, Microsoft, and SAP are all about a decade younger than CCA. According to CCA’s brochure, they have a long list of “firsts” including first online database management system and first to utilize partitioned tables. Rocket Software, on the other hand, is a much younger company, having formed in 1990. However they’ve been very active in M&A having made 20 acquisitions or add-on’s since 2000.

Google has taken its fight against government censorship to the streets, or the web version that is. On Tues. April 20^th, they unveiled a new tool that tracks requests that national governments have made of Google to remove content. According to the blog post that accompanied the launch, the decision to make this data available to the public comes in response to what they perceive as rapidly growing censorship of the web around the world. But of course, coming in the midst of its highly publicized censorship battle with China, Google’s motivation for this move is no secret. Interestingly however China’s request data is not made available. The message displayed in the only red box on the tool’s map (every other country has a blue box) where the number of requests should be is a lone question mark, which when clicked displays a message explaining that the data is withheld because “Chinese officials consider censorship demands as state secrets.” Of the countries for which data is given the leaders in number of removal requests are Brazil, Germany, and India. The tool can be found here http://www.google.com/governmentrequests/

This past Wednesday the 11th, Churchill Downs Incorporated (NASDAQ: CHDN), the owner and operator of several American thoroughbred racetracks, including the world-renowned Churchill Downs track which hosts the Kentucky Derby, signed an agreement that will expand its presence in the online thoroughbred betting space via a $128.6 million acquisition of market leader Youbet.com, Inc. (NASDAQ: UBET).

Churchill Downs, Inc. first entered the online space in mid-2007 with the $42.3 million acquisition of AmericaTab Limited. At that time, CDI anticipated the acquired property would generate $43.6 million in revenue for 2008, implying a 1x revenue multiple for that acquisition. With Youbet’s LTM revenue of $113.89 million, Wed’s agreement implied a multiple roughly on par with the AmericaTab deal.

Currently, CDI’s online wagering business operates through its wholly-owned subsidiary Twinspires.com. CDI expressed high expectations for the continued growth of the online thoroughbred betting industry despite the fact that, according to their press release, “less than 14% of all wagering on U.S. Thoroughbred racing is estimated to be placed online.” Their optimism no doubt has much to do with the growth they’ve seen in Twinspires which grew 43% year-over-year according to their Q3 release.

The acquisition of Youbet is anticipated to have several positive effects for both companies, including a $10 million annualized cost savings. Most importantly however, the two benefit from a reduction in the level of competition that will see Churchill Downs acquire the market share leader, and Youbet employ what boils down to a “if you can’t beat ‘em, join ‘em” strategy. Despite being the largest American online thoroughbred betting company - which by default makes it the largest American online gambling company in general since horse racing is the only activity one may legally wager on via the internet in the U.S. - Youbet has had a tough year. Revenue growth for the nine months ending September 30th was flat versus the same period last year, while income fell by more than 50% partially due to an increase in the cost of incentives paid out to players, thus signifying a harsh competitive landscape.

In light of Churchill Downs’ success in the online space, measured by a 33% increase in revenue, and a 41% increase in EBITDA, it’s not surprising that Youbet would opt to join forces with CDI rather than continue to compete unsuccessfully. After all, Youbet shareholders are getting a potentially sweet deal which when closed will have given them a 28% per-share premium and a 16% equity interest in the combined company. For its part, CDI is hoping it can combine its successful online operation with Youbet’s leading market share. However, the overarching issue is that thoroughbred betting as a whole is a declining market in the U.S., and CDI has certainly felt the effects. By their own admission, the growth in CDI’s online business was “more than offset” by a decline in racing operations. So now Churchill Downs and Youbet are attempting to throw in their lot together with the goal of building a successful online operation large enough to keep them viable, and Youbet will be given a direct interest in seeing that happen. But if things don’t work out as hoped, Youbet may well end up with a 16% stake in a losing combination.

The web security pond just got a little bigger as Big fish Barracuda Networks gobbled up Atlanta-based Purewire, Inc on the 14th of this month. Purewire provides, among other things, a popular SaaS based antivirus/antimalware web gateway solution.  The gateway acts as a buffer between users and the web, that inspects inbound and outbound traffic for threats and compliance issues. With this acquisition, Barracuda is hoping to broaden its SaaS offerings.

 In addition to Purewire’s secure web gateway service, Barracuda Networks will also be picking up the online reputation monitoring solution that Purewire obtained when they acquired Opinity back in January. The service, which Purewire offers free via PurewireTrust.org, verifies the reputation of online personalities and websites against a comprehensive database.

Campbell, CA-based Barracuda Networks is the leading provider of security solutions for email, internet, web, and IM, based on volume of customers, with more than 85,000.

Last Thursday Ebix, Inc. (EBIX)(www.ebix.com), the leading provider of software and e-commerce solutions to the insurance industry, completed its second deal in two days.  With its acquisitions of Peak Performance Solutions and EZ-Data, Inc., the Company has continued a steady stream of strategic purchases that goes back five years, and which has undoubtedly been a contributing factor to their astounding success. In that same five years, Ebix has shown extraordinary growth by every measure. So much so that in August of this year, Fortune magazine ranked Ebix as the 4^th fastest growing company in the world. 

Ebix’s meteoric rise is due in no small part to an aggressive yet sensible acquisition strategy.  Highlighting the five transactions done in the last fourteen months, the Company’s strategy appears to be a winning combination of fiscal moderation and astute selectivity.  All of the transactions have been relatively modest in size, ranging from $6.5 million to $50.35 million, with the average being about $20 million (Ebix has a market cap of nearly $600 million).  By keeping the transactions reasonably sized, Ebix has been able to fund almost all of them with existing cash. The exception here was the $50.35 million cash and stock acquisition of EZ-Data. 

Ebix has also become exceedingly adept at finding and acquiring companies that meet very specific criteria of operational characteristics. In terms of market, each of the transactions has done one of two things; either it brought Ebix into a new market sector, or greatly expanded their share in an existing market by targeting a proven leader. With regard to the former, Ebix acquired Acclamation Systems in August of ’08 which brought them into the healthcare benefits and claims management sector and led to the creation of the Ebix Health division. With regard to the latter, Ebix acquired ConfirmNet Corp. in November of ’08 which had the second largest market share in the certificate-of-issuance (COI) tracking sector. Not one to be overly ambitious, Ebix also made sure that its targets fit neatly into its existing business model; each of them having the insurance industry as their main audience, and SaaS as their primary means of delivery. Last but certainly not least, all of the targets had at least 70% of their revenue recurring.

The only acquisition in the last fourteen months to somewhat break the mold was last Friday’s purchase of EZ-Data, Inc. which prior to the deal held the majority share of the life insurance broker CRM market in the United States. At $50.35 million, the EZ-Data deal was nearly 2.5 times Ebix’s average transactions size.  The Company’s CEO, Robin Raina, is hoping that the increased risk of “one of our most strategic transactions” will pay off by creating a seamless, end-to-end enterprise CRM solution that can be sold industry-wide (according to the press release, the global on-demand CRM market is “poised to reach $3.8 billion by 2013”). 

Ebix is a certainly a rising star, and has been for a while.  According to Motley Fool, they’ve shown “quarter-over-quarter EPS increases for almost 9 years” with growth actually accelerating in the last year.  This unusually consistent progression culminated in August, when the Company reported the highest quarterly revenue, net income, and diluted EPS in its thirty-three year history.  Combine all that with a steadily increasing operating margin and a healthy current ratio, and it’s no wonder the share price has skyrocketed 328% since the market bottom back in March. Whether or not this latest transaction will continue Ebix’s uncanny rise remains to be seen, but with their record being what it is, there’s no reason to start doubting them now.

On Wednesday, September 16, Google acquired a popular, yet easily unnoticed internet technology called ReCAPTCHA.  ReCAPTCHA is a clever twist on the widely used CAPTCHA (Completely Automated Public Turing test to tell Computers and Humans Apart) challenge-response system for ensuring that visitors to a website are human and not a spamming bot or any other type of software. The original CAPTCHA system works by displaying a distorted image of a word or group of letters and asking the visitor to enter what they see. If the response matches the actual word or letters, access is granted. While undeniably simple, this method of access control has proven very effective, as current OCR (Optical Character Recognition) software is unable to accurately decipher the distorted images.

ReCAPTCHA adds a second element to the system. With a ReCAPTCHA, a visitor to a website is shown two images of words or groups of letters. For one of the images the actual text is known by the system and is thus used to control access. The other image is taken from scans of old print publications in the process of being digitized but which OCR software has had difficulty reading due to degradation of ink, etc. By compiling and analyzing the many answers given for the same indecipherable image, the system is able to determine, with over 99.5% accuracy according to their website, what the actual text is. In this way, ReCAPTCHA has digitized about twenty years of archived New York Times issues, and hopes to have the entire archive digitized by 2010.  The ReCAPTCHA program itself is provided free to anyone who wants utilize it as the access control system for their website.

The motivation behind the acquisition is obvious. The ReCAPTCHA system will be an immensely powerful tool in Google’s quest to create the largest digital library of out-of-print, out-of-copyright, and public-domain works. By farming out the work of digitizing images of text – of which Google can produce 1,000 pages per hour – to the over 200 million CAPTCHA challenges solved each day, Google hopes to make available ever greater numbers of books with ever greater accuracy, while at the same time providing a free and effective access control system to website operators.

SPSS Inc. was acquired by IBM this week and the Analytics software company got well above its industries medians. SPSS sold for $1.2B with revenues $297M giving a Revenue Multiple of 4, and with EBITDA of $79M giving an EBITDA Multiple of 15.2. Here are the multiples found on MandAsoft for similar deals for the past few years

See MandAsoft main site.

When an analyst is setting a value a company, you need to look for the multiples of comparable deals. The key is to find what is comparable. Usually analysts comb through thousands of deals to find those that are comparable. MandAsoft has an engine that does this combing for you. The unique coding methods allow it to find deals that are similar in many different ways.

Revenue and EBITDA Multiples are interesting in that they are the "price per square foot" of a company. In theory for a given industry, multiples should not vary that much. However, we do see some moderate variation based on various other factors: size of deal, profit margins, deal date and industry segments.

Looking at size, we see a slight saddle with tiny deals and large deals with larger multiples. We can assume that large companies are more tempting due to their market presence while tiny deals may have a unique technology or audience that make them desirable. We assume that tiny deals that do not have unique qualities do not end up selling. To see more on analysis of multiples trends go to Berkerynoyes.com