Acquisition Frenzy

February 1, 2007       Mark Hrywna      

In two blockbuster technology deals that will impact thousands of nonprofit groups, online fundraising firm Convio has a deal to buy GetActive Software and as reported on NPT.com, software giant Blackbaud has purchased Target Software and Target Analysis Group for $60 million.

Arch rivals Convio and GetActive have entered into a definitive agreement for the fundraising-focused Convio of Austin, Texas, to purchase the advocacy-leaning GetActive, with operations in Berkeley, Calif., and Washington, D.C.

Financial terms of the Convio acquisition of GetActive were not released and company officials declined to answer most questions regarding details of the transaction. Such deals are typically a multiple of earnings, or one-half to one-times revenue. Sources close to the deal said GetActive’s revenue for 2006 was $13 million.

The deal is expected to close within four to six weeks, said Convio CEO Gene Austin. He termed the chances as “zero” that the deal would not go through.

“Both platforms are going to continue for the foreseeable future,” said Austin, who will be chief executive officer of the merged companies. Sheeraz Haji, co-founder of GetActive, will be the company’s president. Bill Pease, GetActive’s other co-founder, will be the firm’s chief science officer.

Asked if Haji and Pease will have a financial stake in Convio, Austin said, “The best way to answer that is, to the degree that they had equity in the old company, they will have an applicable stake in the new company. They will have a representative stake in Convio.”

Convio and GetActive officials spoke exclusively with The NonProfit Times the day before the deal was announced. NPT reporters had details of the deal from sources and began asking questions during mid-December. As disclosure, GetActive has been a service provider to The NonProfit Times for delivery of e-letters. However, that relationship did not involve sharing of information for this report.

The deal marries two aggressive competitors with some overlapping products and some that are complementary. GetActive is strong on the advocacy side with a powerful content management system while Convio’s fundraising applications are viewed as stronger. GetActive also has a strong presence in Washington, D.C., which Convio did not.

GetActive brings 800 clients to the deal, with the merged firms having a total 1,400 clients. GetActive’s clients include The Humane Society of the United States, AFL-CIO, University of California, CARE, Oxfam America, U.S. Chamber of Commerce, and the National Association of Realtors. Convio’s clients include the American Red Cross, American Diabetes Association, American Society for the Prevention of Cruelty to Animals, AVON Foundation, Easter Seals, Farm Aid, National Multiple Sclerosis Society, Sierra Club, The Susan G. Komen Breast Cancer Foundation and Thirteen/WNET New York.

The two firms have very different corporate cultures, although both Austin and Haji downplayed the previous bruising competition. “Sure, we have been intense competitors, absolutely,” said Austin. “There are going to be some sharp elbows every now and then. I think our companies are going to do quite well together.”

The firms did enter the marketplace from different perspectives. “In the early days, you’re absolutely right, GetActive came at the marketplace from an advocacy orientation. Over time they have added fundraising, a strong email capability and added a content management system that I think is a leader in our marketplace,” said Austin. “Put our product picture side by side, they have many of the same functionalities and capabilities. But their strength is content management and we agree their advocacy leadership is slightly ahead of ours as well.”

Said Austin, “If you take our strength in fundraising, our overall applications strength, our e-crm strength, meaning how do you manage what comes to your Web site, how you manage information and data, our fundraising applications, our consulting service business, marry that with their advocacy knowledge and their content management abilities I think you have a tremendous platform going forward for the marketplace.”

Haji will be responsible for integration of the two cultures, calling it “a whole new adventure.” He admitted that in some cases to make pieces fit he’ll have to “adjust my view.” The combined company will have approximately 300 employees at the point of merger. “While you are correct that there is some overlap, Convio will continue to grow at a rapid pace. I expect we will dip a bit and end the year at about 285 employees,” said Haji.

The road to this deal wasn’t all sweetness and light, champagne and barbecue. The firms have been talking for approximately nine months. The negotiations broke off on December 22, sources close to the deal said. While both Austin and Haji acknowledge that there was a near break-up, both declined to be specific about the problem.

Haji said that both sides saw opportunity in the acquisition and that’s what brought everyone back to the table. GetActive did have other funding opportunities, sources said. There was venture capital available. And although it would have taken millions to continue building technology, GetActive’s $13 million in revenue in just 2006 exceeds the $9 million of paid-in capital.

The deal reduces the number of major providers of multiple online services to three: Convio, San Diego, Calif.-based Kintera and Charleston, S.C.-based Blackbaud. Austin said the constriction won’t have an impact on pricing because there are smaller firms that provide the various pieces, and consumers can choose to go in that direction. “The market is very under penetrated. The market is extremely new,” said Austin.

Both Austin and Haji see Blackbaud as the toughest competition, despite the fact Kintera has more online fundraising clients. The combined company is larger with more cash. There has long been talk that Convio executives want to take the company public, like Kintera and Blackbaud. “We want Convio to be a long-term success for our customers and be a long-term success for our employees. Should the day come that we decide the public market is interesting to us, we think the new company has even better prospective in the public market,” said Austin.

Blackbaud’s acquisition of the Target companies sent shock waves through the nonprofit direct response community. Target Software is a provider of large-scale database management and sophisticated donor relationship software solutions that support national and regional nonprofit fundraising organizations.

Target Analysis Group delivers data mining, predictive modeling, and unique collaborative benchmarking services to hundreds of nonprofits of all sizes.  Together, the two companies provide solutions that help organizations analyze, plan, forecast, execute, and manage high-volume fundraising campaigns while helping them maintain long-term donor relationships.

Target Analysis Group and Target Software will continue operations as wholly-owned subsidiaries in Cambridge, Mass., under current president Lee Gartley, who will also join the Blackbaud executive team. Chuck Longfield, founder and CEO, will become Blackbaud’s chief scientist. Together, the two companies have nearly 200 employees.

“The acquisition of the Target companies accelerates our move into one of the markets we identified as a top strategic priority, and it does so by adding best-of-breed technology and industry-leading demand expertise,” said Marc Chardon, president and CEO of Blackbaud, a public company traded on NASDAQ.

Target companies generated a little more than $21 million in total revenue for 2006, an increase of more than 20 percent compared to the prior year, with 55 percent from Target Software and 45 percent from Target Analysis.

Blackbaud will provide detailed fourth quarter financial results on Feb. 5, as well as detailed first quarter and full year 2007 guidance, including the expected impact of the Target acquisition.

The acquisition will improve Blackbaud’s “ability to serve customers in the high end of the nonprofit market and chief marketing officers alike, and we believe there will be a significant opportunity to cross-sell our respective solutions to customers of all sizes,” Chardon said. “As a result, we believe the acquisition of Target will materially expand our market opportunity” by $500 million to $1 billion.

Blackbaud becomes an “instant market leader from a technology, relevant customer base, and domain expertise perspective in this highly strategic category,” Chardon said, which would have taken the company several years to do on its own while facing stiff competition.

“We increasingly heard from customers wanting to conduct high-touch fundraising to complement high-volume fundraising campaigns, while Blackbaud was having the opposite conversation with many of its customers,” said Longfield. “It’s clear that both companies were on a path to direct competition in the next several years.”

While Longfield said they were not actively looking to sell Target, the potential benefits and synergies of the two companies were too strong to pass up. “The combination of the two will enable fundraisers to assemble end-to-end solutions, to explore donor preferences, understand giving habits, and conduct more effective campaigns across donors of all sizes,” he said.

Target Analysis has about 500 clients, of which about 110 are also Blackbaud customers, and only 16 of those are active Blackbaud analytics customers, Chardon said. Target Software has about 80 very large clients, nearly half on an on-demand ASP environment and growing, an aspect that was “very attractive” to Blackbaud. Target will continue to honor all of its current confidentiality and donor data stewardship agreements with customers.

Chardon still plans to ship Bull’s Eye this quarter. Bull’s Eye is Blackbaud’s direct response marketing tool similar to Target’s Team Approach based on Blackbaud’s database platform, but on a smaller scale. “The reason is that we have customers who are quite interested in direct response marketing to complement high-touch fundraising strategies,” he said, and he’s hoping to move them into the high-touch mode as fast as possible.

Blackbaud will be immediate competitors for firms such as Epsilon in Wakefield, Mass., and Merkle:Domain in Lanham, Md., which have large nonprofit database operations.

Blackbaud CFO Tim Williams called it the largest deal in terms of absolute size that Blackbaud has done. Last year, Blackbaud purchased Campagne Associates for more than $6 million, and the largest prior to that was in 1997 when it acquired Master Software Corp.  NPT