Blackbaud And Convio
March 1, 2012 Mark Hrywna
Board members and early investors in Convio and the former GetActive are in line for a nearly $100-million payday if Blackbaud’s $275-million acquisition of the company closes this month. At least five key Convio executives will be joining their Charleston, S.C.-based rival but co-founder and Chief Strategy Officer Vinay Bhagat will not be among them.
While the two fundraising software rivals remain tight-lipped as the acquisition process moves forward, paperwork filed with the Securities & Exchange Commission (SEC) after the announcement shed some light on Blackbaud’s courtship of Convio that started this past fall and continued through the holidays, before reaching a conclusion on Martin Luther King, Jr. Day, Jan. 16. The acquisition is a $275-million equity stake but Blackbaud anticipates needing $330 million to seal the deal, according to SEC filings, given that Convio has about $50 million in cash.
Regulatory filings indicate a separation agreement with Bhagat that is estimated to pay him salary and COBRA payments for nine months, totaling nearly $190,000, in addition to $313,805 worth of accelerated stock options. He also was among the top 10 holders of Convio stock, with nearly 220,000 shares. The largest shareholder was El Dorado Ventures, a Menlo Park, Calif., venture capital firm with almost 1.5 million shares. It was a first round funder of GetActive Software, which Convio acquired four years ago.
The seeds of Blackbaud’s acquisition of rival Convio were planted at its Sept. 13-14 Board of Directors meeting in Cambridge, Mass., where President & CEO Marc Chardon outlined the potential benefits and consequences of a deal.
The board of Austin, Texas-based Convio approved the acquisition and by 9 p.m. Central time on Jan. 16 Blackbaud had executed the agreement. Just eight hours later, a public announcement was released indicating a $16-per-share acquisition, a 49-percent premium on the previous trading session’s close of $10.74. Founded in 1999, Convio went public at $10 in 2010 and its share price has fluctuated anywhere from $7 to $13.
Convio’s board holds approximately 31 percent of the almost 18.6 million outstanding shares, which is “a good start toward getting approval of the deal,” said attorney Jay Nixon, a partner with Waller Lansden in Nashville, Tenn., who practices in the areas of mergers and acquisitions and venture capital financing.
Blackbaud’s offer initially was set to expire on Feb. 22, but was extended to March 7. In a prepared statement, Blackbaud announced the withdrawal of the initial paperwork and the extension to allow the SEC and the federal Department of Justice to continue the routine investigations into such deals.
Company officials have said the acquisition is expected to close by the end of this month. One month after that first Blackbaud board meeting, Chardon had a conference call with Convio CEO Gene Austin, who directed him to put the offer in writing because “historical discussions between the companies had never resulted in any agreement,” according to SEC filings.
The initial offer from Blackbaud was between $12.25 and $13.25 per share. “Although the market is moving towards using SaaS applications, some customers still want on-premise applications, and the combined company will give customers greater choices,” Chardon wrote in that Oct. 21 letter to Austin that was included in filings with the SEC. “Convio customers will have access to best-in-class Back Office/Operations Management applications offered by Blackbaud. Given the strength of Convio’s online fundraising and marketing offerings, our complementary strengths will benefit customers, including with a global delivery platform. By leveraging Blackbaud’s extensive R&D platform and industry leading capabilities, Convio will be well positioned for future growth,” Chardon wrote.
At its regularly scheduled meeting Oct. 26-27, Convio’s board countered with a minimum range of $15 to $17 per share while also reviewing “two other suitors who would most likely have interest” in acquiring the company. Those suitors were not disclosed.
The rival firms entered into a mutual nondisclosure agreement Nov. 7 to begin evaluating a possible transaction. Blackbaud upped its offer to $14.25 per share by Nov. 14 but was rebuffed again, for anything less than $15. By early December, Austin asked Chardon whether the process was completed. Finally, Blackbaud’s board authorized Chardon to make a best and final offer of $16 per share on Dec. 14 that would expire within two days, and would activate a “no-shop provision.” That offer eventually was extended to Dec. 19. Due diligence by Blackbaud during December and January included an antitrust analysis of the deal.
Before accepting Blackbaud’s offer, Convio’s board identified an additional five potential suitors “based on perceived potential interest and ability to consummate a transaction equal to or better” than Blackbaud’s proposal. Two of the five firms declined to proceed with any discussions and another did not respond to Convio’s representatives.
The potential of Austin joining Blackbaud appears to have been first broached by Chardon during meetings in early November. Convio’s board expressed concerns in early January about possible attrition should an announcement come out and the importance of compensation and severance agreements for key employees before a merger agreement. Offer letters to five key Convio executives went out Friday, Jan. 13.
Austin will become president of the Enterprise Customer Business Unit of Blackbaud, reporting to Chardon. He will receive an annual base salary of $370,000, in addition to $200,000 in restricted shares, $200,000 in stock appreciation rights and an incentive of target bonus opportunity of 50 percent of his annual base salary. He will earn $878,939 with the acceleration of unvested stock options and restricted stock units that will become fully vested with the transaction.
Four additional Convio executives secured employment agreements with Blackbaud:
- Sara Spivey, who will become vice president of corporate marketing of Blackbaud, reporting to Jana Eggers, senior vice president of products and marketing;
- Gary Allison, vice president of engineering of Blackbaud, reporting to Eggers;
- Marc Cannon, vice president of professional services of the Convio Division of Blackbaud, reporting to Austin. He also will receive $254,560 when unvested stock options and restricted stock units are accelerated.
- Patricia Hume, vice president of sales of the Convio Division of Blackbaud, reporting to Austin. She also will receive $460,625 when unvested stock options and restricted stock units are accelerated. Convio CFO James Offerdahl will remain on a six-month consulting agreement during the transition, and then receive salary and COBRA payments for another six months after he leaves, totaling $248,637. He also will receive $395,404 when unvested stock options and restricted stock units are accelerated.
There were 18,591,609 outstanding shares of Convio as of Jan. 16, according to the SEC filings, a third of which are owned by the board. If all outstanding shares held by the board shares were tendered at $16 per share, they would equal $98.7 million.
Founded in 1982, Blackbaud has about 2,200 employees. Convio, founded in 1999, gained attention in 2004 working with Howard Dean’s presidential campaign. The Austin, Texas-based firm has about 450 employees. Among the largest holders of outstanding shares of Convio, according to SEC filings, are:
- El Dorado Ventures, VI, LP — 1,453,872;
- Granite Ventures, LP — 1,338,929;
- Adobe Systems, Inc. — 1,153,477;
- Adams Street V, LP — 1,129,550;
- Gene Austin — 366,243;
- Vinay Bhagat — 227,121;
- James Offerdahl — 113,400;
- El Dorado Technology ’01, LP — 34,277; and,
- Granite Ventures, LLC, 6,856.
The Jan. 16 announcement from Blackbaud announced a $275-million equity acquisition, but SEC filings by the company indicated they expect to need $325 million to close the transaction. Blackbaud received a commitment letter Jan. 17 for a senior revolving credit facility in an aggregate principal amount of $225 million from JPMorgan Chase Bank and SunTrust Robinson Humphrey, and a senior term loan A credit facility in an aggregate principal amount of $100 million. NPT