Nonprofit software and technology giant Blackbaud has gobbled up competitors or added complementary firms to their stable of offerings to the tune of $431.3 million during the past few years. Last month’s announcement of its intent to spend $275 million for archrival Convio is just the latest ingestion.
In 2007, it was donor management software firm eTapestry in Greenfield, Ind., for $25 million and Target Analytics in Cambridge, Mass., for $60 million. The next year the firm spent $46 million for online fundraiser and rival Kintera in San Diego, Calif. Public Interest Data in Alexandria, Va., was snapped up last year for $17.5 million and Everyday Hero in the U.K. for almost $7.8 million.
When the Charleston, S.C., company announced on Jan. 17 its intention to acquire Convio, it coincidentally was four years to the day that Convio announced it acquired Berkeley, Calif.-based GetActive for $18 million. Some in the nonprofit sector worry that consolidation will stifle competition in the software marketplace while others are hopeful that the acquisition will lead to better application integration. Then there are those – likely Convio clients – who worry about where they’ll end up.
Convio has approximately 1,500 customers in the U.S., Canada and the U.K., including 29 of the top 50 U.S. charities. In 2010, Convio’s U.S. clients used its software and services to raise more than $1.3 billion online, send more than 4 billion emails, power more than 32 million advocacy actions and manage relationships with more than 248 million constituents.
Combined, Blackbaud and Convio processed roughly $2 billion in online giving last year, in a constituent relationship (CRM) marketplace estimated to be $17 billion in the United States, according to Jana Eggers, senior vice president of products and marketing at Blackbaud. “We absolutely see competition. We see it every day. It feels so much like a complement to Convio, that’s why we talk about it so much,” she said. “There’s a lot of other people working on this out there, not just us. We often talk about each other, but the competition is on the big side,” Eggers said, such as Salesforce.com, Microsoft and Oracle.
Jeff Shuck, president and CEO of fundraising consultants Event360 in Chicago, is optimistic that the move will benefit the nonprofit sector. “Blackbaud is the de facto nonprofit technology standard when it comes to back-end systems” while Convio “has become the standard for web-based CRM, particularly in the rapidly growing advocacy and peer-to-peer fundraising spaces,” he wrote in a blog post after the announcement. Shuck is confident that the acquisition actually will speed up technological development of nonprofit software while most nonprofits already use both systems.
“We’re all aware that nonprofits are going to succeed if they’re data-informed organizations. That understanding of how your donors volunteer, how your activists donate, is really the key to being as successful as you can be. That is hard to do when you have tools that don’t talk to each,” said Holly Ross, executive director of the Nonprofit Technology Network (NTEN) in Portland, Ore.
“It’s sad for the market to have one less big, integrated provider of services,” she said. Despite that, there’s an opportunity for other companies to take advantage. “It’s a really crowded space. It’s not like the choice is gone,” she said, pointing to firms that can present themselves as a more sophisticated option than they have been, such as Democracy In Action. There’s also Salesforce.com, ASI and Avectra. CEO Richard Davis of Avectra, which started out focusing its management software in the association space, said it’s clear that Blackbaud is aiming to fill gaps in its feature set. “This deal will hasten the need for more choice – fresher, savvier platforms that are required to attract and engage with today’s social donor,” he said.
The deal is a move for Blackbaud to get more deeply into the online and cloud aspects of fundraising, said Krista Endsley, senior vice president and general manager for the Austin, Texas-based nonprofit business unit of Sage Software. She’s concerned about limiting choice that large and mid-sized nonprofits have in the market. But with 32,000 Sage customers in North America, she said Sage is ready to take advantage of any confusion in the market.
Competition, however, isn’t likely to be stifled enough for regulators to nix the deal. Blackbaud and Convio together probably account for about 10 percent of the fundraising marketplace, when you consider all of the smaller firms out there, she said.
“Consolidation in this market has been happening pretty aggressively the past five years. We’re definitely continuing to see that. What I don’t see is a clear path to someone stepping into that number two. There’s not a logical consolidation to build that next Blackbaud,” said Endsley.
The acquisition of Kintera in 2008 and the intention to acquire Convio will leave Blackbaud with as many as three product lines and software systems. “This will fit in nicely with how we’re going about our own product portfolio rationalization,” said Eggers. Convio is larger in the online space and “terrific in the federated space,” she said, so it’s complementary to Blackbaud, and accelerates its efforts in these and other areas.
“It’s a growing space. Online is not replacing traditional channels, it’s complementing it. And it’s not just a shift from offline,” said Eggers. “The online world is complex,” she said, in that there are a lot of different things that impact giving, such as mobile, social, website design and email.
“All of this together makes the space complicated, and why there are so many solutions. Each complement each other to make a whole picture for customers,” said Eggers.
Art of the deal
The deal, which is structured as a cash tender offer followed by a merger, is expected to close by the end of March. Blackbaud will finance the transaction through existing cash, expansion and extension of the current debt facility, as well as newly issued syndicated debt. The combined company would have annual revenue of $440 million for the 12 months ending in September, with free cash flow of $66.5 million and net debt of $240 million. Convio reported GAAP revenue of $76.9 million for the 12 months ending this past September, compared with $363 million reported by Blackbaud.
Blackbaud will acquire all outstanding shares of common stock of Convio for $16 per share – a 49-percent premium from the previous trading days’ closing price – and an enterprise value of approximately $275 million. “From a valuation perspective, we’re paying what we think the company is worth. It’s a win-win for the company, customers, and shareholders of both firms,” said Tony Boor, Blackbaud’s senior vice president and chief financial officer.
A number of law firms, however, disagree and have initiated investigations into Convio’s board of directors for potential breach of fiduciary duty. More than a dozen law firms announced that they will investigate whether the board shopped for a deal that would provide better value for shareholders, claiming at least one stock analyst had a target share price of $17. Convio’s directors and officers represent almost 32 percent of the total outstanding shares.
Executives at both firms have talked about a deal for years, according to Eggers. “The timing was never right. Over the past few months that felt right for a bunch of different reasons,” she said.
“An acquisition of this size is quite regulated and there are tons of things we can and can’t do,” Eggers told The NonProfit Times. “In addition, the parties have to both want it. It has to be the right fit for everyone. There are so many things we can’t talk to each other about; right now we’re two separate companies, and competitors,” she said.
In a conference call with analysts the morning of the announcement, Blackbaud officials said it was premature to discuss specific individuals but they expect a significant number of people at Convio to join the firm. “The intellectual property and service knowledge, it’s in people’s heads, it’s not just something we can acquire,” said Boor.
The announcement indicated that Convio President & CEO Gene Austin would join Blackbaud in a leadership post, reporting to President and CEO Marc Chardon. There was no mention about the future of Convio co-founder Vinay Bhagat and when asked specifically about him, Eggers said that securities regulations precluded them from speaking about any employee. Austin held 366,243 shares of Convio and Bhagat 227,721 shares, according to recent Securities and exchange Commission (SEC) filings. Bhagat did not return calls and emails seeking comment.
Blackbaud has about 2,700 employees compared with Convio’s 450. Convio’s Austin, Texas headquarters is probably going to be converted into a center for the combined company’s R&D programs.
Convio is known as the better firm for online, advocacy and federated organizations, which the Blackbaud sees as a complement to its offerings. The addition of Convio is expected to significantly increase Blackbaud’s subscription revenue.
“Combining Convio and Blackbaud is expected to help create one of the largest SaaS (Software as a Service) vendors. The strength and complementary nature of our combined value proposition will position Blackbaud well to capitalize on the large and underpenetrated market for delivering innovative solutions to the nonprofit industry,” Chardon said in a statement.
Shares of both companies are publically traded on the NASDAQ exchange. Convio, which gained notoriety for its success in online fundraising with Howard Dean’s 2004 presidential bid, went public in 2010 at $10 per share. Convio closed 2011 trading at $11.06 a share and spiked 48 percent to $15.90 after the announcement. Blackbaud was founded in 1981 and went public in 2004. It closed 2011 at $27.70 per share and was up 1.5 percent in early trading on Jan. 17, approaching $30 a share. NPT