Charleston, S.C.-based Blackbaud announced its intention to acquire rival software fundraising firm Convio of Austin, Texas for $275 million.
The combined company would have annual revenue of $440 million, free cash flow of $66.5 million and net debt of $240 million. Under the terms of the agreement, Blackbaud will acquire all outstanding shares of common stock of Convio for $16 per share, representing a premium of 49 percent compared to Convio’s recent closing price and an enterprise value of approximately $275 million.
The deal, which is structured as a cash tender offer followed by a merger, is expected to close during the first quarter of this year. Blackbaud will finance the transaction through existing cash balance, expansion and extension of the company’s current debt facility, as well as newly issued syndicated debt.
The transaction is expected to be accretive to Blackbaud’s non-GAAP financial results for the full year 2012 and increasingly so in future years.
Executives at both firms have talked about a deal for years but the timing was never right until only a few months ago, said Jana Eggers, senior vice president of products and marketing at Blackbaud.
“An acquisition of this size is quite regulated and there are tons of things we can and can’t do,” before the deal closes, 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.
“Only a small handful of people at Blackbaud knew this was happening,” up until Tuesday morning, when the announcement was made, Eggers said.
In a conference call with analysts this morning, 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 Tony Boor, Blackbaud’s senior vice president and chief financial officer.
The Tuesday morning announcement from Blackbaud indicated that Convio President and CEO Gene Austin would join the firm in a leadership post, reporting to Blackbaud President and CEO Marc Chardon. There was no mention about the future of Convio co-founder Vinay Bhagat. When specifically asked about Bhagat, Eggers said that was not something she could speak to before the deal closes.
“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,” Boor said.
All Convio directors and officers and certain of its affiliates (representing more than 30 percent of Convio’s total outstanding shares) have agreed to tender all of their respective shares subject to tender and support agreements. The consummation of the tender offer is subject to various conditions, including a minimum tender of at least a majority of outstanding Convio shares on a fully diluted basis, the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, and other customary conditions.
The acquisition of Kintera in 2008, eTapestry in 2007, the intention to acquire Convio, and Convio’s previous acquisition of GetActive Software 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 fundraising space and “terrific in the federated space,” she said, so it’s complementary to Blackbaud, and accelerates its efforts in these and other areas.
The firms said that Convio’s strength in online and social is a complement to Blackbaud’s expertise, and its addition will enable Blackbaud to better serve nonprofits. The two companies’ strengths will be combined to make multi-channel supporter engagement a reality at a faster pace than either company could achieve on its own.
“We fully expect that Convio’s best-in-class, SaaS-based capabilities for large events, advocacy and federated organizations will enable Blackbaud to offer the industry’s most diverse and flexible set of online capabilities on a global basis. Moreover, the addition of Convio will broaden Blackbaud’s application portfolio, enabling the combined company to offer a comprehensive set of multi-channel supporter engagement solutions to nonprofit organizations of all sizes,” said Chardon.
“Combining Convio and Blackbaud is expected to help create one of the largest SaaS 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 released this morning.
Combined the firm processed roughly $2 billion in online giving during 2011, in a CRM marketplace estimated by Eggers at $17 billion in the United States.
“In addition to the strategic reasons supporting the acquisition of Convio, we believe it is also highly attractive from a financial perspective. We expect the transaction to have an accretive impact on our non-GAAP diluted earnings per share for the full year 2012, and even more so in future years as we realize efficiencies from integrating our companies, said Boor. “The addition of Convio will also significantly increase the size of Blackbaud’s subscription revenue and further strengthen our SaaS and transactional offerings.”
Convio has more than 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.
Both companies trade on NASDAQ. 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 Tuesday’s announcement was made public. Blackbaud went public in 2004, acquiring rival Kintera in 2008. It closed 2011 at $27.70 per share and was up 1.5 percent in early trading, approaching $30 a share.
Within the past year, both firms acquired companies on their own. Blackbaud purchased Alexandria, Va.-based Public Interest Data, a database management, acquisition list and analytics services firm, for $17.5 million.
Convio used some of the $56 million it raised in a 2010 Initial Public Offering to purchase Baigent Digital, a leading digital strategy, design and technology implementation firm, for $3 million in July 2011. Last January, it also acquired StrategicOne, an Overland, Kan., database marketing firm for $5 million.
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