During a conference call to discuss the offer, institutional investor Donald Collins, a principal with Ironwood Capital Management, verbally rejected the deal saying the 7% premium the offer represents over Epiphany’s closing price prior to the announcement of the deal was too low.
In 20 years of covering software companies, I have rarely ever seen a lower valuation placed on a company of Epiphany’s size and stature, he said. I plan on opposing the acquisition, and I’d like to encourage my other institutional investors to vote the same. Ironwood Capital Management owns around 250,000 Epiphany shares. Collins believes SSA Global should improve its offer to around $5.25 per share or face shareholder rejection. SSA is offering $3.92 per share.
However, in general the bid is being viewed positively. The two companies have similar technology bases which should facilitate integration and SSA CEO Mike Greenough said he expects that following the close of the deal, which he anticipates happening in 8 to 12 weeks, the Epiphany portfolio will be merged into the SSA CRM product suite within 6 to 12 months. Epiphany’s J2EE-based infrastructure will also be used to improve the SSA technology stack.
Epiphany will fill a gaping hole in SSA’s functionality matrix because, although it offers some CRM functionality at the moment, it is limited in scope. The size and strength of the Epiphany line will complement the product functionality we have, said Mr Greenough. Specifically, SSA is looking to Epiphany to gain depth in marketing automation, marketing analytics, sales force automation, online solutions and ecommerce. While SSA offers some of this functionality, Mr Greenough admits that it is not well served within its own product line and demand for CRM has been low because SSA could not match the depth of functionality offered by other players in the market. SSA’s CRM strengths lie in its configuration and field service functionality, which are not areas Epiphany covers within its portfolio.
The cross sell opportunities are not immediately obvious given that SSA’s customer base is primarily in the extended ERP manufacturing mid market while Epiphany is a high end CRM and CRM analytics player with a heavy interest in the financial services, telco, travel and leisure, and retail verticals. However, 20% of Epiphany customers are also active maintenance-paying SSA customers so there will be cross sell opportunities from day one, said Mr Greenough. But as Epiphany only has 400 customers in total, of which only 250 to 260 are active customers on maintenance, the number of customers and their potential financial value may not be extensive.
However, Mr Greenough believes there are additional opportunities because its mid market customers do not currently have a coherent CRM solution in place and are using a hodge podge of applications to fulfill their needs. There are estimated to be 600 to 700 immediate cross sell opportunities, particularly among electronic and hi tech consumer goods companies.
He also pointed out that although 83% of SSA’s customer base is in the manufacturing sector, a large proportion of the remaining 17% are in the financial services vertical, therefore SSA is already covering the market and can use the Epiphany portfolio and vertical expertise to build on that. Nevertheless, there is a difference between a company having a presence in a market as a result of prior acquisitions, and it having sufficient credibility to enable future growth. Epiphany could address that issue.
If the deal is closed it will make SSA an $800 million company and take it one step further to its goal of becoming a $1 billion company, with the scope and resources to challenge SAP and Oracle and become the number three player in the enterprise applications market.
SSA will reap multiple benefits if the purchase goes ahead, but Epiphany and its customers have less to celebrate. Given its long-term loss making position and tier two status in terms of size, Epiphany had to do something so an acquisition by a bigger, stronger player makes sense. Epiphany has proven that it has industry-leading and innovative products, and what we needed was the ability to turn these innovations into revenue, said Epiphany CEO Karen Richardson.
As part of SSA, the Epiphany portfolio, which looks like it will continue to be sold for at least a year, will have a secure financial base and SSA’s global sales and support infrastructure can be called on to help sales execution. More feet on the streets will be valuable, but there is still the question of addressable markets because despite a small overlap, the Epiphany and SSA’s customer bases are separate, with different requirements in terms of functionality and how they are sold to and supported. Once the immediate opportunities are mined, it remains to be seen where additional outlets will arise and how much revenue they can generate.
There is also the question of the Epiphany product roadmap and whether SSA will prioritize integration with its application suites over product development. To be fair, it is early days and Mr Greenough said SSA would release details of the product roadmap once the acquisition closed. Sharing information about roadmaps is one of SSA’s core commitments to its customers and something it has delivered on in the past, so Epiphany customers can be fairly confident that they will know where the product is going.
