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Transaction
Case Studies

Peter A. Sokoloff & Co. regularly analyzes transactions which occur within the industries covered. An archive of these case studies is kept online as a courtesy to our colleagues. To receive by e-mail new case studies as they are prepared, please e-mail bwalko@sokoloffco.com with your contact information.

Archives > Transaction Case Study 78

SOKOLOFF & COMPANY CASE STUDY:
Siris Capital Group Acquires Digital River

DATE ANNOUNCED: October 24, 2014
BUYER: Siris Capital Group  
SELLER: Digital River, Inc. (Nasdaq: DRIV)    
PURCHASE PRICE: $840M
FORM OF PURCHASE PRICE: Cash - $26 per share.

SELLER’S FINANCIAL INFORMATION AND M&A MULTIPLES

Year 2012 2013 Trailing Twelve Months
through
June 30, 2014

Revenue

$370.50M

$389.68M

$373.69M

EBITDA

($124.94M)

$32.17M

$31.26M

Cash

 

 

$392.09M

Debt

 

 

$135.18M

Purchase Price

 

 

$840M

Enterprise Value

 

 

$583.09M

Multiple of Revenue

 

 

1.56

Multiple of EBITDA

 

 

18.65

TRANSACTION DRIVERS
David Dobson, CEO of DRIV stated that the acquisition “… provides significant value to our shareholders and represents a clear endorsement of our transformation strategy… we believe that this transaction will provide Digital River with the flexibility to innovate and execute our vision of setting the standard for global ecommerce technology and services.”

Dan Moloney, Siris Capital Executive said “… Digital River has a leading market position and significant global growth potential in the Commerce-as-a-Service market.”

SOKOLOFF COMMENTARY:
DRIV began its life in the upside down world of the Internet boom.  During those halcyon days, public companies with fat valuations spent money like drunken sailors to push their revenues up fast enough so the investing public would continue to buy into the story of unlimited frontiers to be mined.  In January 1999, DRIV was trading at a high of $56.75 and had a market cap of $8 billion.  1998 revenue was barely $20 million. 

Old spending habits die hard.  Long after revenues began to flatten out, DRIV continued pouring on the coals of expense.  Today, the company has a healthy 66% Gross Profit margin but is saddled with a swollen G&A.  Our guess is that the new owners will implement cost reductions to “normalize” EBITDA.  DRIV should be able to drive 30% or better EBITDA margins, which would lower the purchase price paid to 7x or lower.  If they maintain modest top line growth Siris Capital will be able to sell to a strategic for a low teens multiple in a few years and make a handsome return.

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