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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 #1

EMC Acquiring Captiva Software

Dear Colleague,

We know that valuation and the other factors which drive transactions are of the highest interest to our readers. Therefore, a new regular feature from Sokoloff & Co. will publish a short analysis of a recent transaction. This series of case studies begins with last week's announcement that EMC (Trading symbol, EMC) is acquiring Captiva Software Corporation (CPTV).

EMC Corporation, the giant ($9.31 billion revenue) information management and storage company, announced that they are acquiring 100% of the stock of Captiva Software Corporation, a provider of input management solutions. EMC will pay $22.25 per share in cash, or approximately $275 million net of Captiva's cash balance. The transaction is subject to regulatory and Captiva stockholder approval, and is expected to be completed in either late 2005 or early 2006.

The price of $275 million is approximately equal to 3.46x trailing twelve month (ttm) revenue and 18.1x ttm EBITDA. EMC is paying a premium of 21.6% over CPTV's stock price just prior to the announcement of the transaction on October 20th.

While the multiples seem high, CPTV has been growing at a strong rate with third-quarter revenue up by 41% from the previous year, and operating income up by 143%. Analysts expect CPTV's ttm Price to Earnings (P/E) of 44.34 to come down to 28.39 for the year ahead. This suggests that the EBITDA multiple paid by EMC will equate to about 11.6x year ahead EBITDA.

The transaction is somewhat dilutive to EMC and will likely be so throughout next year. So what is the benefit of this transaction to EMC? Dave DeWalt, president of EMC, believes that "streamlining processes and reducing operating expenses" by delivering an integrated solution will ultimately drive an improved earnings outlook for EMC.

We hope that you find this new feature from Sokoloff & Co. interesting, informative and useful. We welcome your comments and suggestions.

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