Intuit Sells Division to Private Equity for $128m

I note that Intuit has decided to sell off a small division (2% of group turnover) with fairly low operating margins compared to the rest of the business. I think that they have received a good price for this asset, at >30x operating profit, and 1.7 x revenues.

I am sure that this signals a trend that we will see as the larger tech players continue to react to the changing macro environment and give more focus to the core and successful parts of the business.

It also sends an important message to the rest of the group divisions - "start making the grade from a operating point of view, or you may find yourself with new owners." I think that this is a great way to motivate people to the key parameters that drive their business, whether that be revenue growth or focus on the bottom line (or indeed both).

To the best of my knowledge Sage has acquired well over 100 companies but has never divested anything of size.

I wonder if there are hiddne pieces of the business that could be considered as non-core, either from the perspective of operating metrics and margins, or indeed products that are not contributing to growth. The other area that could be interesting to look at for divesting might be operating divisions in non-core geographies.

Until Sage takes the decision to divest something, everyone at Sage will continue to live under the impression that being acquired by Sage means you are getting into a family that you can stay with until you retire. Maybe its time to look at that again. This does not mean that Sage is anything but a well run company, nor does it mean that they can't continue with the traditional acquisition model. I would see this as a sign of strength and maturity rather than perceived weakness!

Given the pricing that Intuit has received in this deal it would be interesting to see whether Sage could increase shareholder value by identifying and then divesting some non-core assets out of the business.

Can this team fix the problems?

When the US (and the world) is faced with arguably unprecedented economic challenges, who better to fix the problem - public sector government officials or people with extensive private sector business experience? Check out this chart below:

It examines the prior private sector experience of the cabinet officials since 1900 that one might expect a president to turn to in seeking advice about helping the economy. It includes secretaries of State, Commerce, Treasury, Agriculture, Interior, Labor, Transportation, Energy, and Housing & Urban Development, and excludes Postmaster General, Navy, War, Health, Education & Welfare, Veterans Affairs, and Homeland Security—432 cabinet members in all.

Analyze the successful economic presidents from the US past. And look at the remarkable contrast with Obama's cabinet makeup. Is he headed for success or doomed to failure?

Thoughts?

More exits for the PE industry in Israel: 2 big and 2 small

IBM bought Guardium for $225m. Guardium raised more than $20m from a few of the smaller Israeli VCs (Ascent, Veritas, Cedar, StageOne)

Broadcom acquired Dune Networks for $180m. Dune raised about $50m from larger VCs (Pitango, Evergreen, JVP, USVP, Alta Berkeley, Aurum SBC)

NICE acquired Orsus for $22m. Orsus raised more than $70m in VC funding, mostly prior to 2001.

CA is rumored to be acquiring Oblicore for $20m. Oblicore raised over $20m, mostly from JVP and Concord VC.

HP buys 3COM...

HP recently announced that it has agreed to buy 3Com for $7.90 per share, or approximately $2.7 billion cash. In 2007, 3Com agreed to sell itself for just $5.30 per share, or $2.2 billion, to Bain Capital Partners and China’s Huawei Technologies. That transaction got held up and subsequently stopped because of U.S. government concerns about Huawei’s involvement. This is a 22% appreciation during one of the worst economic periods in modern times. Not bad.

3com's stock has steadily improved over the pat few years. It is not because of the company's growth numbers. But I believe it is based on its improvement on its gross margins - based largely on moving production and logistics to China.

The graph to the left compares the gross margins of 3Com, HP and Cisco. With 3Com's significant improvement from 40% to 57% in four years, it seems that HP now has its sights on Cisco's core offering of network switches, routers, wireless access points and controllers, IP voice systems, and intrusion prevention systems for enterprise and small-medium businesses.

HP has 100 times more revenue than 3Com and only 50 times the market cap. This again is probably based on gross margins. Therefore, this transaction will have 2 major affects on HP:

1) It will be nicely accretive

2) It will enable HP's world class sales network to have a complementary new portfolio of products to its core customer base. Enterprises and SMEs will be able to enjoy a broader HP offering and pass on paying Cisco's premiums.

When looking at Israel, HP has a large presence here. It has been based largely on acquisitions - including Indigo, Scitex, Nur, and Mercury. This 3Com acquisition will open many further complementary acquisition targets in Israel.

I believe networking companies that have historically been built to be acquired by Cisco (or bust) should be thinking more about HP now.

So what is Cisco up to? Well, it seems that Cisco has been aggressively looking into the more consumer markets. It acquired Pure Digital and there are rumors that they are looking at Jajah. I guess it is hard to match Cisco's expectations for growth and margins in the markets that they are already active in.

In short, I believe this could be a very good thing for Israel and I would predict that HP will be 2x its size in Israel within 5 years.

Congrats to IDIT and PNMsoft in the FAST 50

Wanted to congratulate IDIT and PNMsoft on being included once again into Deloitte's Fast 50 awards.

For those that do not know: IDIT is a leading vendor of enterprise software systems to the global insurance industry and is lead by its CEO Yoel Amir, and PNMsoft is a leading vendor of Microsoft based BPM solutions, and is lead by its founder and CEO Gal Horvitz.

In particular I wanted to thank all of the employees and management of both companies for their continued hard work. You continue to make us at Goldrock proud of your achievements!

Looking forward to another year of growth!

Solel brings Success to Bet Shemesh!

I don't have a great deal of knowledge when it comes to solar power, or cleantech in general. Nevertheless I wanted to blog about this $418 million acquisition because of the story and location of the business.

Solel is a major employer in our region and the main excitement is that Bet Shemesh (where I live and work) is in the news for all the right reasons.

Solel and its founder Avi Brenmiller have been developing their technologies and growing this business over a decade and a half and have managed to successfully build a business today turning over more than $100 million. This is a fantastic achievement which has now been recognised by the worlds leading renewables engineering company, Siemens.

This blog is to take the opportunity of congratulating Avi and his team on this achievement, and for bringing this success to the neighbourhood!

The Next Bubble?

Several years ago you may recall that following the last bust (the dotcom variety) there was a period of very low interest rates (thanks to Mr Greenspan) and as a result it was somewhat difficult to find investments that would generate a reasonable return.

Fortunately I had money to invest at the time, and thus myself and my partner went hunting assets classes that might provide such a return, and if possible in a non-correlated manner.

One of the areas we looked at was Viaticals. This is the general term for buying second hand life policies, typically from old people. The main reason why this business exists is to allow people to enjoy the benefits of the policy before they die, typically using it for health or residential care.

Due to the nature of the discount offered on the purchase, if managed correctly they can potentially offer above average returns over time, as the people pass on thus releasing the full value of the policy.

Of course the general rules apply:

• their are no free lunches (risk/reward)
  
• if it is too good to be true, then it probably is (this seems easy!)
• read the small print (and then the REALLY small print)

In the end we passed on the idea, partly as we felt uncomfortable with the seedier end of this business which has a poor reputation, and also because the actual mechanism for making money is not as easy as it first appears. Risks include (but are not limited to):

• the original policy holders living too long, during which time you have to keep paying the premium, hence eating away at your potential return, and of course an increased holding time also reduces the IRR;
• ultimate beneficiaries suing the secondary purchaser when the original holder dies.

I read with interest an article in the NY Times about bankers sitting around figuring out the next way they can make money from securitizations (as if we have not had enough) and lo and behold they are talking about the securitization of life insurance policies, to be packaged and sold off to the unsuspecting investing community.

When they come knocking on the door to offer this, remember that you read my blog in September 2009. I am not suggesting that you should not buy, just make sure that you do not fall again into the trap that caught us out last time with CDO's CLO's etc.

They will undoubtedly tell you that the product:

• is backed by a major financial institution
• has a AAA credit rating, perhaps backed by a different equally solid financial institution (like AIG or Lehman Bros)
• Historic defaults show that there is little or no real risk to the equity

And I could probably go on!

Happy hunting!