Authoria Acquired by Private Equity Firm, Bedford Funding
Today, Authoria announced the acquisition by Bedford Funding, a private equity firm based in New York. In quick glance at the announcement, a couple of things jump out…
- The company was sold to a private equity firm for $63.1 M
- As part of the investment, Authoria receives $8M of capital infusion (designated for “sales growth”)
- Bedford Funding is a relatively unknown and young private equity firm most notable as the team behind GEAC. Authoria is the first investment in their $800M fund
- Considering Taleo’s recent purchase of Vurv for $128M, it sure looks like Bedford got a steal (although not disclosed, it was led to believe that Authoria was of similar size/revenue as Vurv)
- By all indications, the company will remain “as is” with no significant changes to the management team or employees
- This looks to be more of a recapitalization than an actual merger/acquisition and notable in the announcement is a “debt-free structure”
So what is my take…
Winners
Authoria - With Authoria Talent Management continuing to roll out new functionality on the new platform, this gives Authoria a new lease on life. Frankly, this creates a cleaner capitalization structure for the company, and based on Authoria past investment, acquisitions, and structure, a recapitalization should have happened a while ago.
Bedford Funding - Looks like they picked up Authoria on the cheap considering the amount of capital already invested in the company, the recent comparables such as Vurv’s acquisition, and the speculation last year that Authoria turned down acquisition offers that were significantly higher.
Employees - Most employees stock is probably under water right now. But assuming a new incentive plan is introduced, under the new structure, this could be good news that employees reset their options with more potential upside in the longer term.
Losers
Existing Shareholders and Investors - The board and management seemed to be out of options considering the past venture investment and the more recent venture debt investment last year. Without seeing the terms of the deal, it would be fair to assume that existing shares received a fraction of the investment and value. Keep in mind, though, many of Authoria’s shareholders were early investors and have moved on to additional funds. As a result, the venture firms showing some return to their limited partners is actually good news.
All in all, I think this is good news for Authoria and their customers, and creates a much cleaner structure for the company to really attack the market as the first vendor that can truly bring together talent acquisition/recruiting with the rest of the talent management suite. Keep in mind, Bedford has another $700M+ in their fund, which could inevitably put Authoria on a more aggressive path to compete against their publicly traded competitors such as Taleo and SuccessFactors.
Please join our discussion regarding the acquisition in the Knowledge Infusion Center of Excellence.
Technorati Tags: Authoria, acquisition, Bedford Funding, Taleo, SuccessFactors, talent management
18 Comments Add your own
1. Bill Kutik | September 29th, 2008 at 10:38 am
All seems right to me, Jason, adding only that all holders of common shares (or options for them) get nothing. So some early people who helped build the company and had already left are out of luck.
Your point of it being more like a recapitalization seems true. The same management team will stay in place going forward. Let the battle with Taleo, SuccessFactors et al continue!
And CEO Tod Looffbourrow will still be duking it out at the Talent Management Shootout at HR Technology on Oct. 16. Could I fail to mention that?
2. Techsphinx | September 29th, 2008 at 11:54 am
The company was not sold so cheaply for no reason. Typically, private equity buyers will take a great deal of expense out of a company to ensure profitability no matter what. Tod may still be the CEO, but make no mistake, Bedford will be running Authoria by committee.
If Authoria is ready to hit the market running now, this could work out for them. But, if they still have to spend more money on the product suite or ramping sales, the employees of Authoria will not find things so fun at all.
Authoria raised $22M almost exactly one year ago. They are getting $8M more now. That’s a lot of cash out the door in one year that is being augmented by very little now.
Unless Bedford intends to turn around immediately and go shopping again, look for Authoria to get smaller but more profitable, no matter what.
3. Authoria Sold To Investme&hellip | September 29th, 2008 at 11:58 am
[…] Corsello, writing in his blog, The Human Capitalist, called the deal a recapitalization observing that existing investors shareholders, which include […]
4. Jason Corsello | September 29th, 2008 at 12:00 pm
Techsphinx…I respectfully disagree. This is Bedford’s first real investment in their fund. They should be in no rush for profitability considering the talent management market still in near strong growth phase.
5. halfprice | September 29th, 2008 at 1:41 pm
Let’s see:
$125 Million+: Amount of equity funding Authoria has received over the years.
$63 Million: Amount Authoria sells out for.
Doesn’t look like a good ROI for Authoria’s investors.
Further, assume a conservative annual revenue of $30 Million. In one of the hottest software markets on the planet, Authoria is valued at only 2X revenue?
Something doesn’t smell right here.
6. Ex-Vurv | September 29th, 2008 at 2:42 pm
Makes sense. I have it on pretty good authority that Bedford was looking at Vurv prior to the Taleo acquisition as well, for similar purposes (recap as opposed to pure M/A).
7. Timing is Everything | September 29th, 2008 at 3:06 pm
This is what happens when the economy turns south and the previous investors are tapped out and risk-averse. This was a great deal for Bedford. Gotta love a fire sale.
8. TechSphinx | September 29th, 2008 at 3:12 pm
Jason, you are being naive (also no disrecpect intended). Why don’t you ask the Bedford guys yourself? They’ll have this thing profitable in a couple of quarters. Besides, if they had intended to allow the company to continue to lose money, instead of putting in $8M of net cash, they would have put an additional $20-30M on the balance sheet just like Greylock did with SuccessFactors.
In the value investing game, which this was, profitability is king. Simply put, most PE firms won’t put money into a devalued asset without being almost certain that they can force decent profit margins through operating decisions alone. Certainly, Bedford hopes that the company will grow in the marvelous HCM/Talent market, but they will manage it almost immediately to profitability where they know they can get value.
9. Bill Kutik | September 30th, 2008 at 4:30 am
Have no idea about Bedford’s intentions, but I can confirm — having seen all the papers — that Authoria’s revenues were $37M in 2007. So you can figure out the sales price multiple, with or without the additional $8M.
Also the early investors did take a bath. But some of them go back a decade to when the company was called Foundation Technologies. And early investors always get diluted by later ones.
Various levels of preferred stock-holders got various prices for their stock in the deal, but no common shareholders, which naturally included all the employees, including Tod and the executive team. But they have retention bonuses to earn in the future.
10. Kevin Grossman | September 30th, 2008 at 9:31 am
Man, we don’t like to be the brooders of bad news, but this is not good news for Authoria and frankly, it’s not welcome news for the broader human capital marketplace as far as we’re concerned. What does this say about our marketplace when even after $100 million and 10+ years one of the leading human capital software vendors still can’t stand on its own two feet and needed another investor to keep them afloat? And the acquiring company in this case is not even another HR vendor eyeing synergies but a private equity firm? And they picked Authoria up for about 63 cents on the dollar?
No, not good news.
Are we surprised?
Nope.
On the other side of this HR midnight, there will be lots of opportunities for profitable and/or financially stable HR vendors (many who are smaller firms with no debt and positive cash flow) to make some serious gains in market share the next several years. And kudos to them - these are well managed HR firms with quality products that deserve more attention and respect than our industry gives them.
On a related note, the HRmarketer Services Group is sponsoring a very timely webcast next week titled The Changing Value of Your Company: How to Value and Sell Your HR Business (webcast - October 9th - https://www1.gotomeeting.com/register/257757172) that we suggest anyone interested in valuations of HR businesses attend.
11. Martin Snyder | September 30th, 2008 at 10:13 am
Thats the good word Kevin -
12. Joseph Murphy | September 30th, 2008 at 12:46 pm
Companies struggle financially from too much cost/effort to deliver their promised value for the dollar of revenue.
All the banter here but no customers chiming in.
Think about it.
13. Jason Corsello | September 30th, 2008 at 8:31 pm
As a customer advocate, I would keep in mind a couple of things….
1) Authoria got most of their venture capital in 2000, when capital was flowing more freely than ever. Today, Authoria is the only vendor that started in benefits communication still standing.
2) Like it or not, this investment put Authoria on a much more solid foundation. If I am a customer or prospect, I am thrilled. No debt and an private equity partner that has invested the time and energy to committed to the company and space.
3) It is important to note that Authoria capitalization structure and balance sheet is now stronger than 80% of the competitive landscape that Kevin talks about. As we know, most talent management vendors are still unprofitable. As Jim Holincheck mentioned in his blog, this is still considered an early stage market and profitability is less important than market share/growth.
14. AC | October 6th, 2008 at 10:39 am
After $126M of venture and two acquisitions (one an all-stock deal) a $63M purchase price is quite a bit below where everyone inside thought this would be taken out for. As much as they tout revenue growth, Peter Mann publicly said their combined revenue (with hire.com) was going to be $50M in 2005, but their real revenue was $37M or so in 2007. Tod and management may have a “new lease on life,” but they cannot seriously be happy with this - their ownership must be worth right around $0. They get new stock options, but they will be vesting and they need to produce value to get anything. Like starting all over again from 10 years ago, but now is a down economy where companies are not looking to buy big software solutions, even if they have the promise of lower long-term costs.
15. Jim Holincheck | October 7th, 2008 at 6:14 am
It is interesting to see the points of view represented here. TechSphinx makes some interesting points about intent. Most PE deals involve a lot of debt financing to grow a portfolio of companies (organically and inorganically), cutting costs (and gain profitability) so that the company can be taken public (or some other exit strategy that provides a return to investors). Bedford still has a big fund and will likely make additional acquisitions and will likely look for opportunities to cut costs across those acquisitions (including Authoria). Some of that fund may also be invested in Authoria (they are not precluded from investing more if warranted). So, I think that TechSphinx is partly right, but as Jason notes (and I discussed in my blog post) this is still a relatively early market and there is a drive to gain customer share to expand the TMS within those accounts (and lock in longer term subscription revenues). Authoria is not a big enough investment for Bedford, relative to the fund size, to worry too much about short-term profitability. It is an entry vehicle into a growth market. Also, I have talked to the Bedford folks (in fact, I have known them for some time) about this acquisition so I do think I have a pretty good idea about their intent.
16. Authoria Acquired By Bedf&hellip | October 14th, 2008 at 2:43 pm
[…] Jason Corsello and Jim Holincheck have more details in their blogs. […]
17. Authoria Acquired By Bedf&hellip | October 15th, 2008 at 2:55 pm
[…] capital (it has more than $800 million in available capital). Jason Corsello has a good synopsis of the acquisition. Ultimately, I believe this is a good thing for Authoria customers. […]
18. HRAce » How Importa&hellip | November 13th, 2009 at 12:06 pm
[…] 2008 – Authoria acquired by Bedford Partners […]
Leave a Comment
Some HTML allowed:
<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <code> <em> <i> <strike> <strong>
Trackback this post | Subscribe to the comments via RSS Feed