Hummingbird to be acquired by Symphony for US$465M

In a bid to deal with its liquidity problems, Hummingbird Ltd. announced Friday that Symphony Technology Group is going to acquire it in a US$465 million deal.

Symphony Technology Group, a Palo Alto, Calif.-based company, will buy all of Toronto-based Hummingbird’s outstanding shares in an all-cash transaction valued at US$26.75 per share.

Tennenbaum Capital Partners LLC will invest US$135 million to help finance the transaction.

The deal will provide Hummingbird, which sells enterprise content management (ECM) and connectivity solutions, with liquidity — a problem it has been contending with for the last five years, said Fred Sorkin, Hummingbird’s chairman and co-founder in a teleconference held earlier today.

“We thought we have to solve this problem immediately because (there is) absolutely pressure from shareholders to do something in this area.”

However, shareholders didn’t appear overly impressed with the proposed transaction during a Q&A period in the conference call. Some expressed frustration that the price was too low and that Hummingbird didn’t pursue interest from strategic buyers.

But Sorkin said Hummingbird didn’t want to publicly put the company up for sale since it creates problems — such as with company culture. Management didn’t seek out interested buyers privately either, he said.

“We (were) not really shopping around at all. It was only incoming calls. I think it was the right decision not to do it.”

But he also said, “The door is open, and if somebody thinks they can offer a more attractive price, they can come to the table anytime.”

Curtis Gittens, a senior research analyst with London, Ont.-based Info-Tech Research Group, said he understands the shareholders’ concerns.

“The price does sound low. (Hummingbird) has been consistently a leader. They’re fairly strong in the ECM market. It sounds as if they’ve made a misstep,” he said. “It probably would have been better to shop around. (Hummingbird) is insisting that they didn’t want to go shopping around because it would have affected the share price. You can tell from the shareholders’ response that that doesn’t really make sense.”

Hummingbird should have shopped around for a buyer quietly, he said.

“It’s not as if they got acquired by somebody who’s interested in running the business. Even though Symphony says they’re there to help the organization increase their revenues, they’re in it for the money.”

However, Warren Shiau, a lead analyst for IT research for The Strategic Counsel in Toronto thinks it’s a fair deal.

“(Shareholders have) probably been looking at the prices that other depressed software companies have been fetching,” he said. “But those are in hot areas.”

Although ECM is an important functional area of the market right now, it’s not a niche market, such as retail, which is much hotter right now, he said.

Also, the big-stack vendors generally look to acquire companies when there’s either a hole in the applications they offer or when they want to acquire an installed base.

“If you look at the stack that the larger vendors are building out, they have the content management functionality in place already,” Shiau said.

For now, the company has no intention of changing or exiting either its ECM or connectivity businesses, Sorkin said. It’s too early to talk about such changes, he said. The company is “looking for growth on both sides.”

Although Symphony holds other technology companies, there are no immediate plans to combine any of its products with Hummingbird’s products, Sorkin said.

Shiau recommends that Hummingbird’s users look at what happened to other users of the companies Symphony acquired.

“Typically, when a firm like Symphony acquires a software company, they look at trying to institute a lot of software efficiency gains,” he said. “The possible danger is that it can effect service levels, and it can effect R&D budget and future product development.”

Gittens agrees users might have cause for concern.

“It could have a negative impact on (Hummingbird’s) customers,” he said.

— With files from Sarah Lysecki

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