Geac to Acquire Extensity

Canada-based Geac, an enterprise software and systems provider, announced late Monday that it will acquire employee relationship management (ERM) specialist Extensity. The terms of the deal, subject to fluctuation until closing, call for Geac to pay about $47 million for shares and outstanding rights for Extensity. This equals about $1.75 per share. Since Extensity has no debt, and is expected to hold about $37 million in cash and equivalents on the closing date, or $1.47 per share, this means that the company and its 170 employees is going for a fairly lean premium over cash on hand. Geac expects the deal to be approximately 10 percent dilutive in the 12 months following the deal, and accretive after that. Geac also said there would be administrative consolidation, and another potential $4 million saved in a cash tax benefit. "IT spending will come back, and we intend to be well positioned to capitalize on that," said Paul Birch, Geac president and CEO during a conference call with analysts and reporters. Extensity is a niche, but well-represented player in the emerging ERM category. The company has annual sales of about $20 million and has licensed more than one million seats worldwide to clients including Cisco Systems, A.T. Kearney, Chase J.P. Morgan, Merck, AstraZeneca and Thompson Financial. Despite its installed base, Extensity is one of thousands of companies feeling pinched growth in the current economic slowdown. "This deal makes great sense for Extensity, given the high cost of acquiring new customers for smaller software firms ... this transaction provides exceptional potential to significantly expand our market penetration on a cost effective basis," said Bob Spinner, president and CEO of Extensity. Extensity's product suite is meant to automate business travel and expense reporting, billable and payroll time capture, and procurement. Citing recent figures from IDC, Geac says travel and expense management is currently a $275 million market, expected to grow to more than US$460 million by 2005. In the procurement area, IDC estimates the current market for procurement solutions to be $1.5 billion rising to an estimated $2.3 billion in 2005. Geac says 73 percent of its customers have responded that travel and expense management, and time capture applications are of interest to them. "We are delivering on our articulated strategy for growth through acquisition by providing products with real ROI," said Birch. "We are purchasing technology that is best of breed, without incurring development risk or cost. And, we can sell it to existing customers immediately." Geac makes enterprise business applications for financial administration and human resources functions, and enterprise resource planning (ERP) applications for manufacturing, distribution, and supply chain management. Geac also builds vertical applications for real estate; restaurant; property; and construction marketplaces, and a variety of applications for libraries, government administration and public safety agencies. The two companies already share several customers pursuant to an alliance signed in June.
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