Saba Software to acquire Halogen Software (TSX:HGN)

Deal Financials

Transaction Overview

• February 23, 2017 Halogen Software announced that it has entered into a definitive agreement to be acquired by Saba Software
  • Saba and Vector Capital will acquire all the issued and outstanding shares of Halogen for CAD$12.50/share, a 25% premium to its unaffected share price 30-days prior
  • Pervez Qureshi, Saba’s current CEO, will remain as CEO of the combined platform and Halogen Executive Chairman Michael Slaunwhite will reinvest existing shares into, and become the Chairman
• Halogen Software provides mid-market cloud-based talent and performance management solutions
• Saba Software provides similar products and hopes the acquisition will help boost its SaaS offering and re-position it as a leader of end-to-end talent management solutions

Talent and Employee Management Software Comparables

Values in millions of USD

Saba Software’s Turnaround through Privatization

• Saba had made several acquisitions between 2009-2012 in hopes of developing its cloud offering
• In 2015, Saba made a distressed sale to Vector Capital after it was delisted from the Nasdaq following an accounting fraud scandal and SEC-negotiated clawbacks of millions of dollars from executives within the company
• One year later, Vector is now helping Saba acquire Halogen, which will nearly double the size of the business, and add a strong cloud presence

Vector Capital’s Expertise in Software Turnarounds

• Vector Capital specializes in turning around distressed businesses, a similar case being Corel Corp.
  • 2003 – Corel Corp., the creators of WordPerfect, is delisted from the Nasdaq and Toronto Stock Exchange after the dot-com crash and privatized by Vector Capital
  • 2006– Vector helps Corel acquire WinZip, and on the same day completes its second IPO at $16/share
  • 2008– Corel faces headwinds from the financial crisis, and begins seeking financial buyers to recapitalize; Vector’s offer of $11/share is rejected
  • 2009– By Q1 2009, Corel’s stock price is below $2.50/share; deals with other parties fall though, and they eventually accept Vector’s updated bid of $4.00/share
  • Current– Vector is amid restructuring the business, which has returned more than $300m in dividends

HCM Software Valuations Dropping, Market Consolidating

• Workday has the large enterprise HCM market dominated, and mid-market providers are beginning to consolidate
• Halogen is a stable business with 76% gross margins, and 10% EBITDA margins, but the YoY growth has been slowed down to around 10%
• Valuations for companies with growth rates less than 25%, despite having stable cashflows, are being left behind by investors as the segment consolidates, and are becoming prime targets for acquisition

* True Blue Partners founders were the advisors on the Infinisource transaction

Valuations in the HCM Software Segment

HCM Software Index includes: JIVE, CSOD, ULTI, SKIL, HGN

TBP was NOT an advisor to this transaction