Workbrain punches the clock

Workbrain (WB:TSX) has punched the proverbial clock for the final time as a public company. The last few quarters have proven to be difficult for many publicly-traded Canadian software firms. Licences are taking longer to sign. The IT spending climate is improving, but this isn’t translating to great growth for a varieyt of players. A quarterly miss vs. guidance is now a one-way trip south for the stock. And it takes 3 quarters to dig your way out.

As such, it will not be seen as a surprise that Workbrain threw in the towel this morning, being just another of the Canadian firms (think Geac, SSG, etc.) that has sought the greener pastures of the acquisition machine known as Infor (which must be the third largest enterprise software player in the world now).

Given that revenue had almost doubled between 2004 and 2006, selling for less than the IPO price might come as a shock. No management team has been more proud of their software business than this one. And given the large stake held by management, it’s not like a sale has been forced on the team by angry shareholders. But, gross margins are down 5% during that same timeframe, and operating losses increased despite the growth of the business.

With a $227 million sale price, Bay Street types will have been interested to see that two financial advisors acted for the company’s Board of Directors. Not one for the company and the other for the special committee. Both provided fairness opinions to the Board. And one was a bulge bracket firm normally associated with not just billion dollar local deals, but multi-billion $ ones.

When the $18 billion going-private was proposed for Imasco, for example, that Board sought out a local and international dealer to provide an opinion. This deal may, or may not, be a sign of things to come vis-a-vis a local Board’s comfort with receiving an opinion solely from a Canadian-based investment dealer.

In my mind, it’s a mistake to think that a Board needs a U.S.-based brokerage firm to tell them what a fair price is. If a local firm was good enough to take you public (ie., advising the public that the IPO price is suitable), then they certainly should be seen to be just as qualified on what is an appropriate exit price for those same shareholders.

Workbrain’s deal may serve as another reminder to other CDN software teams that they don’t need to wait for the home run before selling the firm, cashing up the family trusts, and moving on to their next opportunity. Clearly, this team came to that conclusion.

MRM