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Deltek Going Private Again
Deltek Going Private Again
September 18 2012
It would be an understatement to say that
, the leading global provider of enterprise software and information solutions for professional services firms and government contractors, has had an interesting journey since it was founded in 1983 by the deLaski duo of father and son. In 2005, the original founders sold their majority ownership and gave up day-to-day involvement in the company, and Deltek was recapitalized by a private equity organization called
New Mountain Capital
based in New York, NY. The software company went public again in November 2007.
In late August 2012 came the announcement that another New York City investment firm,
, will be acquiring Deltek for US$1.1 billion, or US$13 per share. Thoma Bravo is a highly regarded private equity firm with a reputation for investing in successful growth-oriented companies and investing in those companies to accelerate their growth strategies. The firm’s previous asset success stories include
). You can read the
official press release here
Good or Bad?
Deltek has portrayed this transaction as good news for its customers, partners, and shareholders because the company has found a terrific partner for the next phase of Deltek’s growth. But not everyone shares this enthusiasm, and some question whether Thoma Bravo got a good deal or overpaid. Indeed, $1.1 billion for a company with $345 million in revenues and somewhat lower profits of late (in part due to its own acquisitions) might seem a bit high. On the other hand, some shareholders are considering a
class action lawsuit against Deltek for undervaluing its stock
Moreover, a few
market observers comment
that “struggling Deltek” has been “significantly underinvesting in its product lines.” I don't know whether their comments came from an intimate understanding of Deltek’s state of affairs or are based on a hunch. To be fair, it is not a common lifecycle for any company to go public and be taken private twice. I also agree that a few of the most prosperous product lines get most of the research and development (R&D) money while the rest are underfunded. This is true of most enterprise resource planning (ERP) vendors. Unfortunately, while this is a good product management decision, the underinvested product lines generate bad press.
But this is not necessarily the case with Deltek:
was purchased two years ago and Deltek is releasing the next version early next year.
was released less than a year ago.
is for government contractors and is a souped-up cloud version of
is the command center for all
Deltek Enterprise Project Management (EPM)
products. The vendor has invested heavily across the board, even delving into the social collaboration/productivity world with the upcoming
Why It’s a Good Thing
While some folks might be rightfully perplexed by Deltek’s history of going public and going private twice, it is all about how the financial game is played by investors and private equity firms. The company grew under New Mountain Capital from about $150 million in 2005 to almost $350 million in 2012, and Thoma Bravo doesn’t buy companies if the firm doesn’t think the asset can continue to grow. This is simply a case of a seasoned private equity firm buying a company from another private equity firm. New Mountain Capital had held the investment for seven years (which is an industry average).
Deltek was not doing badly at all, and that’s why its price was hefty.
and the government intelligence services (
) were great acquisition deals under New Mountain Capital, given that Deltek for the first time in its history has true international presence (via Maconomy) and knows about every possible deal that is in the United States (US) government pipeline (via the
Deltek GovWin IQ
intelligence subscription offering). I seriously doubt that there will be such crippling cuts to the US defense budget as to throw Deltek's market into an upheaval.
Several years back, Deltek acquired
as some products) and
Micro-Frame Program Manager (MPM)
, which gave the company
-like project scheduling capabilities. Even more important, with these acquisitions, Deltek has become by far the best solution for
earned value management (EVM)
reporting, which is critical for
government contractors (GovCon)
businesses that are subject to impromptu government agency audits. In fact, Deltek is not necessarily being used by US government agencies, but rather by the contractors working with the government. And especially in tough times these companies need to be careful about billing government agencies, which are in turn under the watchful public eye.
Great Last Quarter
The acquisition by Thoma Bravo was preceded by the financial results from Deltek’s Q2 2012 earnings announcement that the company issued in late July 2012. Overall, Q2 was a very good quarter across the board, with the following highlights that might explain Thoma Bravo’s willingness to pay:
Product revenue was $28.4 million, up 15 percent from the prior year
Product bookings were $33.3 million, up 23 percent from the prior year
generally accepted accounting principles (GAAP)
operating income was $16.9 million, an increase of 48 percent from the prior year
Q2 GAAP net income was $4.2 million for a Q2 GAAP
earnings per share (EPS)
At the time, Deltek also outlined
important sales and product development highlights
, including the following:
Leading space systems manufacturer
Orbital Sciences Corporation
chose the vendor’s new project manufacturing solution,
Deltek Costpoint MES
, to streamline its operations and lower its costs.
In the quarter, the vendor added more than 40 new
customers. Since its launch in mid-2011, over 200 new GovCon customers have purchased Deltek First, the only
software as a services (SaaS)
–based solution purpose-built to meet the complex needs of small and midsized project-based businesses.
The company significantly expanded its
product family with the launch of two new SaaS ERP solutions for professional services firms. These new Deltek First solutions,
, manage the project lifecycle for professional services firms while delivering the ease-of-implementation, flexibility, security, and accessibility of the cloud.
The vendor closed a number of significant deals with the Deltek Maconomy and
solutions. Recent new customers in the US include
, a Top 50 certified public accountant (CPA) firm, and
, a leading environmental consulting firm. Important new international customers include
, two of Norway’s most recognized law firms; NERSC, a large Norwegian research foundation; and
, an international marketing agency based in London.
Deltek announced the availability of
Deltek Capture Analytics
, which delivers actionable insight on bids, pipelines, win rates, revenue forecasts, and other critical data for government contractors so they can quickly adjust their strategies, prioritize activities, and deploy resources to effectively track and win more business.
Given its top-of-the-line market share in government contracting, Deltek has been a thorn in the flesh for
in the overall public sector market—any one of them might decide to snatch up the company at some stage. Or
could swoop in if they cared for that space.
Judging by its past investments
, Thoma Bravo tends not to keep its assets for too long.
Deltek Insight 2012
user conference in mid-October 2012 could not come at a better time. I’ll soon be posting my conference previews discussion with Patrick Smith, vice president, corporate marketing and communications at Deltek. Your comments, thoughts, suggestions or individual experiences with Deltek’s products are welcome in the meantime. For more information,
see also Deltek’s profile in
TEC's IT Showcase
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