Thursday, October 02, 2008

Epicor facing unfriendly takeover bid

Elliott Associates and Elliott International LP, which together own over 10% of Epicor's outstanding shares, are making an unsolicted bid for Epicor. The $9.50-per-share bid is over 20% higher than Epicor's price prior to the news and values Epicor at about $566 million.

Who are the Elliotts? They are hedge funds--private investment groups that put money to work in any number of investment types, such as equity shares, debt instruments, precious metals, real estate -- even art collections. (The name "hedge fund" comes from the fact that these groups often use short-selling and other means to hedge downside risks in their investments).

Here's an interesting description of the Elliotts' business:
Elliott means action: Hedge fund firm Elliott Management takes an activist approach to investing, frequently amassing significant but minority stakes in distressed or underperforming companies and attempting to foment change. It manages hedge funds Elliott Associates and Elliott International, which together manage some $10 billion of capital for large institutional investors and wealthy individuals and families. Elliott Associates invests in corporate, real estate, and sovereign debt, with investments in North America, Asia, and Europe. Founded by Paul Singer in 1977, Elliott Associates is one of the oldest hedge funds under continuous management.
In other words, these guys are financial players, not a software company. They have a history of buying into technology companies with the intention of selling them to someone else:
  • Earlier this year, the Elliotts bought 5.5% of MSC Software, which develops engineering and simulation systems--based in Santa Ana, CA, just down the highway from Epicor's headquarters in Irvine (which is around the corner from my office, by the way). Elliott promptly told MSC that it should consider "strategic alternatives," including a sale.
  • In March, the Elliotts also bought a stake in Packeteer, a developer of telecom equipment and WAN optimization products. It then offered to buy the whole thing, but failed in its takeover attempt.
You get the picture.

The pattern is similar with Epicor. The Elliots recently bought 10% of Epicor and, true to form, were talking about forcing a sale. But it is doubtful that the most likely buyers (SAP, Oracle, Microsoft) would be interested in Epicor. SAP, Oracle, and Microsoft generally buy software companies that have specific products filling niche functions or serving specific industries. Epicor does not fit that description--it is a diverse collection of products that itself has acquired over the past decade. Sort of a mini-Infor.

So now the Elliotts are offering to buy all of Epicor, and Epicor is resisting. But what would the Elliotts do with Epicor, assuming they get it? They could sell it to Infor, except that if Infor wanted Epicor, it could have made an offer a long time ago. Or, the Elliotts could use Epicor as a "platform" to roll up other smaller vendors. Except that's what Epicor has been doing for the past decade--so how would the Elliott's strategy be different?

Regardless, Epicor's investors must be happy right now. Epicor's share price rose 13% on the news of Elliott's offer. Not bad in this market.

No word on how Epicor's customers are reacting to the news. If you are an Epicor client, let me know or leave a comment on this post.

Ned Lilly gives his analysis of the deal.

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More layoffs at Epicor

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