by Brenon Daly
A half-decade ago, a pair of struggling public companies joined together in an effort to capitalize on the fragmented e-learning market. Click2Learn.com and Docent, which had beat up on each other for years, merged into a single company under the name SumTotal Systems (SUMT). (Shareholders of Click2Learn held 52% of the combined entity, with Docent shareholders owning the rest.) The merger did little to help SumTotal’s performance on the Nasdaq. Since the pairing, which closed in mid-March 2004, the stock had dropped from above $8 to a low of $1.33 last month.
Earlier this week, Vista Equity Partners floated a bid of $3.25 for each of the 31.8 million shares of SumTotal outstanding. The buyout firm owns about four million SumTotal shares, or about 12.6% of the total. Vista started to accumulate its position in September, when the stock was just under $5, according to US Securities and Exchange Commission filings. Vista is the company’s largest shareholder. In addition, the second-largest holder, Discovery Group, has indicated that it wants SumTotal to sell the business. For its part, SumTotal (advised by RBC Capital Markets) has said only that it is reviewing the offer.
Vista’s unsolicited offer for SumTotal has more than a few echoes of Vector Capital’s recent grab of Aladdin Knowledge Systems. Both unsolicited bids came from San Francisco-based PE shops that had amassed a large stake in each company. Both valued the targeted company at less than 1x trailing sales, on enterprise value. (And somewhat unusually, both offers included ‘go-shop’ provisions.) There is one crucial difference, however, between the two targets: SumTotal isn’t profitable, and in fact has never turned a profit. Altogether, it has rung up an eye-popping $353m in accumulated deficit.