by Brenon Daly
Cash is king. We got a reminder of that tried-and-true business adage when we were skimming the terms of Ulticom’s (OTC:ULCM) sale to buyout shop Platinum Equity earlier this week. While the pending take-private is hardly a regal outcome for shareholders of the telecom software provider, the structure of the deal helps them get a bit more back from the business than they would have otherwise.
According to terms of Tuesday’s buyout, Platinum will pay $2.33 for each of the roughly 11 million shares outstanding at Ulticom. That works out to about $26m of equity consideration for the company. Far more important, however, the buyout shop will hand back roughly $64m of Ulticom’s $77m in cash to shareholders. This is actually a rare case of a cash ‘rebate’ being pocketed by the existing owners of a business (shareholders) rather than the soon-to-be owners. The bid works out to an enterprise value for Ulticom of about $16m, for a business that was likely to do around $38m in revenue in the current fiscal year.
Further, this is actually the second time that Ulticom has parceled out its cash. A bit of background: Ulticom is majority owned by Comverse Technology (NASDAQ:CMVT). The scandal-tainted company acquired Ulticom in 1996, which then spun off a chunk in a public offering in April 2000. That offering – along with a secondary shortly afterward – gave Ulticom way more money than it could ever use. While the company was sitting on a mountain of cash, interest in it was muted because Ulticom had to restate several years worth of financial filings because of options grants and revenue recognition issues. Those concerns pretty much sank Ulticom’s M&A plans in 2008, when it was being advised by Jefferies & Company.
Last year, however, Ulticom got itself back together. It settled with the SEC, got relisted on the Nasdaq and even threw a bone to long-suffering shareholders, paying out $200m in cash through a dividend. (Part of the reason Ulticom emptied out its treasury, we suspect, is to make it more attractive to private equity firms, which wouldn’t have to write such a large check for the company.) The move paid off for Ulticom, not to mention its shareholders. Morgan Keegan Technology Group (the former Revolution Partners) advised Ulticom on the deal, which is expected to close by January