Lawson Software Inc. (LWSN) Tuesday announced it had agreed to sell itself for $2 Billion to private equity firm Golden Gate Capital. The sale price is 12 times Lawson’s non-GAAP EBITDA and 2.5 times its revenues. “Lawson’s board of directors unanimously approved the transaction and board members who collectively own approximately 9% of Lawson’s outstanding shares have agreed to vote their shares in favor of the transaction,” the statement said.
Investing is all about valuation and one of the ways of valuing stocks is looking at the multiples comparable stocks are sold. We applied Lawson’s EBITDA multiple to other business/application software companies with market caps between $1 Billion and $4 Billion. The data is sourced from Yahoo. Here are the most undervalued and overvalued software stocks.
Company Name | Symbol | Market Cap (Billions) | EBITDA | Upside Potential |
JDA SOFTWARE GROUP INC | 1.2 | 157.1 | 52% | |
VERINT SYSTEMS INC | 1.3 | 115 | 10% | |
COMPUWARE CORP | 2.5 | 197.1 | -4% | |
PROGRESS SOFTWARE CORP | 2.0 | 156.1 | -4% | |
SOLERA HOLDINGS INC | 3.8 | 274.7 | -14% | |
QUEST SOFTWARE INC | 2.3 | 163.6 | -15% | |
NETSCOUT SYSTEMS INC | 1.1 | 65.6 | -29% | |
BLACKBAUD INC | 1.2 | 63.4 | -34% | |
MICROSTRATEGY INC | 1.4 | 56.8 | -50% | |
SOLARWINDS INC | 1.8 | 69.1 | -54% | |
ADVENT SOFTWARE INC. | 1.4 | 51.7 | -57% | |
SYNCHRONOSS TECH | 1.2 | 26.5 | -73% | |
COMMVAULT SYSTEMS INC | 1.7 | 37.3 | -73% | |
TALEO CORP | 1.5 | 29.4 | -76% | |
PEGASYSTEMS INC | 1.4 | 22.2 | -81% | |
QLIK TECHNOLOGIES INC | 2.4 | 29.9 | -85% | |
REALPAGE INC | 2.1 | 25.9 | -85% | |
BROADSOFT INC | 1.2 | 12.5 | -87% | |
LONGTOP FINANCIAL TECH | 1.4 | 6.6 | -94% |
Most stocks have higher multiples than Lawson’s. JDA Software seems to be the most undervalued business software company with 52% upside potential. Richard Blum and Steven Cohen are among the hedge fund managers who are bullish about JDAS. Verint Systems has a small upside potential of around 10%. Steven Cohen and George Soros have small positions in VRNT.
Longtop Financial seems to be the most overvalued stock because of its tiny EBITDA. There are several hedge funds with very large positions in LFT. Lee Ainslie’s Maverick had $141 Million and Chase Coleman’s Tiger Global had $93 Million in LFT at the end of December. Steven Mandel’s Lone Pine Capital and Eric Mindich’s Eton Park had more than $70 Million each in LFT also. Collectively these four guru investors had around 20% of LFT at the end of December. Nevertheless, the stock lost nearly 30% so far in 2011. The stock isn’t profitable but has around $400 Million in cash.
Using EBITDA multiples is one way of valuing companies. In practice investors had to use several other multiples (i.e. earnings, revenue, etc.) and take into account expected growth rates to arrive at a valuation. Nevertheless, EBITDA multiple tells us that most business software companies are overvalued at the moment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
