Double-Take Software: Terrific Acquisition Target

How is it that Double-Take Software Inc. (DBTK) hasn't been acquired yet? Before getting into specifics, let's tick off the attributes that could attract buyers -- the company is: 1. a leader in a thriving market; 2. growing quickly; 3. profitable, with rising margins; 4. without debt; 5. affordable, given its relatively modest $524 million market capitalization; 6. surrounded by giant competitors, including EMC Corp. (EMC), McAfee Inc. (MFE), Symantec Corp. (SYMC), that not only urgently need growth but also are highly acquisitive; 7. led by an experienced, stable management team.

One more thing -- it's getting pricier by the day. Shares in the data replication software company have been on a tear this year since pricing at $11 in going public in December 2006. The stock, which closed its first day of trading at $12.66, is Friday morning at $24.34, for a total return on the year of 121.3%. That makes it one of the best-performing IPOs over the last 12 months.

Double-Take's market strength is obviously a reflection of its growth prospects, and those look bright. Here's what ThinkEquity Partners LLC said in a recent report: "We expect Double-Take to grow faster than the data replication software market for the next few years. We project CAGR for 2005-2010 of nearly 30%."

ThinkEquity projects fiscal year 2007 sales for Double-Take of $82.9 million, $108.4 million for fiscal year 2008 and $138.8 million for fiscal year 2009. "Longer term, we expect Double-Take to grow revenues at 20% and earnings at 25% from current levels as the company matures and begins to display greater operating leverage."

Double-Take is also only now really starting to hit its stride. The company registered losses for most of its history, but in recent years has reversed the tide, turning an operating loss of $3.8 million in 2005 to net income of $6.8 million in 2006. For the third quarter, Double-Take reported revenues of $21.3 million, up nearly 30% from $16.4 million in the year-ago quarter. As of Sept. 30, the company had cash and short-term investments of $67.4 million and accounts receivable of $16.1 million. 

What's the down-side? One is that Double-Take's products work only with Windows-based servers. That makes for a huge market, obviously, but it also means the company is highly reliant on Microsoft Corp., which could one day decide to cut Double-Take out of the picture and implement its own data replication features. Still, given the security holes Swiss-cheesing Windows, Microsoft is unlikely to abandon Double-Take anytime soon.

So why is Double-Take still independent? It would be surprising if, given the rapid consolidation in the security software sector, one or several of the bigger players hadn't already kicked the company's tires. And it could be that Double-Take prefers to add some top-line growth and selling for really big bucks, rather than calling it a day as it's gaining momentum. But for now it remains an attractive target. 

See December 2006 story from TheDeal.com [$]

See list of top-performing IPOs from IPOhome.com

See Oct. 25 press release from Double-Take