Click Commerce: Another Acquisition Left Out in the Cold

Includes: CKCM, ITW
by: Travis Johnson

This is getting a little frustrating; for the second time in less than a year, a small, promising, high-growth investment is being bought out by a large conglomerate at a bargain price, and I own the small company, not the big one.

Last December, it was Provide Commerce (PRVD), which was bought by Liberty. This was a little bit of an odd fit, an online flower vendor being bought by an operator of cable channels. John Malone picked up PRVD at prices well below their highs of the previous year, taking advantage of a rough summer that had somewhat depressed prices.

And today, Click Commerce (CKCM) is being acquired by Illinois Tool Works (NYSE:ITW), again a bit of an odd fit, with the massive diversified manufacturing conglomerate picking up the small supply chain software company. It's true that both CKCM and ITW have been serial acquirers, but that's about all they have in common; ITW is mostly known for selling welding supplies, refrigerators and ovens, and other hard, dirty businesses. They have some units that would work well with Click, such as some manufacturers of barcode readers and some packaging suppliers that could integrate well with a supply chain management software suite. However, it could also just be that it was cheaper to buy Click than to hire them to help with supply chain management for ITW's huge, diverse manufacturing and supply operations.

And just as with PRVD last year, I think the big guy is getting a bargain. CKCM has traded as high as $31 this year and as low as $13 or so a year ago, but has never been given a premium price to match its meteoric growth rate. Perhaps because no one trusts CEO Michael Ferro because of their trouble during the dot com meltdown, or because no one is sure that they'll be able to continue growing if they ever stop acquiring small software companies. Click has had its share of skeptics, but at both a forward and current PE of about 14, excellent profit margins that should be able to climb as the RFID business grows, and a tiny price/sales ratio of under 3, I think Click remains a bargain to this day.

And it looks like ITW will enjoy the bargain, and we small shareholders will be left out in the cold. It's nice to see the 25% bump for my portfolio today, but I've bought shares both above and below the buyout price, so my overall profit if I tender all my shares will be just about 13%. This is fine, but not as great as I would have hoped for from Click as a stand-alone concern over the coming few years. CKCM has been growing consistently and profitably for about three years, and I was hoping for more. For more about my thoughts on Click, you can see previous articles from when I bought shares at $19 in May, $25 in March, and $14 last October,

I don't see any other potential bidders lining up to throw their money at Michael Ferro, and the fact that he has apparently agreed to sell his 25% at this price means it might be tough to get any leverage on ITW or any other bidder, so I'll probably be stuck with this offer, regardless of how I feel about it. I haven't seen the official deal paperwork yet, but it appears that any other bidder would just have to pay enough to make up for Click's $10 million penalty to ITW. It's not all that much, actually -- just over 3% of the deal amount-- but there's still no reason to assume that there are other interested parties out there.

If nothing else changes over the next few days, I'm likely to hedge my bets by selling half of my position, and let the rest ride until it's taken out by the tender offer, unless I see a better short term use for that money. One benefit here is that it's an all cash deal and should have no regulatory implications, so the expected tender offer in two weeks and closure of the deal within a couple months is probably quite feasible. Absent a bidding war that hasn't yet shown its handsome face, this isn't going to drag on.

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