Deal worth millions to company executives
December 29, 1997-January 4, 1998
If you see the top executives and founders of Software Artistry Inc. walking around with smiles on their faces, it's not because of the gifts they got on Christmas Day.
They each got early Christmas presents when IBM Corp. announced Dec. 19 that it would buy the Indianapolis software company for $200 million in cash. IBM will pay $24.50 a share for 6.9 million shares of stock, plus about $30 million for stock options.
The buyout made the value of the nearly 20 percent of company stock held by 10 officers and directors worth $34.4 million, up from about $24.4 million before the announcement. That's a cool 40-percent jump on top of huge gains they'd already realized.
The company went public in March 1995 at $14 a share. Existing stockholders, who owned more than 70 percent of the company at the time, paid less than a dollar a share, according to the IPO prospectus.
After the IBM deal, board Chairman Joseph Piscopo's 8.4-percent stake is worth more than $14 million, and CEO Scott Webber's 6.5 percent is worth about $12.2 million, based on calculations from the company's latest proxy statement.
But the biggest winner was co-founder and former executive Dr. Don Brown, whose stock is now worth about $20.3 million. Joe Adams, the other founder and a partner in Brown's new venture, Interactive Intelligence, holds fewer than 100,000 shares.
"For me personally, it worked out well," said Brown, who will realize a gain of about $5.9 million despite having sold off about one-third of his stake earlier this year.
"From my standpoint, I would have loved to have seen the company grow and thrive as an independent company," Webber said. "But it feels good to have created something with that much value. This is certainly a nice way for the shareholders to get value for their investment.
The company has already produced some hefty gains for local investors. CID Equity Partners venture-capital firm invested almost $2.3 million beginning in 1990 and eventually owned about 27 percent of the company. By mid-1995, after the company went public, the fund had seen a 13-fold return of $32.7 million, said Managing General Partner John Hackett.
"It's one of the best investments we've ever had," he said.
But the acquisition means more than just money in investors' pockets. Software Artistry, which develops internal and external help-desk software, will become part of IBM's Tivoli Systems subsidiary, based in Austin, Texas.
Software Artistry is expected to remain intact and located in Indianapolis, said CEO Scott Webber, who will continue to head the operation.
The advantages of the latest acquisition are significant, aligning Software Artistry with a much larger company in Tivoli and giving it access to the vast marketing and distribution network of Big Blue, Webber said.
The two companies make companion products. Tivoli produces software to integrate entire systems, and Software Artistry creates a help-desk component.
Tivoli, the world's sixth-largest software vendor, represents an IBM spending spree. The company was purchased by IBM less than two years ago, and Big Blue has been working to add to its product line by acquisition. IBM bought Unison Software Inc., which makes job-scheduling software, earlier this month for $170 million.
Tivoli and Software Artistry began working on an affiliation about six months ago, but talks turned to a more formal combination, Webber said.
"We think it's the right thing to do," he said. "There's constantly mergers and acquisitions going on in the software industry. There was a lot of consolidation.
System-management vendors [like Tivoli] were going to enter our marketplace somehow. You can either join them or fight them."
Software Artistry did about $34.5 million in sales last year, and revenue this year hit $31.2 million through the first nine months. While the growth has been steady, Webber is hoping for a major boost from IBM.
"Tivoli was a $50 million company when it was acquired by IBM 20 months ago," Webber said. "This year they'll do about $500 million in sales. They've seen explosive growth as a result of the leverage brought about by IBM."
Shares of Remedy Corp., Software Artistry's chief competitor, fell 30 percent last week following the merger announcement.
Brown, who founded Software Artistry in 1988 and left just before it went public in 1994, sees the advantages, but also some sadness, in the acquisition.
"I have kind of mixed feelings," said Brown, who now heads a company that integrates business communications systems from phones in call centers to Internet access. "I kind of hate in a way for Software Artistry as a company to be gone. And, in a way it is, because now it's a part of Tivoli Systems.
"I just hope that Tivoli continues to invest in [the company]."
Webber is confident that Software Artistry, along with the fledgling computer industry in Indianapolis, will prosper under the arrangement. Software Artistry has grown from 240 employees to 300 in the last year, and Webber expects continued expansion.
"There's no expectation of letting people go," he said of Tivoli. "This is a company that hired about 1,000 people in the last year. That's not a company trying to get rid of people. We expect our hiring rate to increase."
This article is copyright 97 Indianapolis Business Journal
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