Irvine-based Epicor Software Corp. made what looks to be a bold move recently, anteing up $121 million to buy Newburgh, N.Y.-based CRS Retail Systems Inc.
It’s a big purchase for a company such as Epicor, which is expected to post around $285 million in revenue this year. The company’s last big buy came in mid-2004 when it acquired Netherlands-based Scala Business Solutions NV for $88 million.
Epicor has touted the CRS buy as a way to diversify.
Epicor, which sells accounting and other business software to small and midsize companies, is picking up a business that targets a different crop of customers. Where Epicor’s software is geared toward manufacturers and other companies that make stuff, CRS sells merchandising and point of sale software to retailers.
The move also extends Epicor’s international reach to Europe, Asia and Latin America.
But the announcement was a little too bold for some on Wall Street.
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Gateway headquarters: won appeal in parallel port technology case |
The day after the acquisition was announced, KeyBanc Capital Markets analyst Mark Schappel downgraded the stock from “buy” to “hold.” Shares fell around 5% to $13.70, giving it a market value of about $750 million.
Schappel said the acquisition creates some risk for the company during the next few quarters as Epicor executives likely will sort “through a host of integration issues.”
Also, he didn’t like what it did to the balance sheet.
Epicor is using a combination of its cash stash,more than $50 million,and some of its $125 million borrowing line to buy CRS.
For some industries, going to a net negative cash position on the balance sheet isn’t a huge deal, but Schappel said it’s unusual for software makers.
Also, near-term gains for cross-selling software to each company’s customers aren’t going to be huge because they compete in very different industries.
But in the long term, which is what some of us tend to look at more closely, the deal could prove wise.
In fact, Schappel said the deal is likely to be positive. He just thinks the company’s stock will trade “sideways” for the next six to nine months.
For its part, Epicor said the acquisition will tap the strengths of both companies.
“CRS is perfectly aligned with our strategy of providing complete, end-to-end enterprise solutions for key (industries),” said George Klaus, chairman and chief executive of Epicor. “Epicor has demonstrated an excellent track record of augmenting organic growth with strategic acquisitions.”
Epicor reaffirmed its outlook for the rest of the year after the acquisition. Adding CRS isn’t expected to have much impact in 2005.
For 2006, the company said it expects sales of $384 million. Analysts had been looking for $314 million in revenue before the buy. The company expects its profit to be about $43 million, on par with what analysts expect.
Epicor said it hopes to save about $1 million a year from cost cutting linked to the CRS buy. It said it will incur acquisition and restructuring costs in the current quarter.
Gateway Wins One
Irvine-based Gateway Inc. got some good news in its ongoing patent battle with Palo Alto-based Hewlett-Packard Co.
The International Trade Commission earlier this month overturned an “initial determination” by the administrative law judge after a Gateway appeal. The previous ruling for HP involved parallel port technology.
With the new ruling, the commission has remanded the case to the administrative law judge, who will hold further proceedings on the case.
Gateway was quite happy with the ruling, putting out a press release. In the past, the company mostly has relegated the proceedings to regulatory filings.
This case, however, is just one of a handful of patent disputes that date back to the spring of 2004 when HP launched a lawsuit against Gateway in civil court.
This International Trade Commission’s ruling is one of two cases pitting Gateway versus HP that the trade oversight body is reviewing. The companies also are battling it out in civil court over patents. The cases generally relate to keyboard and monitor technologies.
High on Wi-Fi
New Orleans is looking to join Anaheim and others that plan to offer citywide wireless Internet connections, but it’s taking a different tack.
The hurricane-ravaged city plans to be the first major city to offer free wireless Internet access to its residents.
According to reports, Mayor Ray Nagin said New Orleans plans to cover the city with wireless Internet access within a year.
Also, the city will operate the network.
It’s part of an effort to lure businesses and people back to the city after Hurricane Katrina hit in late summer.
Anaheim’s plan is a little different.
The city doesn’t want to operate the network. Instead, Atlanta-based EarthLink Inc. is set to be the outside provider for the network, which is set to launch next year.
Also, Anaheim won’t hand out free service. Neither will Philadelphia or San Francisco with networks that they plan to roll out.
Anaheim is set to be OC’s first city to offer wireless Internet for all its residents.
