A buyout bid for Irvine’s Epicor Software Corp. was a long time coming. But the source of an offer may have been a surprise for some.
The maker of business software for retailers, automakers and manufacturers has been the subject of takeover speculation in an ever consolidating market for software. Some predicted a combination with another software maker or perhaps a private equity buyout.
But a New York hedge fund?
“I’m surprised,” said Joel Fishbein, an analyst with Lazard Capital Markets LLC in New York.
A few weeks ago, Elliott Associates LP sent an unsolicited letter to Epicor’s board that said it was prepared to pay about $566 million for Epicor, 20% more than what the company’s shares were trading at before the offer.
Elliott, which runs hedge funds with some $10 billion in assets, is one of Epicor’s biggest shareholders with a little more than a 10% stake.
An Epicor representative declined to comment for this story. The company issued a statement saying it had received the proposal and is set to review it.
Analysts have mixed interpretations of the hedge fund’s motives and what Epicor should make of it.
Some say the move is a means to boost Epicor’s stock,and Elliott’s stake,and isn’t a true buyout bid.
“They wanted to force people’s hands and get the stock in play,I think that was their intention,” said Peter Goldmacher, an analyst with Cowen & Co. in San Francisco.
Or Elliott could be looking to buy Epicor cheap as part of a rollup strategy in which it would be combined with similar companies.
Epicor’s shares are down about 40% this year with a market value of about $400 million last week.
The offer could represent “savvy buying of distressed assets in a difficult market,” Goldmacher said. “If you have money to put together five or 10 low-end players, you can get the economy of scale while they are cheap and make some good money doing that.”
The move also could be designed to entice other potential buyers into bidding, which would boost Epicor’s stock.
“Perhaps (Elliott) wants someone else to buy Epicor to make money on their equity stake,” Goldmacher said.
Epicor makes enterprise resource planning software that helps midsize companies manage accounting, customer contacts, inventory, sales and other tasks. It also makes software for retailers.
The company has slumped this year with slower sales of cash register software to clothing retailers and fewer licensing deals. Epicor’s profits also have been impacted by spending ahead of the release of its newest software, dubbed Epicor 9.
Goldmacher recently lowered his rating on Epicor to “underperform” from “neutral” and lowered his outlook for the rest of the year and for 2009.
For this year, he’s is looking for profits of about $45 million on sales of $522 million, about what analysts on average expect for Epicor.
Last year Epicor has sales of $435 million and profits before charges of $50 million.
One analyst said big software makers, including Oracle Corp. and Microsoft Corp., aren’t likely to enter the fray with Elliott.
Some have speculated big software makers could want Epicor in a bid to go after smaller companies. Others discount the idea.
In either case, analyst Fishbein said he doesn’t see a corporate buyer coming because “there’s a lot of market uncertainty right now, so that’s a big risk.”
“I don’t know the appetites these guys have for a big acquisition right now,” he said.
Analyst Goldmacher said he thinks Epicor could balk at Elliott’s offer.
For one, it might not be ready to sell, he said.
“We would not be surprised to see this deal become contentious and drawn out,” Goldmacher said. “A number of industry sources lead us to believe that the board has no interest in selling the company at current levels.”
Epicor might hold out for more money.
“I would expect them to push for a better price,” Goldmacher said.
