Did Veritas Software Corp. (Nasdaq: VRTS) pay over the odds for Precise Software Solutions (Nasdaq: PRSE) this week? Half a billion dollars for a niche software company in this climate with no sign of an uptick in IT spending next year. What's that about? (See Veritas Gets Precise.)
As it turns out, rather than burying its head in the sand and lying low until the IT market and the economy fully recovers (and we colonize Mars), Veritas is taking the bull by the horns and making its own market happen.
¡Ole!
Most Wall Street analysts seem to agree the deal makes perfect strategic sense for Veritas. "The application performance management market is directly related to Veritas's core businesses, allowing for significant product and sales leverage," says Jason Ader, analyst with Thomas Weisel Partners. "The inherent sales leverage outweighs the 37 percent premium paid for Precise, in our view." Precise was bought for 4.2 times its estimated 2003 revenue and 40 times estimated EPS (earnings per share).
We're stating the obvious here, but never mind. For acquisitions to occur, the acquirer has to be convinced there is a market for the goods it's buying. Why buy a company if you can't sell its stuff, right?
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