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Progress moves forward with Savvion BPM buy

Sales upswing in 2010. Profits? Not so much

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The collection of database, application development and integration tools peddled by Progress Software - many of which came to the company through acquisitions - was broadened again today as the company announced it was acquiring Savvion, which makes business process management (BPM) tools.

Progress is shelling out $49m (net of the cash Savvion has on hand) to buy the BPM specialist. Savvion is located in Santa Clara, California, and is privately held.

Savvion was founded in 1994 by Mohammad Ketabchi, who was a professor of computer science at Santa Clara University before deciding to be an entrepreneur; Ketabchi is currently president and chief executive officer at Savvion. The company's first BPM product shipped in 1999, and the current BusinessManager BPM suite is used by 350 customers. (About a quarter of the Fortune 100 uses the tools to automate business processes involving people and computers.)

Savvion has a number of equity backers, including Walden International, VantagePoint Ventures, HIG Ventures, Redwood Venture Partners, Trans Cosmos USA, D-Age, and Westaim. It is unclear how much dough these venture partners have kicked into Savvion or how much revenue and profit Savvion was generating.

In early 2009, Savvion was bragging that in 2008 it was profitable in every quarter despite the economic downturn, and that it had signed 42 deals, with 19 of them coming from existing customers. The company's BusinessManager 7.5 BPM suite was announced in September 2008 and has helped continue to drive sales through 2009. A year on and Savvion has not been heard bragging about how well 2009 turned out in terms of revenues and profit.

Progress said that it would be issuing 110,000 shares of its stock (a mix of options and restricted stock) to hand out to six key employees who will be joining Progress as part of the Savvion acquisition.

While Progress did not provide any specific sales figures for Savvion, it has revised its revenue and profit guidance for 2010 in light of the acquisition. For Progress' first fiscal quarter of 2010 ended February 28, Progress has raised revenue guidance to $124m to $128m with a loss of between 1c and 20c per share.

Back at the end of December, when Progress was talking about its fiscal 2009 ended in November, it said it expected sales in Q1 2010 of $123m to $126m with a loss as steep as 18c per share to break even. So Savvion is adding $1m to $2m in revenues and a penny or two per share of losses.

Looking ahead to the rest of fiscal 2010, Progress raised its guidance for the year ended November 30. Now the company expects sales to be in the range of $538m to $548m, with earnings of between 93 cents and $1.23 per share. Before the holidays and the Savvion deal, Progress said it hoped to book $520m to $530m in fiscal 2010, with earnings per share of between $1 and $1.25. So it looks like Savvion is expecting sales of around $18m over those 12 months and a small loss.

As El Reg goes to press, Progress' stock is trading at $29.86 a pop, down six-tenths of a percent. Thus far, Wall Street has shaken off the company's projected losses for the first quarter; the company's stock has nearly doubled in the past year despite the poor economy, too.

In fiscal 2009, Progress was hit by the economic downturn, with sales down 4.2 per cent, to $494.1m and net income down 29.2 per cent to $32.8m. For now, investors don't seem too concerned that Progress is expecting to be in the red in 2010, even as it grows revenues above fiscal 2008's levels, which by the way set a peak at $515.6m for revenues and $46.3m for profits for the company.

With a $1.2bn market capitalization, Progress itself could be a takeover target, particularly for a large software company like Oracle, IBM, SAP, and maybe Microsoft, which can do a lot of cross-selling and eliminate back office and other costs. (Considering where Progress' shares were trading a year ago, it is amazing it has not been snapped up already.)

Progress had $224.1m in cash as its fiscal 2009 ended, and after the Savvion deal will have another $175.1m plus any cash it generates in the first fiscal quarter to apply toward other acquisitions, product development, or other investments. ®

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