Thayer Ends the Saga with SAGA –

Thayer Capital Partners recently sold its remaining 10.6 million shares of SAGA Systems, a software products manufacturer, back to Software AG of Germany, its original owner, for $11.50 per share.

Washington, D.C.-based Thayer purchased SAGA Systems in April 1997 for $1.47 per share when the German parent needed cash to pay off its bank debt.

Thayer worked to change the focus of the company from mainframe software to enterprise application integration (EAI), or the business of tying mainframe systems into the Internet. The firm, in accordance with the company’s management, planned to change the strategy of the business to make it grow faster.

“We knew that the company had a good, predictable business, but it was in a slow growing business,” said Rick Rickertsen, Thayer’s chief operating officer. “We were looking for a growth part of the software world where we could use our mainframe experience, but develop more top line growth – EAI is a rapid growth part of the software world.”

Rickertsen admits, however, that changing SAGA’s strategy was not easy. The firm recruited 110 research and development professionals and built its large software systems from scratch. Also, SAGA acquired another software company just after Thayer’s April investment, boosting the profitability of the company.

SAGA’s income more than doubled from $6.2 million in 1996, to $12.8 million in 1997, and then to $27.7 million in 1998 while revenue jumped from $181 million in 1997 to $249 million in 1998.

With the earnings growth that occurred in the first few months of SAGA’s identity change, Thayer took the company public in November 1997 at $10.00 a share – nearly seven times its purchase price – reducing its ownership to 65% from 75%. Six months later, SAGA was offered to the public a second time at $24.25 a share, leaving Thayer with a one third ownership in the company.

Rickertsen attributes the earlier-than-expected IPO to the dramatic improvement in SAGA’s profitability and the previously mentioned acquisition.

In the meantime, SAGA’s former parent, Software AG paid off its bank debt and its management watched SAGA’s success in the U.S. stock market. The German chief executive took the German company public on the Frankfurt stock exchange, which gave the company enough cash flow to buy back SAGA three years later and provide liquidity to Thayer at 9.8 times its initial investment.

In other recent Thayer Capital news, Daniel Dickinson, Merrill Lynch & Co.‘s head of global M&A, will start as a partner next month. Dickinson has been with Merrill for eight years and was previously with First Boston.

Dickinson attended Duke University with Thayer Partner Jeffrey Goettman and they both worked in Chicago after college. The connection started Dickinson’s talks with Thayer.

Thayer Capital has $200 million worth of investment capabilities left through its fourth fund, which closed on $880 million in 1999. Although the firm has not made any formal decisions and does not feel pressure to begin raising money again, Rickertsen said, Fund V might not be far off.