In March 2007, the San Francisco-based buyout shop, a value investor in established technology businesses, acquired the assets of the discovery informatics business of then-public Tripos for $26.2 million. Now Vector Capital has agreed to acquire Pharsight Corp. for $5.50 per share, or $57 million, a level that represents a 29 percent premium to the average closing price of the stock over the thirty trading days preceding the transaction’s announcement on Sept. 9.
Amish Mehta, one of Vector Capital’s three partners, said the payout for Pharsight is really around $40 million after backing out the $17 million in cash the company has on the books. Calling the deal a “natural” for the firm, Mehta said the all-cash structure of the transaction resulted mainly from two factors: the current financing environment and the attractiveness of the combination. “Leverage is very difficult to come by,” Mehta told Buyouts. “At the same time, valuations [in the tech sector] have come down a bit but not that significantly and not until recently.”
Vector Capital approached Pharsight several months ago and the company indicated it was willing to sell at the right price. After an evaluation process, the parties struck a deal at a level that Vector Capital’s very pleased with, Mehta said, citing expected savings from the elimination of public company costs as a big plus as well as the complimentary nature of the companies’ product portfolios.
“It’s gotten to the point that companies with less than $100 million in annual revenue really have no business being public,” he said, estimating that expenses related to disclosure and other responsibilities can run as high as $5 million per year.
That savings alone would have a big impact on Pharsight’s bottom line. For the fiscal year ended March 31, the Mountain View, Calif., developer of drug development optimization applications reported an adjusted profit, excluding certain accounting items and stock-based compensation charges, of $2.7 million, or 29 cents a share, on revenue of $28.3 million.
Mehta disclosed that Tripos, in its current form, is profitable. He said there are no imminent plans for the shutdown of any facilities but the firm would be looking at its options with regard to potential cost savings. The transaction is expected to close in the fourth quarter. Vector Capital anticipates further add-ons, and Mehta said the firm is already mulling several projects that are similar in nature to the Tripos/Pharsight deal.
Vector Capital, which was spun out of Ziff Brothers Investment in 1997, is currently investing from Vector Capital IV, a $1.2 billion fund raised in 2007.