Tech-focused Vector Capital has a tendency toward name brands. Two years ago the hybrid venture/buyout firm acquired Corel Corp., the maker of Word Perfect and other products that one time rivaled Microsoft’s Office suites. Also resting in the San Francisco-based firm’s portfolio is Real Networks Inc. (NasdaqNM:RNWK), the company behind the omnipresent Real Player software, which serves as a platform from which one can download music and videos from the Internet.
And Vector’s most recent investment shows that it still has love for the well-known. In late July the firm announced that it acquired Mansfield, Conn.-based WinZip Computing Inc., whose namesake product, WinZip, is one of the most-utilized tools for compressing PC files for distribution over the Internet. Terms of the transaction, aside from a $15 million senior financing facility provided by Technology Investment Capital Corp., were not disclosed.
According to Vector, more than 140 million personal computer users have downloaded WinZip since its parent company was founded in 1991. “WinZip owns the market,” Vector Capital Managing Director Chris Nicholson told Buyouts. “If you ask someone on the street how to compress a file, they’ll either not know what you’re talking about, or they’ll say WinZip.'”
But despite the brand’s pervasiveness and ever-growing popularity, the makeup of WinZip’s user base leaves something to be desired, Nicholson said, adding that technically, many of WinZip’s users are stealing the technology.
Indeed, it costs nothing to download the basic version of the file compression software, but after 30 days WinZip users are asked (albeit not forced) by pop-up reminders to pay $29 if they wish to continue to utilize the program-a fee many WinZip users treat as a voluntary donation instead of a mandatory price tag.
“This is a very non-traditional transaction,” Nicholson said. “It involves free downloads in a world where the honor system just isn’t what it used to be. And on top of that, the file compression business just isn’t one of those hot and jazzy spaces right now.” But those two negatives speak volumes to WinZip’s underlying potential since the company has maintained an operating profit every year since its inception, Nicholson said.
Key among Vector’s strategies to grow the company is to increase the conversion rate of WinZip users to WinZip customers. This will be done through “more forceful” reminders stating something to the affect of, “This is not a free product, it is a product with a free trial,” Nicholson said. But he quickly added that Vector will govern itself in terms of how far it is willing to go to get the point across. For instance the firm decided against automatically deactivating the software if it is not paid for within the allotted amount of time, for now. “We will take an incremental approach. We don’t want to alienate users-we just want them to search their souls a little more,” Nicholson said.
In addition, Vector plans to invest “millions of dollars” in research and development to expand WinZip’s compression capabilities beyond what is currently available. The upgrades will be made available to WinZip’s paying customers for nominal fees. And on the new product front, an upcoming WinZip companion for Microsoft Outlook-which will automatically compress sent emails-“should be very big in the corporate world,” Nicholson said.
Vector acquired WinZip with equity from Vector Capital II, a $218 million fund that is nearly fully invested. The firm recently closed Vector Capital III, a new $350 million vehicle that has yet to make an investment.
In other Vector Capital news, the firm announced last week that it agreed to acquire BroadVision, Inc. (Nasdaq:BVSN), a global provider of web self-service solutions, for $44.56 million in cash. The transaction is subject to closing conditions and is expected to be completed in the late third or fourth quarter of this year.
Target: WinZip Computing Inc.
Buyer: Vector Capital
Financial Advisor: WinZip: Jefferies Broadview
Legal Counsel: Vector: Greenberg Traurig LLP;
Accountant: Vector: Pricewaterhouse Coopers