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Venture-Backed Turnaround Leads To Bedford Funding’s First Deal

Target: Authoria Inc.

Price: $63.1 million

Sponsor: Bedford Funding

Seller: Austin Ventures, CIBC Capital Partners, Horizon Technology Finance, Menlo Ventures, Norwest Venture Partners, Van Wagoner Capital Management and Velocity Financial Group

Bedford Funding has made its first investment, acquiring a venture-backed business software maker.

The White Plains, N.Y., tech-focused buyout firm, which was founded in October 2006 by former Geac Computer Corp. executives, agreed to pay pay $63.1 million for Authoria and to provide an additional $8 million in working capital. The deal includes zero debt.

Although revenues weren’t disclosed, a source said that Authoria generated about $40 million in sales last year. Authoria operates in one of the few areas of the software industry that is still fragmented – talent management software, according to the firm.

According to a press release, Authoria posted a year-over-year jump of 93 percent in bookings for the second quarter, making headway with a number of large enterprise customers, such as Aetna, Citrix Systems and Intuit. That growth is based on the strength of its new talent management platform, said Charles Jones, the founder and managing partner of Bedford Funding.

With the IPO market iced over, Authoria’s management determined that an LBO was the most attractive option. The purchase price, however, reflects difficulties for the company, which had received around $140 million in venture capital funding from at least seven venture firms since 1999. The willingness of those investors to sell at a loss shows how inactive their role in Authoria had become, according to Michael Blaber, a company spokesperson.

But the deal itself also provides a measure of vindication. A source told Buyouts that, at one point, the company was unsellable because its products weren’t very competitive. Drastic steps were needed to avoid a total loss, so a number of Authoria’s venture investors committed additional capital toward the development of a new platform. The plan was to sell the company upon its completion, the source said, and it worked.

Bedford Funding was on the prowl for a deal in the talent management software industry for a year before acquiring Authoria, which competes directly with software Goliaths like SAP and Oracle, as well as Taleo, Connexa and SuccessFactors. The company is the only one to offer performance management, recruiting and compensation management on a unified platform, according to Bedford Funding’s Jones.

“It is our opinion that this company has the best product and a two-year lead on the competition,” said Jones, who had served as Geac Computer’s chairman and chief executive officer before the company’s sale to Golden Gate Capital in March 2006 for roughly $1 billion.

In its press release announcing the deal, Bedford Funding cited a study from research organization Bersin & Associates that estimates the size of the talent management software market at roughly $2.3 billion. The study also projects an annual growth rate of about 20 percent per year for the next five years for this segment. Bedford Funding believes this market is “not yet deeply penetrated,” and it plans to continue to look for additional opportunities in the sector.

Bedford Funding raised about $400 million in commitments for its initial fund, closing in November 2006. The firm expects the $8 million earmarked for working capital for Authoria to be used to enhance marketing and sales initiatives and accelerate overall growth at the company.