Unify Buys AXS-One for $8M

On April 16, 2009, application solutions vendor Unify announced it would acquire records management and archiving company AXS-One in an all-stock deal.

Products, Facilities, and Competitors:

  • Unify offers software tools and services that modernize old database applications, support modern applications, and migrate from Notes to Exchange.
  • AXS-One has an email-and-other-content archiving/records management/e-discovery product. The company has had its greatest success among large Notes users.

Recent Trading Performance:

  • Unify is in a healthy financial state:
    • Has $5M in cash.
    • Roughly $20M/year in revenues, with respectable profitability. Revenues for the nine months to January 31, 2009, were up by 9% to $16M. Net income was $2.2M, up from $1.6M in the prior year.
    • However, in the quarter to January 31, revenues were down 11% quarter over quarter on 2008 at $5.2M, while net income remained constant at $1.1M.
  • AXS-One has roughly $13M/year in revenues, with a long history of substantial losses:
    • AXS-One revenues for the year ended December 31, 2008, were up by 12%, to $13.4M; a net loss of $10.1M was incurred, a reduction from a net loss of $14.9M in 2007.
    • However, in the quarter to December 31, revenues were down 24% on 2007, at $2.5M, as a result of license income falling by 85%. Nevertheless, the operating loss in Q4 2008 reduced to $2.4M from $3.5M in 2007.

Transaction Detail:

  • Unify will acquire AXS-One in an all-stock deal valued at $8M; or a price/trailing 12-month revenue ratio of about 0.6.
  • Common stockholders in AXS-One will receive Unify stock worth around 6 cents per AXS-One share, which is the current AXS-One stock price.
  • Holders of $13M of convertible debt will get stock worth around 42 cents on the dollar. There is also an earn-out that may enable the debt holders to recoup their investment based on the performance of AXS-One license revenues over the next year, and with Unify stock appreciation.
  • Unify says current Unify stockholders will own around 73% of the combined company and existing AXS-One stockholders 27%.

Reasons for the Deal:

  • To finance trading losses, AXS-One has had equity and convertible debt funding of over $100M, including $13M of new funds in mid-2007 to early 2009.
  • The restructuring of its business in 2007, with $8.5M convertible debt raised, did not bring the success in 2008 that AXS-One was hoping for, and ongoing losses had to be funded by additional convertible debt of over $4M in 2008.
  • The general economic situation impacted heavily on AXS-One’s trading performance in the final quarter of 2008, and the company needed a further injection of funds early in 2009.
  • AXS-One's stock price has fallen by nearly 90% since June 2008.
  • Generally, AXS-One's technology assists in email migrations from Notes to Exchange, which is an important element of Unify's business.
  • Unify has taken advantage of AXS-One’s extremely fragile financial position to acquire the company for a very good price and without any cash outlay.

Ferris Research Comments:

  • Given the competition that Unify faces in the marketplace, its present cash resources of $5M will not enable it to make the impact it needs to become a leading archiving player.
  • AXS-One has attractive and highly scalable archiving technology. However, its shaky finances have greatly discouraged prospective customers from engaging with the firm. The merger helps to allay such fears.
  • AXS-One has major customers in the U.S. military-industrial complex. Our sources indicate that the value of AXS-One technology to these customers is such that they would not allow it to disappear. In our view, it is likely that these customers have been a major driver for this acquisition by Unify. [NOTE ON 9 JUNE 2009: We have changed our minds on this. We now don’t believe that significant revenues came from the military-security-industrial complex, US or abroad.]
  • It's worth looking at the recent Ferris Research gossip on AXS-One.
  • It's imperative that AXS-One's ongoing and substantial losses be stemmed. Unless this takes place, Unify's healthy financials are likely to be very adversely affected.

... Mike Stackpoole

One Comment

  1. Posted June 9, 2009 at 11:35 PM | Permalink

    We now don’t believe that significant revenues came from the military-security-industrial complex, US or abroad.
    –David Ferris

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