MicroEdge Sold to Vista Equity Partners

Is the sale of MicroEdge, Inc. to Vista Equity Partners an important event for your foundation? (in case you missed it, here is a link to the MicroEdge announcement: http://tinyurl.com/MicroEdgeSold). If you, like most foundations, are highly dependent on FIMS, FoundationPower or GIFTS, then the answer can only be 'yes'.

Other forums will discuss the merits of the new owners and speculate on the fate of associates at MicroEdge with whom we have all worked. Mergers and acquisitions are hard on employees, and I for one hope that this transition is kinder than most to all concerned.

What is offered here is an analysis of the data published by Advent about MicroEdge as a part of its 8-K filing with the SEC. The 8-K postings are rare snapshots of internal corporate financial results, and the opportunity should not be missed. The linked PDF has two pages: the first contains analysis, the second the raw data from the 8-K form. http://tinyurl.com/MicroEdgeFinancials

Bottom Line?

From an operational standpoint, MicroEdge is relatively healthy, with a total 2008 net income of $4.9 million on gross revenues of $26.9 million.

Despite the economy, gross revenues were up 4.9% for the first half of '09 over the same period '08.

Considerable belt tightening on the expense side (-15.7%) improved net income from operations over three-fold for the first half of 2009 over 2008.

Note: These results exclude stock based compensation and amortization of technology.

What concerns are evident?

Two areas bore the brunt of the expense reductions: Sales & Marketing and Product Development.

• Sales & Marketing: -16.2%, or -$874,000 on an annual basis.
  • A reduction in this area in not unexpected in an M&A environment. This may well affect MicroEdge's presence and sponsorship of conferences and events.
    
• Product Development: -24.5%, or -$1,700,000 annualized.
  • The reduction in development should be a major concern to MicroEdge's foundation clients. At industry standard rates, this represents the loss of 7-11 full time programmers.
  • Losing one quarter of programming capacity can't help but also have a material affect on the subject matter expertise of the organization (i.e. the intellectual capital embodied by the people that wrote the software).
    

A foundation using a MicroEdge platform deserves an explanation from Vista Equity Partners as to how this reduction in force will be managed moving forward.