Quick Thoughts on Tagetik Acquistion by Wolters Kluwer

Earlier today, the tax and accounting division of Dutch publishing giant Wolters Kluwer announced the acquistion of Italian enterprise performance management (EPM) vendor Tagetik for 300M Euros, or about $318M.

Founded in 1986, Tagetik was a strong regional European player in on-premises EPM and about 2.5 years ago had raised $37M in capital in order to attack the USA market and accelerate their transition from on-premises to cloud computing.

The press release said Tagetik was valued at 300M Euros off 57M Euros in 2016 revenues, of which 35% are “recurring in nature.”  At a hybrid on-premises / SaaS software company you have two types of revenue that’s recurring in nature:  (1) SaaS subscription fees and (2) on-premises annual maintenance fees.  Doing some back of the envelope math (detailed below), you end with Tagetik breaking into a roughly $13M SaaS business and a $47M on-premises business.

If you buy that analysis, then we can do some valuation guestimation.

While we know the overall multiple of 5.3x revenues, we need to estimate separate multiples paid for the estimated $13M SaaS business vs. the estimated $47M on-premises business.  While there is an infinite number of ways to weight the two pieces compromising the total valuation, my best guess is that Wolters Kluwer paid 10x revenues for the SaaS business and 3.9x revenues for the on-premises business, generally in line with the notion that $1 of SaaS revenue is worth about $2.5 to $3.0 of on-premises.

White Bridge, who led the investment in 2014, got about a 3x return on investment by my math (with one assumption) over about a 3 year period, for an IRR of around 45%.

Market-wise, this is not the first EPM vendor to acquired by an off-axis competitor.  Axiom was acquired by vertically oriented management consultancy Kaufman Hall in 2014 (and has since generally disappeared from the regular EPM market).  My belief is that Tagetik awaits a similar fate.

“The acquisition of Tagetik tightly aligns with our vision to expand our position in the faster growing areas of the corporate tax and accounting market,” said Tax & Accounting Division CEO Karen Abramson.

While Wolters Kluwer has a strong tax and accounting division, only one piece of EPM (consolidation) is generally sold to accounting.  Planning, in all its forms, represents about 65% of the EPM market and that is sold to FP&A, not tax and accounting.  Bridging that gap, both in terms of buyer and mentality, should not be easy for Wolters Kluwer.  I suspect this means Tagetik will play a dimishing role in the mainstream EPM market going forward.

But either way, congratulations to co-CEOs Marco Pierallini and Manuel Vellutini on a successful sale of their company.  Felicitazioni!

5 responses to “Quick Thoughts on Tagetik Acquistion by Wolters Kluwer

  1. Pretty self-serving analysis. Par for the kellblog course.

    • While I generally would delete comments from anonymous and/or fake name users (Craven Moorehead is the name of a pornographic movie director), I’ll answer this one in the event it helps others.

      See my FAQ where I address this issue. I do write from a de facto pro-Host-Analytics viewpoint. I’m the CEO of Host Analytics. What viewpoint do you want me to write from?

      Just because you argue something is self-serving doens’t mean it’s necessarily wrong.
      I don’t have to make contrived arguments and post them. I can just say nothing. That is, while you might argue that there is selection bias in the choice of topics I choose to write on (including the Tagetik sale), there is nothing contrived in the argument itself. I’m just writing what I think.

      In this case I believe pretty strongly that the acquisition of Tagetik by Wolters Kluwer will diminish Tagetik’s presence in the marketplace. Does that help Host Analtyics? Yes. Does that fact helping Host Analytics make it not true? No. Do most analysts agree with me? Yes, at least the ones I’ve talked to thus far.

      I’m not making any large, contrived, or highly unconventional leap here. A nearly 200 year old 2% growth publishing house with a tax arm acquiring a family-owned software business that the founder created in 1986 looks very much like a cash-out for the family (and a well deserved one at that) and a big risk for the publisher. Could they pull it off? Maybe. Are they likely to? No way.

  2. Well stated Mr Kellogg. I believe I will start to follow your blog

  3. Dear Mr Kellog,
    I don’t mind about your “potential” conflict of interests.
    Yet I believe your conclusions are wrong simply because the hypothesis is wrong: “Wolters Kluwer is just an old publishing house and the acquiring is just a cash out for the Tagetik family”… neither of those things are true.
    Very smart people on both sides and the willingness to continue the “business as usual” with a financial boost: that’s the challenge.
    It is risky but ….they can definitely pull it off!

    • To be clear, you can’t “know” that either and it certainly does LOOK like a cash out of a family business. I would be VERY surprised if the co-CEOs were still there after their handcuffs expire. Also, FWIW, I do know a lot about the publishing/media business as I ran MarkLogic for 6 years and half our business was helping media companies, including WK, with digital transformation. Best/Dave

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