By Jeff Croyle, Partner, TPI
On April 6, SumTotal Systems received an unsolicited $3.25per-share cash takeover bid from investor Vista Equity Partners. Already the largest shareholder in SumTotal with a 13 percent stake, Vista has begun a hostile takeover for the rest of the firm. Since this cash offer provides a 62 percent premium over the closing share price from last Friday, we expect that Vista will be successful in this acquisition. In the coming days we'll take a deeper look at the deal but for now, we'll focus on how this announcement could impact existing SumTotal clients and potential customers.
SumTotal is a leading global provider of talent development solutions and its Learning Management System (LMS) is used by hundreds of organizations as well as many major Human Resources Outsourcing (HRO) providers. Vista is a leading private equity firm focused on investing in software and technology-enabled businesses and this deal fits well with their stated investment philosophy. Vista recently completed a buyout of the Cyborg business unit from Hewitt Associates and an acquisition of SumTotal will expand their investment in HR technology companies.
In a letter explaining its offer, Vista questioned the value of SumTotal's migration from the current business model with revenue from license purchases and annual maintenance fees to a new subscription SaaS model. It appears Vista feels that the management attention and investment needed to build the SaaS infrastructure could damage the larger revenue stream from SumTotal's existing clients under the licensed model. If successful in their offer, we would expect Vista to slow down the migration to the SaaS model and focus more on the reliability of the larger recurring revenue stream from the licensed model.
TPI continues to believe that SumTotal has one of the most robust LMS applications available in the market today. If you're a current installed on-premises SumTotal LMS client, we don't envision much downside if this takeover goes through. However, if you are a SumTotal SaaS customer, there is far more uncertainty ahead. It would be wise to begin exploring your options well in advance of your renewal so you are well-positioned once Vista's intentions on the SaaS model become clearer.
If you are currently in the market for a LMS, TPI recommends keeping SumTotal on the list of potential options, particularly if you are interested in a hosted or on-premises solution. If you are intent on a SaaS LMS model, then you will need to exercise caution. SumTotal might not be the right solution for you, but competitors such as Saba might find themselves in a similar situation shortly as they strive to support two different business models as well.
We expect SumTotal to increase communications on the takeover attempt with current and prospective clients to the fullest extent it legally can. The last thing either it or Vista wants is to hurt SumTotal's pipeline for software licensing and fees.
