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Activant Solutions to Acquire Prophet 21

$215-million deal continues software consolidation in distribution

Software provider Activant Solutions is expanding its footprint in wholesale-distribution sectors in a big way with an agreement to acquire Prophet 21 in a $215-million deal. Prophet 21 has been on an active acquisition trail since it went private in 2002 in a $70-million cash deal that bought out the company founders and brought in private-equity investors. Its revenues have roughly doubled since it reported annual fiscal revenues in 2002 of $44 million. Activant acquired Prelude Systems in January of this year with its acquisition of Speedware for $100 million.

The deal also brings together two software providers building trading platforms in different sectors of distribution: Prophet 21's proprietary Trading Partner Connect, and Activant's active involvement with the Industry Data Warehouse open product database platforms in the electrical distribution sector through the Industry Data Exchange Association, a joint venture between the National Association of Electrical Distributors and the National Electrical Manufacturers Association.

Prophet 21's product offering and over 3,400 supported customers enhances Activant's position as a provider in the wholesale distribution segment, which complements Activant's current position in the hardware and home center, automotive aftermarket and lumber and building materials vertical markets.

Prophet 21 will effectively become the wholesale division and largest of Activant's four business segments, with Prophet 21's sales currently between $85-90 million, Doug Levin, executive vice president of Prophet 21, told MDM. Activant's total sales will be at a run rate of approximately $280 million with the acquisition of Prophet 21. In the three months ending June 30, Activant reported revenues of $73.4 million, with its wholesale segment contributing $5.8 million, or 8% of revenues.

"This brings a greater level of stability to Prophet 21," Levin said. "We will continue to support and enhance our offerings, and expect to continue further acquisitions." The current management team at Prophet 21 will stay in place, Levin added.

Under the terms of a definitive merger agreement entered on Aug. 15, 2005, Prophet 21 will merge with a newly formed subsidiary of Activant. As a result, Activant will become the owner of all of the outstanding stock of Prophet 21. The aggregate purchase price is approximately $215 million, subject to certain adjustments. The transaction is expected to close in mid-September, 2005, subject to the satisfaction of certain customary closing conditions.

Prophet 21 Acquisition History
Prophet 21 management bought the company and took it private in November 2002 in a $70-million cash deal that effectively bought out the company founders, John and Dorothy Meggitt (51.2% shareholders), and brought in private investors.

The company went private through a merger agreement with an entity formed by Thoma Cressey Equity Partners Inc., Chicago, IL, and LLR Partners Inc., Philadelphia, PA. All of the issued and outstanding shares of common stock and options of Prophet 21 were acquired for cash in the amount of $16.30 per share. Prophet 21 management continued to operate the business under its current name and operating structure.

Thoma Cressey Equity Partners (TCEP) is a private equity firm, with a 25-year track record of backing management teams in buyouts, recapitalizations and growth equity transactions. Through its seven funds, TCEP has led over 80 transactions in a wide range of industries. TCEP typically invests $10 million to $100 million in businesses valued between $30 million and $300 million. The firm focuses on investments in Business Services, Information Technology, Healthcare and other high growth industries. Investors in TCEP funds include some of the leading government and corporate pension plans, financial institutions, university endowments and national foundations.

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