SumTotal to acquire Pathlore
SumTotal Systems™, Inc. (Nasdaq: SUMTE) and Pathlore® Software Corporation, two leading enterprise software companies in the learning and business performance management market, today announced the signing of a definitive merger agreement for SumTotal to acquire Pathlore for approximately $48 million.
Combination Creates Industry's Largest Provider with Over 1,500 Customers
Transaction Expected to Create Company with Over $100 Million in Annual Revenue
MOUNTAIN VIEW, CA. and COLUMBUS, OH (August 3, 2005) -- SumTotal Systems™, Inc. (Nasdaq: SUMTE) and Pathlore® Software Corporation, two leading enterprise software companies in the learning and business performance management market, today announced the signing of a definitive merger agreement for SumTotal to acquire Pathlore for approximately $48 million. At the closing of the acquisition, Pathlore shareholders will receive approximately $29 million in cash and 4 million shares of SumTotal Systems common stock. The merger reinforces SumTotal's position as the largest software provider in the emerging learning and performance management market and is expected to provide its collective customers even greater resources for support and product innovation.
According to industry analysts, the acquisition brings together the leaders in revenue and customer count. The combination is expected to offer Pathlore customers access to SumTotal's broader enterprise suite of product capabilities and expanded global support as well as extend SumTotal's reach into key segments, including state government, health care, and the rapidly growing middle-market. The Pathlore customer base includes over 100 healthcare organizations, as well as government agencies in 38 of the 50 United States. Key benefits of the acquisition include:
§ Increased R&D capacity to bring new innovations to market more rapidly and economically
§ Enhanced global and vertical market support and delivery capabilities
§ Enhanced scale and stability with over $100 million in expected annualized revenue
§ Increased investment capability with approximately $10 million in expected annual cash flow
§ Expanded footprint with over 1,500 customers worldwide to drive industry roadmap
"After surveying our industry's landscape, it became evident that Pathlore has a tremendous amount of momentum in complementary markets," said Andy Eckert, CEO of SumTotal. "We believe that its growth, significant revenue base, and profitability profile could help us reach a critical threshold of revenue scale and profitability for our customers, partners and investors. With similar philosophies and cultures, complementary technology and offerings, and an unmatched footprint, we believe the combined company will be a true enterprise-class player in our industry with the scale to drive innovation and customer satisfaction in a profitable manner."
"We believe the combination of these two strong companies will expand the scope of our operations and ensure that we will have the capabilities and financial strength to successfully serve our customers around the globe," said Steve Thomas, president and CEO of Pathlore. "We believe strongly that this combination allows us to bring our customers significant value in terms of new capabilities and products. Given our large worldwide customer footprint, this combination meaningfully raises the bar for learning and business performance management providers."
"The combined company's number one priority will continue to be customer care and success," said Eckert. "We will spend even more time on applications development and customer support. Both Steve and I believe that our integration plans and these increased investments will help ensure our customers' success. We look forward to working with a broad team that represents the best of what both companies currently offer."
Terms of the Agreement and Financials
Under terms of the proposed transaction, Pathlore shareholders will receive approximately $29 million in cash along with 4 million shares of SumTotal common stock. The company will also incur additional cash obligations due to deal-related and severance expenses. The company plans to fund the cash element of the transaction, in part, by establishing a new $22.5 million credit facility. The proposed transaction has been approved by the SumTotal and Pathlore Boards of Directors. Completion of the acquisition will be subject to Pathlore stockholder approval, customary closing conditions, and the issuance of a permit from the Commissioner of Corporations for the State of California so that the issuance of the company's stock will be exempt from registration under the Securities Act of 1933. The proposed transaction is expected to close within 90 days.
For calendar year 2004, SumTotal Systems reported revenue of $55.2 million and Pathlore reported revenue of $23.9 million. For the first half of calendar year 2005, SumTotal reported revenue of $32.6 million and Pathlore reported revenues of $14.6 million. These numbers are all on a GAAP basis. Once the acquisition is completed and SumTotal has worked through the impact of the write down of the deferred revenue balance acquired from Pathlore, the combined company is expected to have revenues in excess of $100 million on an annualized basis.
Given expected expense synergies, SumTotal expects the transaction to yield significant cost savings and increased cash flow. In 2004, SumTotal generated $0.1 million of cash from operating activities and Pathlore generated $1.5 million in cash from operating activities. With expense synergies expected to be approximately $8 million to $10 million on an annualized basis, the combined company therefore expects to generate cash flow from operating activities of at least $10 million on an annualized basis.
SumTotal will continue to be led by Andrew Eckert as CEO and Kevin Oakes as president. Steve Thomas, president and CEO of Pathlore, will join the SumTotal board of directors and remain actively involved with the combined company.
Additional Information And Where To Find It
SumTotal Systems, Inc. filed a Form 8-K on August 3, 2005. Investors and security holders are urged to read this filing. Investors and security holders may obtain free copies of this document and other documents filed with the Securities and Exchange Commission at the Securities and Exchange Commission's web site at www.sec.gov. In addition, investors and security holders may obtain free copies of the documents filed with the Securities and Exchange Commission by SumTotal by contacting SumTotal Investor Relations at (650) 934-9525.