Event Summary:Mergers and acquisitions (M&As) in the enterprise applications arena are certainly not uncommon. In fact, when a single day goes by without an intra-market acquisition announcement, a market observer might even start feeling out of sorts. Neither it is uncommon to hear about manufacturers of, say, automotive parts, construction supplies, or food service equipment acquiring an enterprise system's software license and then engaging in lengthy implementations.

Part One of the series Will a Tool Manufacturer and a Supply Chain Software Vendor "Click" in Matrimony?

However, the early September 2006 announcement that Illinois Tool Works Inc. (ITW) (NYSE: ITW) had made a cash tender offer to acquire all of the common stock of Click Commerce, Inc. (NASDAQ: CKCM) made many market insiders scratch their heads. ITW is a diversified manufacturer of highly engineered components and industrial systems and consumables, consisting of approximately 700 business units in 48 countries, with some 50,000 employees, and $12.8 billion (USD) in revenues. Click Commerce, for its part, has been a thriving provider of on-demand supply chain management (SCM) solutions for a variety of worldwide industries.

As part of the agreement, ITW purchased all of Click Commerce's outstanding shares for $22.75 (USD) per share (an approximately 27 percent premium over the share price at the time), and the total value of the transaction, including payment for outstanding stock options, was approximately $292 million (USD). The boards of directors for both companies have approved the transaction. Morgan Stanley acted as exclusive financial advisor, and McDermott Will & Emery LLP acted as legal counsel to Click Commerce in connection with the transaction. The closing of the transaction, which was subject to certain conditions, including the tender of at least a majority of Click Commerce's shares, and regulatory approval, took place on October 27, 2006.

In addition to the differing approaches and "walks of life" for the parties, the acquisition was surprising and unexpected for many other reasons. ITW's successful track record of acquisitions has been characterized by frugality (in paying only slightly more than the acquired company's annualized revenues), whereas for Click Commerce, the price tag is over four times its revenues. It appears that as part of ITW, Click Commerce is seen as a platform for growth, and as a new (software-based) avenue to expand the manufacturer's horizons. In other words, ITW plans to harness Click Commerce's technology and savvy to expand its value-added software solutions, to deliver a range of solutions to the increasingly complex problems of today's supply chains, including ITW's numerous diverse business units and their respective trading partners.

The acquisition was also surprising given that Click Commerce had not been perceived as a company in distress in any need of a "white knight" savior (let alone badly in need of one). Quite to the contrary: lately, the vendor has had an enviable string of both profitability and growth (in most part, it should be said, via wise acquisitions of niche specialist vendors and solutions). Most recently, Click Commerce posted 2006 second quarter revenues of $19.7 million (USD), which was a 48 percent increase over the year before—this was reportedly the company's twelfth profitable quarter. In 2005, Click Commerce had $59 million (USD) in revenues and an operating income of $14 million (USD), respectively representing a whopping 128 percent and 210 percent growth. The vendor has lately instilled a corporate-wide culture of profitability, whereby people are paid on earnings, and where on-commission-based employees get merit-based bonuses annually, while everything is budgeted to the bottom line (profits) and managed in relation to the profit margins. To be fair, given the plethora of acquisitions that Click Commerce has conducted recently, it is difficult to discern pure organic growth in these impressive total growth figures.
Click Commerce's Roots:To better judge the rationale behind the acquisition, it might be helpful to explore Click Commerce a bit deeper. Founded in 1996 and based in Chicago, Illinois (US), the company started with the idea of developing software to help enterprises handle complex distribution and dealer networks. Click Commerce's philosophy and strategy stem from the premise that collaborative commerce turns traditional linear value chains into trading partner networks (TPNs). In other words, collaboration should provide visibility and transparency, optimize shared assets, and orchestrate common processes in the demand, supply, and service chains (consisting of sales force, key accounts, consumers, retailers, distributors, suppliers, manufacturers, field service, etc.).

It is a hackneyed fact that traditional phone, fax, and paper-based communications systems are labor-intensive, inefficient, and prone to error. Companies have historically dedicated significant resources and time to the manual entry (re-keying) of information from faxed or phoned-in purchase orders, as well as to the manual processing of paper checks, invoices, and shipping notices. While spreadsheets and e-mail are also used to manage their partner relationships, even these electronic systems can be inefficient and difficult to integrate. The large volume of paper generated by these systems, and the mass of information to be sorted and processed frequently produce hidden costs such as errors and delays in information delivery, as timely changes can be difficult to implement in manually intensive processes. The cost related to such changes can also be significant. For example, a paper-based catalog cannot be quickly or inexpensively updated to inform customers of changes in product offerings, availability, or pricing (see Differences in Complexity between B2C and B2B E-commerce).

Event Summary:Mergers and acquisitions (M&As) in the enterprise applications arena are certainly not uncommon. In fact, when a single day goes by without an intra-market acquisition announcement, a market observer might even start feeling out of sorts. Neither it is uncommon to hear about manufacturers of, say, automotive parts, construction supplies, or food service equipment acquiring an enterprise system's software license and then engaging in lengthy implementations.

Part One of the series Will a Tool Manufacturer and a Supply Chain Software Vendor "Click" in Matrimony?

However, the early September 2006 announcement that Illinois Tool Works Inc. (ITW) (NYSE: ITW) had made a cash tender offer to acquire all of the common stock of Click Commerce, Inc. (NASDAQ: CKCM) made many market insiders scratch their heads. ITW is a diversified manufacturer of highly engineered components and industrial systems and consumables, consisting of approximately 700 business units in 48 countries, with some 50,000 employees, and $12.8 billion (USD) in revenues. Click Commerce, for its part, has been a thriving provider of on-demand supply chain management (SCM) solutions for a variety of worldwide industries.

As part of the agreement, ITW purchased all of Click Commerce's outstanding shares for $22.75 (USD) per share (an approximately 27 percent premium over the share price at the time), and the total value of the transaction, including payment for outstanding stock options, was approximately $292 million (USD). The boards of directors for both companies have approved the transaction. Morgan Stanley acted as exclusive financial advisor, and McDermott Will & Emery LLP acted as legal counsel to Click Commerce in connection with the transaction. The closing of the transaction, which was subject to certain conditions, including the tender of at least a majority of Click Commerce's shares, and regulatory approval, took place on October 27, 2006.

In addition to the differing approaches and "walks of life" for the parties, the acquisition was surprising and unexpected for many other reasons. ITW's successful track record of acquisitions has been characterized by frugality (in paying only slightly more than the acquired company's annualized revenues), whereas for Click Commerce, the price tag is over four times its revenues. It appears that as part of ITW, Click Commerce is seen as a platform for growth, and as a new (software-based) avenue to expand the manufacturer's horizons. In other words, ITW plans to harness Click Commerce's technology and savvy to expand its value-added software solutions, to deliver a range of solutions to the increasingly complex problems of today's supply chains, including ITW's numerous diverse business units and their respective trading partners.

The acquisition was also surprising given that Click Commerce had not been perceived as a company in distress in any need of a "white knight" savior (let alone badly in need of one). Quite to the contrary: lately, the vendor has had an enviable string of both profitability and growth (in most part, it should be said, via wise acquisitions of niche specialist vendors and solutions). Most recently, Click Commerce posted 2006 second quarter revenues of $19.7 million (USD), which was a 48 percent increase over the year before—this was reportedly the company's twelfth profitable quarter. In 2005, Click Commerce had $59 million (USD) in revenues and an operating income of $14 million (USD), respectively representing a whopping 128 percent and 210 percent growth. The vendor has lately instilled a corporate-wide culture of profitability, whereby people are paid on earnings, and where on-commission-based employees get merit-based bonuses annually, while everything is budgeted to the bottom line (profits) and managed in relation to the profit margins. To be fair, given the plethora of acquisitions that Click Commerce has conducted recently, it is difficult to discern pure organic growth in these impressive total growth figures.
Click Commerce's Roots:To better judge the rationale behind the acquisition, it might be helpful to explore Click Commerce a bit deeper. Founded in 1996 and based in Chicago, Illinois (US), the company started with the idea of developing software to help enterprises handle complex distribution and dealer networks. Click Commerce's philosophy and strategy stem from the premise that collaborative commerce turns traditional linear value chains into trading partner networks (TPNs). In other words, collaboration should provide visibility and transparency, optimize shared assets, and orchestrate common processes in the demand, supply, and service chains (consisting of sales force, key accounts, consumers, retailers, distributors, suppliers, manufacturers, field service, etc.).

It is a hackneyed fact that traditional phone, fax, and paper-based communications systems are labor-intensive, inefficient, and prone to error. Companies have historically dedicated significant resources and time to the manual entry (re-keying) of information from faxed or phoned-in purchase orders, as well as to the manual processing of paper checks, invoices, and shipping notices. While spreadsheets and e-mail are also used to manage their partner relationships, even these electronic systems can be inefficient and difficult to integrate. The large volume of paper generated by these systems, and the mass of information to be sorted and processed frequently produce hidden costs such as errors and delays in information delivery, as timely changes can be difficult to implement in manually intensive processes. The cost related to such changes can also be significant. For example, a paper-based catalog cannot be quickly or inexpensively updated to inform customers of changes in product offerings, availability, or pricing (see Differences in Complexity between B2C and B2B E-commerce).