“Vector's relationship with Niku has stayed strong while navigating these stormy times. Vector has made important contributions to Niku and their continued support through good times and bad uniquely demonstrates their commitment to long-term investing”
Leading independent provider of Internet-based IT Management and Governance (ITMG) software that allows enterprises to map and control project based initiatives in every functional area of the corporation
Insight & Approach
Vector became a shareholder of Niku through the company’s acquisition of Proamics Corporation, the dominant vendor in project accounting software for professional services firms and a Vector portfolio company. In February 2000, shortly after the merger with Proamics, Niku completed an initial public offering on the NASDAQ National Market (Ticker: NIKU). The company emerged from this IPO with over $340M of cash and a strategy of acquiring complementary software companies and managing the overall business for hyper growth. When the technology bubble burst in early 2000, Niku’s stock price began to decline dramatically, and three years later was down by over 98% from its peak. Despite the pessimistic new reality of global IT spending, the founding management team at Niku continued to pursue its “growth-at-whatever-cost” expense structure, and was nearly bankrupt by late 2002.
Despite Niku’s cash burn and operational challenges, Vector was confident that the ITMG sector was an excellent opportunity for the company to capitalize on. Furthermore, Vector recognized that the company was emerging from a multi-year, technology integration project that would combine, for the first time, the various acquired technologies onto a single platform. Niku had the right product and a great market segment, but lacked management discipline and was running out of cash.
After monitoring Niku’s challenges, we convinced Niku to let Vector join the board of directors. Vector conducted an independent customer analysis for Niku to measure the market response to its new product. Vector also aided Niku in its corporate restructuring, including renegotiating onerous lease agreements, enhancing the management team, and helping raise additional working capital through a PIPE in which Vector participated. Vector also purchased Niku shares in the open market, supporting the stock and proving to the continuing Niku team that we were serious partners. Despite the company’s historical problems, Vector believed in the new management and was confident about Niku.
Operational Changes
Under the leadership of the new CEO, Josh Pickus, Niku orchestrated a dramatic turnaround achieving seven consecutive quarters of revenue growth and returning to profitability. One year after the Vector PIPE investment, the company was at a 15% EBITDA margin while posting 45% year-over-year revenue growth. During this time, the company also released “Clarity”, the latest version of its flagship ITMG product, and expanded its base of Fortune 500 customers with wins at Vodafone, Samsung, ABN Amro, Liberty Mutual and Xerox Global Services.
Results
On July 29, 2005 Niku was acquired by Computer Associates for approximately $350M in cash or $21 per share. The purchase price represented a 27% premium to the previous day’s close of the merger announcement and a 6.3x multiple on the price of the PIPE two and a half years earlier. Niku’s flagship product, Clarity has been integrated into CA’s Business Services Optimization (BSO) division. We believe this acquisition gives Clarity the distribution needed to grow rapidly and serves as an important catalyst for the ITMG space.