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Lawson's Intentia Investment Pays Off

Since Lawson (Nasdaq: LWSN  ) bought Intentia International for $425 million last year, its stock price has languished. But investors now sense that the deal is finally getting traction. The stock recently shot up from $8 to $9, a peak unseen since early 2004, and even more upside oomph may await.

Lawson develops software to help companies manage inventory, payroll, HR, and other tasks. It's an intensely competitive space that includes biggies like Oracle (Nasdaq: ORCL  ) and SAP (NYSE: SAP  ) .

Fiscal third-quarter revenue surged 118% to $191.2 million. However, roughly 84% of that owes to Lawson's acquisition of Intentia. Because of smaller deal sizes and longer sales cycles, Lawson has posted weaker license revenues over the past couple of quarters. This is always troubling, because these revenues lead to ongoing service and maintenance fees.

Yet things looked better in the third quarter, as Lawson snagged five deals that each exceeded $1 million. Over the past year, quarterly license revenues also spiked 75.1% to $26.4 million.

Lawson has expanded its reseller arrangement with IBM (NYSE: IBM  ) for customers in banking, insurance, and food and beverages. Within a year or so, this should help further increase license revenues.

Lawson has also restructured its global operations, establishing facilities in the Philippines and cutting 350 jobs companywide. These activities cost the company a $11.5 million charge in the third quarter; Lawson registered a net loss of $9.8 million, or $0.05 per share. Compare that with net income of $10 million, or $0.09 per share, in the year-ago period.

Despite the run-up in the stock, Lawson still trades at a reasonable valuation of two times revenues. With the Intentia deal integrated and cost savings kicking in, its business -- and its long-beleaguered stock price -- will likely gain greater momentum.

Further Foolishness:

Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is ranked 2,719 out of 25,386 in Motley Fool CAPS.

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