Essentially, MetaSolv builds sophisticated software for the telecom industry to help with things like inventory management, service activation, and network provisioning for a myriad of services. Of course, the telecom industry went into a tailspin after the dot-com bust, and as a result, software purchases were cut back. What's more, as the telecom sector consolidated, there were fewer customers to sell software to.
According to the proxy statement, MetaSolv spent several years looking at "strategic alternatives" -- that is, it considered buying other companies, as well as selling itself. Consequently, the company hired Raymond James as its financial advisor in June 2003.
And as the stock price languished, there was interest from potential buyers. In fact, between January and April 2006, MetaSolv received two buyout offers. During this time, there was much back-and-forth negotiation, with prices ranging from $3.75 to $4.37.
So by July, MetaSolv had Raymond James contact several other potential buyers. The advisor identified five interested buyers, including Oracle, which made an initial offer of $3.75.
But there was a problem: By late September, MetaSolv realized that its third-quarter results were going to be at the low end of the guidance and disclosed this to Oracle.
Yet, Oracle was still willing and raised its bid to $4.20. However, after intensive due diligence, Oracle reduced its offer to $4.10.
Actually, the valuation of the deal was roughly two times revenues (for the past 12 months). This is a typical multiple for a software transaction, as seen with recent deals from IBM
In other words, MetaSolv knew it would be tough to grow its business in the current environment. Furthermore, the company tried to find potential buyers and negotiated hard to get the best price it could despite lagging financial results. In other words, it seems unlikely that the company will get another bid or that Oracle will increase the price tag.
Fool contributor Tom Taulli does not own shares mentioned in this article. He is currently ranked 380 out of 14,555 players in The Motley Fool's new community intelligence stock-picking service, CAPS.