In late November, I did a piece on software developer Docucorp International's (NASDAQ:DOCC) first-quarter report and concluded: "In light of the industry's renewed merger activity, and the flurry of companies being taken private, it's a fair bet that value players will start to notice this stock sooner or later." Well, it's sooner. This week, the company agreed to sell itself for $10 per share. Despite the 33% premium, it looks like the buyer -- Hall Financial Group -- is getting a great deal.
Entrepreneur Craig Hall founded Hall Financial Group in 1968. Now, it is a holding company for a variety of businesses such as real estate, oil and gas, and even software. The holdings amount to about $2 billion.
Docucorp will be merged into Hall's Skywire Software division. And yes, there is synergy between the two.
Docucorp develops software to manage the complete life cycle of a company's customer data, including statements and billings, automation of correspondence, and how electronic bills are presented. Furthermore, a majority of its revenues come from the insurance industry.
Skywire Software also builds technologies for the software industry. Its products allow customers to do things like data warehousing, underwriting analysis, and agency management. The company has more than 300 customers, among them Wells Fargo Insurance, a part of Wells Fargo (NYSE:WFC), and AXA (NYSE:AXA).
In terms of valuation, Docucorp has an enterprise value (EV) of about $105 million (by subtracting the $9 million in cash on the balance sheet). Thus, based on its revenue run rate, it is selling at about 1.25 times its EV.
This is well below many other going-private transactions in the software sector, in which two times the EV is the norm. So might there be another bidder coming along to up the price?
There could be, but looking at the stock price, Wall Street doesn't seem to think so. Simply put, there are not many strong suitors for the company, given the size, industry focus, and slow growth. Then again, the last time Docucorp's stock price was this high was in early 2005.
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Fool contributor Tom Taulli does not own shares mentioned in this article. He is ranked 780 out of 15,200 players in Motley Fool CAPS, our new stocks database.
