Onyx Agrees to Acquisition by M2M

Onyx (Nasdaq: ONXS) has signed a definitive agreement to be acquired by M2M Holdings, a private equity firm jointly owned by Battery Ventures VI and Thoma Cressey Equity Partners, in an all-cash transaction for US$92 million, or $4.80 per share.

Closing is anticipated in the third quarter, subject to approval by a majority of Onyx's stockholders.

Once the transaction is complete, Onyx will operate as a separate business unit of Made2Manage Systems, an M2M enterprise software and services company.

Janice P. Anderson, chairman and CEO of Onyx, said that Battery Ventures and Thoma Cressey Equity Partners have a strong track record of supporting the growth of their portfolio companies.

"We believe [they] will use their proven industry consolidation experience to help Onyx increase its share of the enterprise CRM market," she said.

The Better Option

Of all the options available to Onyx, acquisition by a private firm appeared to be the best route. "It gets them out of public scrutiny so they don't have the pressure of quarterly earnings," Yankee Group analyst Sheryl Kingstone told CRM Buyer. "And the distraction of CDC wanting to acquire them goes away."

CDC, which recently bought out competing mid-market CRM vendor Pivotal, has made at least two offers to acquire Onyx, both of which were spurned.

Going private, Kingstone continued, also means Onyx will no longer have to absorb the costs of meeting Sarbanes-Oxley. Those costs, plus the investments the company was putting into growth and marketing , resulted in some unprofitable quarters.

Profits Still Count

Onyx will be under pressure to deliver value to its new parent company, assuming the acquisition is finalized.

"Even though they are private, they still will have to grow, whether it is through organic growth or consolidation or a combination of both," Kingstone said. "They have to meet their goals, or they will be sold off."

In some ways, the pressure may be even greater for Onyx under M2M's umbrella. "M2M grows by acquisition, by gobbling up companies that have the potential to be profitable and then gobbling up those profits," Kingstone said.

The upshot may be that there will be less money to invest in Onyx's product road map, which is geared to supporting the line-of-business user and lowering TCO, she noted, adding, "These are long term, strategic issues important to customers."

However, Onyx will have to remain committed to its customers and its promised road map to some degree if it wants to keep its customer base, Kingstone cautioned. Right now, many companies are in a replacement cycle for their enterprise technology, ready to replace or enhance systems installed in 1999.

"Over the next couple years," she said, "it will be critical for all vendors to maintain upgrades and customer satisfaction."

Onyx's competitors are more than happy to pick off disgruntled customers. For example, Kingstone is seeing Onyx come up more and more against Salesforce.com (NYSE: CRM) in deals.

"That is one reason why it will be important for Onyx to continue to invest in the line-of-business user," she explained, "because that is what Salesforce.com does well."

The Waiting Game

Onyx's customer base will likely give M2M a chance to show what the acquisition can do for them, Nucleus Research Vice President Rebecca Wettemann told CRM Buyer.

"Customers gave Oracle (Nasdaq: ORCL) time to explain what it will do with its Siebel and PeopleSoft acquisitions," she pointed out. "I think Onyx's customers will do the same."

Made2Manage Systems is process-oriented, Wettemann noted, which will mesh well with Onyx's approach.

Kingstone, however, does not believe there are many synergies between the two companies' applications. "They address completely different markets. This acquisition is all about consolidation."

For its part, M2M appears to view the acquisition as complementary to its business strategy.

"Entry into the CRM market enhances Made2Manage Systems' status as a provider of enterprise software and services to multiple industries," said Jeff Tognoni, CEO of both M2M Holdings and Made2Manage Systems, "and our consolidation model -- under which Onyx will continue to service and grow its distinct markets, fully backed by the considerable investment resources of our private equity partners -- provides a compelling future for the new combined entity."