Pegasystems’ Chordiant Buy Not Without Risks

Business process management vendor Pegasystems will be acquiring CRM company Chordiant for US$161.5 million, or $5 per share. Subject to customary conditions, the deal is expected to close in Q2 2010.

Under the new purchase accounting rules, transactional costs are now expensed rather than included in the calculation of goodwill, according to Pegasystems CFO Craig Dynes. As a result, closing costs, integration expenses and other purchase accounting valuation charges will be dilutive to GAAP reported earnings.

On a non-GAAP basis, excluding these one-time charges and the deferred revenue on Chordiant’s balance sheet, Pegasystems expects the deal to be accretive by as much as $0.03 to Pegasystems’ 2010 earnings per share and by as much as $0.20 to Pegasystems’ 2011 earnings per share.

Both boards of directors have approved the acquisition agreement.

When complete, the two companies will seek to leverage their respective strengths: Chordiant has staked out space in the CRM space with its predictive decision management approach. Pegasystems’ core competency is business process management.

Pegasystems was unable to arrange an interview with CRM Buyer for this story.

Market Consolidation

While the deal will clearly provide synergies to both companies, it is also a function of the general consolidation in the CRM and BPM space, Nucleus Research Vice President Rebecca Wettemann told CRM Buyer.

Chordiant recently rejected an offer to be acquired by CDC, she noted. “In general, we will continue to see more consolidation as organizations look to take on critical mass.”

Once the integration is complete, a combined Pegasystems-Chordiant could target enterprises looking for Oracle-like or SAP-like functionality, but at a smaller scale and price point — as well as a better focus on the end user, she noted.

Integration Challenges

Getting to that point will not be easy, though. In general, mergers of any size can be problematic as the two companies seek to create something of value that is greater than the sum of their two parts, Wettemann observed.

Also, there are high level ex-Siebel staffers at both firms, she noted. “It will be interesting to see how they will collaborate to bring new products to market.”

There are a number of interesting possibilities that could emerge from the acquisition, said James Taylor, a blogger at Everything Decision Management.

However there are significant risks as well, he continued.

Balancing Act

For instance, the “fairly serious difference of perspective between decision-centric decision management on one hand and rules-driven BPM on the other” could derail the integration, suggested Taylor.

There is also a lot of technology overlap, he noted. “This could be good — giving the merged company enough of a common vocabulary to build a powerful solution — or bad, resulting in lots of infighting about which version to keep.”

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