Venture Capitalists Offer to Take NetManage Private

Published: September 11, 2006

by Timothy Prickett Morgan

In what must seem like a big relief, midrange and mainframe host connectivity software provider NetManage has been approached by two venture capitalists who want to take it private.

In late 2004, one of NetManage's biggest competitors, the former WRQ, was taken private by venture capitalists Golden Gate Capital, Francisco Partners, and Thoma Cressey Equity Partners. And in April 2005, these same companies bought another NetManage rival, Attachmate, creating AttachmateWRQ. And then, about a year later, AttachmateWRQ shelled out $495 million to acquire systems and security management software provider NetIQ, to create a new private company simply called Attachmate, which has over 40,000 customers and 16 million users of its various software.

For its part, NetManage has continued to invest in tools that extend midrange and mainframe applications to the Web. But the new Attachmate is a very big competitor in the host connectivity market, and there are a lot of ways to get out onto the Web with legacy applications. One of the things that would probably make NetManage's life a lot easier right now is not having Wall Street analysts breathing down its neck. Which is why NetManage has announced that it is considering a proposal from two current investors--Riley Management and Zeff Capital Partners--to take NetManage private.

These two firms already have about 15 percent of NetManage's stock, and have offered to buy the remaining 85 percent at $5.25 a share, in cash. The approximate value of the acquisition is $42 million, and based on Wall Street's reaction to the offer, there is mild enthusiasm for the idea. In August, NetManage's shares were trading in the range of $4.25, so the offer is a pretty hefty premium. In May, NetManage reported a disappointing quarter, with sales down 30 percent to $8.5 million and a net loss of $754,000, and in the second quarter sales fell by 30 percent to $9 million. Net losses in the second quarter came to $899,000, and Michael Peckham, NetManage's chief financial officer, stepped down to take a job at Instill, a maker of supply chain software tailored for the food industry.

In their joint statement, Bryant Riley, managing member of Riley Investment Management, and Daniel Zeff, managing partner of Zeff Capital Partners, said one short sentence: "We believe that our proposal presents a compelling opportunity for the NetManage shareholders." As we go to press on Friday, NetManage's shares have risen to $5.23 a pop, giving it a market capitalization of $47.7 million. It looks like Wall Street thinks this is a compelling opportunity, too.

RELATED STORIES

NetManage's First Quarter Disappoints

NetManage Books Loss in Second Quarter, CFO Resigns