Jive Bids Seen Spurred by Microsoft-Yammer Deal: Real M&A

Jive Software Inc. (JIVE) is poised to lure acquirers with the fastest sales growth in the applications software industry after Microsoft Corp. (MSFT) agreed to purchase its competitor Yammer Inc. for $1.2 billion.

Jive, which like Yammer provides businesses with social- networking software that helps employees communicate and collaborate on projects, may post a 157 percent increase in revenue through 2014, according to analysts’ estimates compiled by Bloomberg. That would be the steepest gain in the Bloomberg Industries Global Application Software Index, the data show.

The $1.3 billion company’s sales growth may entice Microsoft’s competitors from SAP AG (SAP) to Oracle Corp. to pursue an acquisition, said Robert W. Baird & Co. and Citigroup Inc., even as the Palo Alto, California-based company trades at a multiple that’s twice as expensive as the industry median relative to 2014 revenue. Since its initial public offering in December, Jive has surged 72 percent, the fourth-best performance for any U.S. IPO of more than $100 million, the data show.

“If Microsoft buys a company in the space, it forces Microsoft’s peers to look around and see what they should now buy,” Walter Pritchard, a San Francisco-based analyst for Citigroup, said in a telephone interview. “Everyone is questioning whether or not the social wave of interaction is going to make its way into enterprise in a big way. Jive brings a new way of doing that. If you want to buy into a new trend, you want to see a company that’s growing fast.”

Facebook Capabilities

Today, Jive shares rose 3.3 percent to $21.33, the highest price in almost two months. The gain was the third-biggest in the Bloomberg Industries Global Application Software Index.

“We can’t comment on rumors or speculation,” Kyle Arteaga, a spokesman for Jive, said in an e-mailed statement. “However, we would like to point out that Jive has a real opportunity to change the way people work, and thus, lots of room to grow. Transformative companies such as Jive tend to remain independent.”

Jive provides businesses with social-networking software -- similar to Facebook Inc. (FB)’s platform for consumers -- that helps employees interact more efficiently than traditional e-mail services. E*Trade Financial Corp., Nike Inc., Starbucks Corp. and Verizon Communications Inc. are among Jive’s largest customers, according to its annual regulatory filing.

Jive is “a very souped-up version of Facebook for enterprise use,” Karl Keirstead, a New York-based analyst for BMO Capital Markets, said in a phone interview. “The younger generation is using e-mail less and less and using their social networks to collaborate with their communities more and more. Why wouldn’t that trend also take place in business if it were a better way to communicate? The market could be massive.”

Sales Growth

The market for social enterprise applications and related services is projected to expand to $6.4 billion in 2016 from an estimated $900 million in 2011, according to a November report from Cambridge, Massachusetts-based Forrester Research Inc.

While Jive has yet to make a profit, the company offers suitors the chance to grab the fastest-growing application software maker of its size.

Jive’s revenue will climb to $199 million in 2014, a 157 percent gain since 2011, according to analysts’ estimates compiled by Bloomberg. That’s a bigger sales increase than all of the 31 other public companies in the Bloomberg Industries Global Application Software Index (BIASFTGP) and almost three times the group’s average, data compiled by Bloomberg show.

Jive’s losses are “vastly outweighed by the growth profile,” BMO Capital’s Keirstead said in the interview. “Most investors are tolerant of Jive investing aggressively to grab market share while it can.”

‘Holy Grail’

Microsoft agreed to buy San Francisco-based Yammer last week and its Facebook-like business capabilities will join Microsoft’s Office division, which includes the SharePoint, Office 365 and Skype products. It will still be maintained as a standalone product. Yammer is on track to post revenue of about $23 million this year, indicating Microsoft valued it at about 50 times revenue when including net cash, according to a June 26 note from Keirstead.

The Yammer purchase “validates that someone is willing to pay” for corporate social-networking software similar to Jive’s, said Ed Maguire, a New York-based managing director and analyst at CLSA Asia-Pacific Markets. “Collaboration and improving communication has been something of a holy grail.”

Shares of Jive have risen 23 percent since June 13, when Bloomberg News reported Microsoft was in talks to buy Yammer.

SAP and Oracle could bolster their social business communication services and complement their current software offerings by buying Jive, said Steve Ashley, a Milwaukee-based analyst at Robert W. Baird.

Needing Jive

“All of the major software platform vendors need this service,” Ashley said in a phone interview. “Microsoft needed it. Oracle needs it. SAP needs it. Software companies are faced with the very question of do they build their own offering from scratch, which can take years, or do you try to acquire that capability? That capability is only in a handful of hands, and Jive is the most substantial.”

Jive’s competitors include Salesforce.com Inc. (CRM)’s Chatter product, International Business Machines Corp. (IBM)’s Connections and closely held companies such as Lithium Technologies Inc., Socialtext Inc. and Telligent Systems Inc. SAP’s venture arm has invested in Lithium.

SAP focused on routine enterprise tasks such as payroll and supply-chain management for the first 35 years of its existence until starting to branch out in 2007 into business analytics and cloud computing. The company said last year that it wants to add a new field of business every 12 to 18 months and singled out collaborative software as the next category.

Short Sellers

Jim Dever, a spokesman for Walldorf, Germany-based SAP, said the company doesn’t comment on speculation, when asked whether it is considering a takeover of Jive. Deborah Hellinger, a spokeswoman at Redwood City, California-based Oracle, also wouldn’t comment.

Short sellers are betting a deal won’t happen any time soon. Last week, a record 6.2 million shares of Jive were sold short, or 10.1 percent of the stock outstanding, according to data from Markit, a London-based research firm. In a short sale, traders sell borrowed stock assuming the price will drop, enabling them to profit by buying it back at a lower price.

Chief Executive Officer Tony Zingale, 56, and the rest of Jive’s managers, which include co-founders Bill Lynch, 34, and Matt Tucker, 33, may not want to sell the company right away, said Cindi Profaca, an analyst at Green Brook, New Jersey-based IPOfinancial.com.

‘In Play’

“The management team is very young, and I am sure there are many things, innovations, that they want to come up with before they just say, ‘We want to sell,’” Profaca said in a phone interview. “But if the price is right, anyone would be willing to sell their company.”

Jive closed yesterday at $20.65 a share, 6.4 times estimated 2014 sales, making it the second-most expensive stock in the Bloomberg Industries Global Application Software Index, data compiled by Bloomberg show. Companies in the index trade at a median of 3.1 times sales for that year.

While the management team may not want to sell before the social-enterprise industry expands, Jive is still probably attracting takeover interest from SAP and Oracle (ORCL), said BMO Capital’s Keirstead.

“My guess is Jive has been in play for a while now,” he said. “Just given that a lot of these social assets have been acquired now, I have no doubt that the CEO’s phone has been ringing from interested buyers.”

To contact the reporters on this story: Tara Lachapelle in New York at tlachapelle@bloomberg.net; Alex Barinka in New York at abarinka1@bloomberg.net.

To contact the editor responsible for this story: Sarah Rabil at srabil@bloomberg.net.

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