Just three months after its previous acquisition, Commtouch Software Ltd. (Nasdaq: CTCH; TASE: CTCH) has again opened its wallet to makes its third ever acquisition - Germany's eleven GmbH for $11.3 million in cash and shares. Commtouch is paying $9.2 million in cash and $2.1 million in shares, plus an additional amount (which has not been fixed, even its cap) based on eleven's performance.
Commtouch, a developer of Internet security technology and cloud-based services, has a market cap of $59 million, after losing a third of its value over the past year.
Commtouch's largest shareholder is Aviv Raiz, with a 23% holding (worth $14 million). The second largest shareholder is Catalyst Investments LP with a 5.6% stake. Lior Samuelson is the chairman.
eleven was founded 11 years ago and has become a leading supplier of mail-based Security-as-a-Service (SecaaS) solutions, with more than 36% of the German market for managed email security. It also operates in the Austrian and Swiss markets. Commtouch has little activity in Germany; its core market is the US.
"For years, Commtouch has provided its customers with technology to protect e-mail and Internet access, and anti-virus solutions. This technology enabled its customers to develop hardware and/or software solutions, and so Commtouch was a pure technology provider," said Shlomi Yanai, Commtouch's CEO for the past year, about the acquisition of eleven. "We are now taking our most important asset and becoming a company which provides full cloud-based services. We plan to take eleven's successful infrastructure and use it with all our current customers."
Yanai said that the acquisition was due to Commtouch's wish to adapt to the constantly changing needs of the industry. "There is a growing transition from the consumption and installation of hardware and software within an enterprise to the consumption of cloud services. This is a very important trend, and the acquisition of eleven will help us fit into it."
"Globes": When strategic change occurs as frequently as it does at Commtouch, it is liable to indicate something negative.
Yanai: "Your remark is apt. In recent years, Commtouch has had a focused strategy of selling technology to security companies and hardware vendors. The company did excellent work in this area, but the time has come to take it to the next stage in its evolution, and not be satisfied only with sales of technology. In effect, we are expanding and enriching the previous strategy, not replacing it. Besides technology, we will offer full cloud services, and anyone who previously bought only technology from us will continue to do so, or else buy full cloud services from us. There is no contradiction between the two strategies."
Commtouch has lost a third of its value in the past year. Is your shopping spree intended to compensate for stagnating organic activity?
"That's an excellent question. Commtouch's net profit has fallen in the past year, because of our investment in organic R&D activity. During the first half of 2013, we will launch full cloud solutions of our own, which are slightly different from those that we've acquired from eleven, and we're already seeing improvement in the orders data. Our acquisitions are intended to accelerate the organic developments as part of the company's growth strategy."
Commtouch also revised upward its full-year guidance for 2012 to $23.7-23.9 million revenue and non-GAAP net profit of more than $4 million.
Commtouch chairman Lior Samuelson said that the acquisition of eleven would contribute to Commtouch's net profit from 2013.
Published by Globes [online], Israel business news - www.globes-online.com - on November 19, 2012
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