Merant: Buy-Side Corporate Development Case Study

Launching and executing an effective strategic partnering initiative for Merant

Prior to being acquired by Serena Software in April, 2004, Merant was a $125M publicly traded leader in Software Change Management (SCM) with 600 employees worldwide. In late 2002 Merant’s board brought in a new management team with a charter to return the company to profitability and to ramp revenues. Since that time the company has achieved six consecutive quarters of increasing profits and turned to M&A during this period to provide top line revenue growth.

Because Merant didn’t have an M&A strategy or process in place, and also didn’t have the management bandwidth to develop them, they looked outside the company for help. As a public company with $80M in cash, Merant could have chosen any strategic advisor they wished. They selected Stratagem as the company with the right combination of skills, structure and experience to satisfy their broad set of requirements, which at a high level included:

		Understand Merant’s “techy” products and the development software market
		Scale from executing day-to-day in the trenches partnering activities to contributing to an M&A-based growth plan at the executive level
		Related to the above, work equally well with Merant’s executive team and middle management
		Possess the appropriate tactical and strategic skills to handle a range of assigned tasks and areas of responsibility

Stratagem hit the ground running, putting process in place while also researching and evaluating complementary market segments and companies. In addition to market size and growth we considered many company-specific factors such as product architecture and integration, operating economies, accounting treatment, competition, etc.

Over the course of eighteen months Stratagem led a number of key initiatives:

		Investigated adjacent product categories and markets with best fit and growth potential and contributed to the company’s strategic planning process
		Drafted partner selection and evaluation criteria and financial models
		Performed preliminary partner evaluation and recommendations
		Created “straw man” deal structures, terms and valuations
		Participated in the due diligence process leading to deal closure.
		Led term sheet and contract negotiation according to agreed upon deal parameters

Answering to Merant’s SVP and general manager, we spoke and met regularly with the Merant executive team and a designated M&A task force. We also authored the slides that were presented to Merant’s board to report on our progress.

Without the benefit of a rich stock price or ability to use meaningful amounts of Merant's cash, Stratagem was able to close two transactions that notably bolstered Merant's competitive position and growth prospects. Additional deals were well down the path before Serena's pre-emptive offer.

The first deal we closed was a high value OEM agreement that expands Merant’s platform coverage to include IBM mainframes. As a result of this deal Merant could announce the industry’s first comprehensive change management solution that spans both mainframe and distributed environments. Stratagem also drove the acquisition of a groundbreaking analytics software company that will provide Merant customers greater insight into the performance of development teams and projects, while improving Merant’s value proposition to senior IT management.

At the end of Stratagem’s 18-month engagement, Merant was acquired by Serena Software for $390 million – a 34% premium over Merant’s most recent average stock price. Stratagem's work to crystallize and execute Merant’s expansion via strategic partnering was validated by Serena’s recognition of these efforts in a press conference following the deal announcement.