Posted on Wed, Feb. 13, 2008

HP to buy Lexington firm

PRICE NOT DISCLOSED FOR PURCHASE OF EXSTREAM SOFTWARE

By Jim Jordan

JJORDAN1@HERALD-LEADER.COM

One of the world's largest technology companies is buying a 10-year-old Lexington software firm that dominates its own market niche.

Exstream Software LLC, inventor of Dialogue software that allows businesses to personalize customer mailings, will become part of Hewlett-Packard Co. by April 30.

The price was not disclosed, but Tom Carpenter, vice president and senior equity analyst at Hilliard Lyons in Louisville, said Exstream valued itself at about $913 million last summer.

Nearly 60 percent of Exstream was sold in June to American Capital Strategies for $548 million, Carpenter said. So all of Exstream would be worth about $913 million.

The recapitalization made the sale of Exstream likely, Carpenter said. "It seems like a good fit for both companies. They (Exstream) are going to a company that can definitely use their software."

HP will gain "reoccurring revenue" from Exstream software sales and also access to Exstream's "blue-chip customers," he said.

Craig LeClair, an analyst with Forrester Research in Cambridge, Mass., said Exstream was a key acquisition for HP.

"Not only are they buying the premier provider in the high volume segment, ... but they are also buying a company that has been moving aggressively into that ... high-end business-to-business market," LeClair said

"This is the type of software that is sold to ... the Fortune 500, the Fortune 1,000-type companies," he said.

HP is not likely to move Exstream out of Lexington, LeClair added. The company is really the people who create software, and "they would maintain it (in Lexington) because that's where the key people are."

After the acquisition, Exstream will be part of HP's Web Services and Software group.

David Murphy, senior vice president of that group, said Exstream is "the leading player in document automation," and the acquisition will accelerate the growth of HP's software business.

The California company has annual revenues of $104.3 billion, largely from computer hardware sales, but Murphy said HP has been "very aggressive" in buying software firms to create a better balance of revenue sources.

HP and Exstream are "going to create some new products together" that should give HP a larger share of the software market, he said.

Exstream Chairman Davis Marksbury, who founded the company with Dan Kloiber in 1998, said they started with the goal "to create a product that could be taken to a worldwide market."

Exstream grew (Inc. magazine said in 2004 that it was one of the nation's fastest-growing private companies) through rising sales and acquisitions. One was the 2003 purchase of Connexion Informatique, a French company that was renamed Exstream France.

Meanwhile, "the size of the market kept expanding," Marksbury said, so Exstream needed more capital to compete with Adobe and other larger companies in "a multi-billion-dollar market."

HP's revenues, huge sales force and worldwide reach will allow Exstream to tap markets in Asia, Eastern Europe and other areas it has hardly reached, he said. HP gives "us the opportunity to take the vision we had (in 1998) and accelerate it significantly."

The sale will be "a great thing for the company and for Lexington, because we expect to stay here and grow here," Marksbury said. "The scenario we like to look at is pretty significant growth going forward."

The sale also was hailed by University of Kentucky President Lee T. Todd Jr., who sold his 15-year-old Lexington software company, DataBeam, to IBM's Lotus division in 1998,

"I'm fond of saying that Kentuckians can compete," Todd said. "Davis and Dan and the employees at Exstream Software have strongly reinforced that point with today's (Tuesday's) announcement.

"Starting with a tremendous idea and intellectual capacity, they have become a globally competitive company," Todd said. "Now, they have attracted one of the world's top technology companies to Kentucky as result of their ideas and their efforts."

Exstream recently opened its new headquarters at UK's Coldstream Research Campus.

The company also named a new president and CEO in October when Richard Troksa, a former IBM executive who joined Exstream four years earlier, was promoted to replace Marksbury in those positions. Troksa was traveling and unavailable for comment.

HP's stock (HPQ: NYSE) closed Tuesday at $42.72 a share, down $1.03 or 2.35 percent. American Capital Strategies (ACAS: Nasdaq) gained 8 cents to close at $28.78.