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Taking Stock in TIBX…

Tibco Software: TIBX (Nasdaq)

As always from time to time my investing habits teeter on the edge of “thinking outside of the box”, but recently I’ve found an interest in looking up new and novel companies that normally I wouldn’t find in a screen, in the news or on any investment website being cherished by some analyst.

As I was looking through my statcounter information from this blog – I encountered a name of a company through whose IP address shows up when a dedicated reader frequents my blog.

Tibco is a software solutions provider which operates from Palo Alto California and serves over 3,000 customers worldwide. With 1,600 employees spread across 40 countries, the company is a leader in innovating and providing market software solutions for managing complicated operational needs of large corporations.

Their software competencies include a highly recognized Enterprise Service Bus software (ESB) that allows automatic updates from multiple systems to be accessed at the same time without jamming up a complicated network. Although that seems complicated in words – the beauty of the software is that it manages multiple actions, requests and queries that doesn’t slow down the performance of a company’s internal or external networks and allows multiple systems to communicate effectively. Their ESB software competes directly with products from companies such as IBM, Sonic & webMethods.

The main products they offer give their customers the ability to integrate internal operations, business activities and customer channels in real-time together. The benefit is that the system allows employees or managers to know exactly what, where, when and how a product or service is at any point in time. With the growing need for large globally integrated companies to manage multiple activities through one service; software such as this allows for faster efficiency, quicker access to information and cost savings in comparison to dedicated independent servers not networked together.

The company has enjoyed a respectable revenue growth over the last three years of 25% and stable profit growth over that time period. Although their current P/E is high among the majority of my value stocks; it is consistent with industry peers such as Oracle, IBM, Microsoft and other software providers.

Recent weakness in the valuation of the company has come from lower revenues from business derived in financial services & government contracts – but a recent acquisition in May of this year is really what’s caught my attention from a value-standpoint.

Spotfire is an acquisition made by TIBX on May 1st of 2007 in an all cash purchase. When I see a company making an acquisition based solely on real money on hand, I tend to pay attention to the details since it often indicates a position of strength. The software is specifically utilized by industries such as life sciences, energy, semiconductors, education, government, financial services & consumer goods/manufacturing. An example would be that the software has the ability to combine CRM (customer relationship management), warehouse, accounting & market information in one source. Analytics is where the software’s abilities truly shine – the features of the software allow for real-time infrastructure information to be combined with enterprise analytics:

Sales: access to segment and profile information of customers, maximize marketing campaigns, identify cross selling opportunities, reduce attrition and optimize sales forces
Clinical/Research: used by pharmaceutical companies to identify early failures in drug development, organize & interpret research information
Government: allows government agencies to streamline monitoring activities and implement new policies requiring massive amounts of information and overcoming bottlenecks
Financial: allows investment professionals to instantly access, ask or inquire about information or interpret data collected by not yet organized into concrete queries
Manufacturing: optimize production plans, respond to changes in real-time & interpret information from a quality assurance standpoint.

TIBX also acquired the rights to the brand name which may not seem that important from a large corporate infrastructure standpoint, but with 25,000 end users of the software at purchase, the importance of the brand name becomes very evident. This sort of business intelligence software is also worth more than $5.6B annually worldwide and with a focused China strategy already in place with alliances with Worksoft, the company looks to benefit greatly from their purchase if integrated properly into their operations.

But cashflow is a concern…it recently turned positive in the last quarter, but has yet to repeat in concurrent quarters after a long drought of running negative. The company also has a large amount of goodwill accounted for on the balance sheet which may or may not be attributed to the purchase of Spotfire & its strong brand name. It also appears that revenues from Spotfire were immune from the poorer Q3 results reported and may indicate position of strength for the company to focus on moving forward.

The part of my research that captured my attention immediately was this…

Their existing customer base includes such names as Air France, Abbott Laboratories, Amgen, Bayer, Bristol-Myers Squibb, Novartis, Merck, Pfizer, BP, Conoco Phillips, Shell, General Electric, Saab, Toshiba, Texas Instruments, Mayo Clinic, Harvard University, Lockheed Martin, Fidelity Investments & Sun Microsystems

For a company with a market cap of $1.4B and servicing the needs of large corporations such as the names above – the seductiveness for this company to become a takeover candidate in the proper environment seems obvious & inevitable. If the company turn its regular operations into higher profit growth and earnings and implements the acquisition of Spotfire without many complications; the likelihood that this company will show up on the M&A scene by a larger competitor is expected.

Simply listening to the following link on the company website helped me to decide to initiate a position in the company with the intent to add to my position if and when the following concerns I’ve pointed out are addressed and increasing profits are realized.

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