By Tiernan Ray Following the acquisition yesterday of human resources software maker Kenexa (KNXA) by International Business Machines (IBM) for $1.3 billion, B. Riley & Co.’s Kevin Lin this morning reiterates a Buy rating on Saba Software (SABA), and a $14 price target, noting that “With the sale of KNXA, the three largest pure-play talent management vendors (SuccessFactors and Taleo being the others) have now been acquired by larger strategic players.”
SuccessFactors, you’ll recall, was bought by SAP AG (SAP), which closed on the deal in February while Oracle (ORCL) closed the acquisition of Taleo in April.
Lin thinks Saba’s stock is “significantly undervalued” and sees reason to believe an acquisition can happen, given the ferment of activity in this corner of the “cloud computing” market:
Our $14.00 price target is based on a forward EV/Sales multiple of 3x, and this latest transaction provides yet another indication that such a valuation is achievable. From a strategic standpoint, IBM’s move to acquire SABA has numerous implications. Most positively, it further validates the attractiveness of the HCM software space, considering IBM, ORCL and SAP have all paid princely sums to bolster their offerings. With other large vendors like Salesforce.com (CRM) and Workday interested in building out their talent management platforms, and infrastructure players like Dell (DELL) and HP (HPQ) focused on increasing their exposure to software, we still see several potential acquirers for SABA. Near-term, we doubt the IBM/KNXA tie-up changes the competitive landscape much. If anything, it should provide a slight edge for both SABA and Cornerstone OnDemand in deals where customers need to move quickly on implementations, and are therefore unwilling to wait until the new technology roadmaps for all of the acquired entities are provided.