Software Company Buys Struggling Competitor

By Holly Hall

Blackbaud, the nation’s largest provider of fund-raising software to charities, has announced that

it will buy Kintera, a San Diego company that makes similar software. Blackbaud, which plans an all-cash purchase, will pay $46-million in the buyout, or $1.12 per share for Kintera’s stock.

The purchase is the fourth in a string of Blackbaud acquisitions over the last two years that have made the Charleston, S.C., company the biggest fund-raising-software maker, with revenue of $192-million last year.

The merger may buoy the fund-raising-software industry, particularly since Kintera has been struggling with financial and other problems, technology experts said. On the other hand, with less competition among companies, the price of fund-raising software could go up, and companies might be less motivated to develop new software tools and other features that improve online fund raising, they said.

When the Kintera buyout is complete, Blackbaud will have spent $137-million in recent acquisitions, including Campagne Associates, a fund-raising-software company it bought for $6-million in 2006, and last year’s purchases of Target Analytics, a research and consulting firm ($60-million) and eTapestry, which helps charities manage donor records ($25-million).

Kintera has been troubled by revenue losses and its stock value had declined steadily since its peak at $18 per share in March 2004 to 68 cents per share on the day when the sale was announced. Last year, in response to its losses, the company replaced its chairman and co-founder, Harry E. Gruber. Further compounding Kintera’s problems was a letter the company received on May 15 from Nasdaq, warning that Kintera would not be allowed to trade if its stock prices did not improve by the end of the month.

Those troubles, observers said, enabled Blackbaud to acquire Kintera by paying about the same amount as the struggling company’s annual earnings, which totaled $44.9-million last year. In similar buyouts, software companies have been acquired at prices closer to three years’ worth of revenue.

“Kintera has been circling the drain for some time,” said Mark Rovner, president of Sea Change Strategies, a Takoma Park, Md., fund-raising consulting firm that specializes in online fund raising. “This was a desperation measure by Kintera.” Mr. Rovner, who once worked for a consulting company that was acquired by Kintera, said that in his view, the company’s problems stemmed from the fact that “it kept reinventing itself.”

No Layoffs Planned

In a conference call about the buyout, Marc Chardon, president of Blackbaud, said that by adding Kintera’s 2,300 customers to its pool of clients, the organization will serve 4,500 nonprofit organizations with its Internet tools. The buyout, he and other Blackbaud officials said, will enable the combined companies to achieve cost savings of $2-million annually by reducing research-and-development expenses and another $1-million of Kintera’s expenses.

Mr. Chardon said Blackbaud does not plan to lay off Kintera workers, especially since the company had recently trimmed its staff in an effort to cut costs. Kintera’s new president, Richard N. LaBarbera, will continue to lead the company under Blackbaud at present, and Kintera’s operations in San Diego will continue there, Blackbaud officials said. They also said Blackbaud will continue offering Kintera’s most popular product, the Sphere technology platform, which helps charities conduct online fund raising and advocacy work, in its current format.

‘Risky’ Strategy

Although the acquisition solidifies Blackbaud’s position, some experts wondered how clients of both companies would fare and whether Blackbaud’s latest buyout was going to be as good for business as the company said.

“Acquiring companies is a risky way to grow because you cannot help but be preoccupied by dealing with the merger and dealing with insecure clients and insecure employees,” said Mr. Rovner of Sea Change. “In the short term, it will be chaotic and confusing.”

Other online fund-raising experts said they were concerned that the Kintera buyout could decrease competition, slowing the race by fund-raising software companies to offer new services at low prices to charities. Indeed, with Blackbaud’s Kintera buyout, the number of companies offering fund-raising software has shrunk from four major players to two: Blackbaud and Convio, an Austin, Tex., company that last year bought rival GetActive, a company in Berkeley, Calif.

Jeff Patrick, president of Common Knowledge, a San Francisco company that advises companies on online fund-raising and related software, said he expected the merger to produce benefits. “This is positive for Kintera clients because they will have a stronger company and a good future,” he said. And for nonprofit groups seeking online fund-raising applications, he added, “it is good to have two solid companies. It helps ensure we will have good software and long-term stability.”

On the downside, said Mr. Patrick, “it is harder to negotiate a price. We cannot expect great deals like we used to see. Three years ago, these guys were scrapping, and we’d see them cut prices by 50 percent. That is definitely not happening anymore. Everyone is operating for long-term profitability.

“This is classic market consolidation in action.”