Was Siebel the mystery bidder for RightNow Technologies, one of the hottest IPOs of 2004?
RightNow Technologies, one of the most successful tech IPO's of this year, seriously considered an acquisition offer from a much larger software company just a few months before announcing its public debut.
The information was revealed in a recent Harvard Business School case study, part of a new course focused on teaching students how to bootstrap companies.
RightNow Technologies offers hosted CRM applications and is closely associated with Salesforce.com, a company with a similar business model, but with the larger and louder, publicity-seeking CEO Marc Benioff.
Greg Gianforte, founder and CEO of RightNow Technologies (based in Bozeman, Montana) told the Harvard Business School that his company received a generous acquisition offer from a large software company in its sector. The offer was such that it would have created more than $100m in wealth for Mr Gianforte, and multiple tens of millions of dollars in wealth for many other investors and executives. The offer was considered in December 2003. RightNow was started with a $5,000 investment by Mr Gianforte. In 1994 he had sold Brightwork Development to McAfee for $10m.
The software company making the bid for RightNow was not identified. However, the description of the bidding company in Harvard Business School case study N2-805-032 indicates it was likely to have come from one of Silicon Valley's largest software companies--Siebel Systems. The case study documents refer to a large, well-established software company in the CRM space, whose software is expensive and requires several years to install.
Siebel headquarters in Foster City: Mystery bidder for RightNow?
The offer valued the company at a market-leading multiple to revenues but the multiple was not disclosed. The valuation was based on RightNow's revenue run rate of about $50m rather than its trailing 12-month sales of $35m. The bid was all-stock and no cash.
The Harvard study notes that there was extensive deliberation by RightNow board of directors, and discussions with investors. However, Mr Gianforte, the largest shareholder with about 60 per cent of the company, rejected the offer.
The deal was considered counter-culture to that of the company, which had worked since 1997 to pioneer a hosted CRM model. RightNow, along with Salesforce.com and others, have spent many years promoting the idea that traditional enterprise software applications have become inefficient. Their sales pitch is that a hosted IT application model, in which customers pay according to use and the software is hosted elsewhere, is a more economical model. This is sometimes referred to as "web services."
The traditional enterprise software market relies on the sale of software licenses to large companies, which run the software in their own data centers. This procedure can take several years to implement because the new software has to be integrated with legacy applications. In the web services model, companies can start using the IT applications within just a few hours.
The decision to reject the offer paid off handsomely for RightNow staff, and investors. It announced its plans for an IPO in April 2004 and completed it in August, following the Salesforce.com IPO in June.
At the close of trading on Friday December 3, 2004, RightNow (RNOW) closed at $18.68. This is considerably higher than its IPO price of $7 per share and represents a market capitalization of nearly $542m.
Shares in traditional enterprise software companies have lagged considerably over the same period. Siebel reached a 52-week high of $16.19 in early January. It slid to a 52-week low of $6.97 in mid-August and regained some lost ground, closing at $10.38 on Friday, December 3, 2004.