Breaking down some numbers in the Accenture/Octagon Research deal

Tom Paine


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I reported on the closing of Accenture's acquisition of Wayne-based Octagon Research Solutions, which Accenture announced on September 26, and Accenture's post-acquisition plans for Octagon. Accenture did not disclose the purchase price, and since
the deal is likely immaterial relative to Accenture's overall size it probably won't have to disclose it in regulatory filings.

Lawrenceville, NJ-based Edison Ventures, a key investor in Octagon, subsequently issued a press release stating that it had received a 6X return from its investment in Octagon. I thought I'd try to put together all the numbers I could find related to investments in Octagon, although I can't promise this is a complete picture:

February 2003: $3.8 million from Edison and Milestone Venture Partners.

March 2005: $3.5 million Series B preferred equity; three investors, of whom Edison was presumably one.

August 2006: $10 million, of which $2 million was from Edison, bringing its total investment to date in Octagon to $8.4 million. The other investors in this round were Phoenix Life Insurance, Zurich Financial, and Ticonderoga Capital.

September 2008: $12 million, with $10 million coming from Ticonderoga and the other $2 million coming from Edison, bringing its total investment to $10.4 million.

That's the last record I can find of any financing. When Octagon anounced last year it would increase staffing by 100, I presumed it might need some type of bridge financing, but apparently it didn't.

In terms of revenue, Octagon reported revenue to Inc. Magazine for the 2010 Inc.5000 of $37.5 million in 2009. One article cited 2010 growth of 20%. And Octagon said its revenue through the third quarter of 2011 was up 20% for the year. And presumably the staffing ramp up beginning in the middle of last year was in anticipation of increasing revenue streams. So I think it safe to assume Octagon's current run rate is well in excess of $50 million. No word on profitability, but if Octagon has indeed gone since 2008 without significant additional equity financing (although you can't rule out the possibility of some debt financing) it is probably not doing too badly on that score.

If Edison's total investment in Octagon was just over $10 million as last reports indicate, then it probably will receive proceeds in the $60 million range. Although Ticonderoga's total investment of $10 million plus is slightly larger, its return should be lower because it got in later.

The closest comparable deal for which pricing information is publicly available is Oracle's acquisition of Phase Foward, a company with a somewhat similar range of services for clinical trials, in 2010. Oracle paid $685 million, or more than 3 times Phase Forward's trailing revenue, and the company was marginally profitable.

My guess is Accenture paid at least $150 million, perhaps somewhat more, for Octagon.



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