A VC in Vacationland

As the philosophers say, may you live in interesting times.  The recent announcement of the sale by 3M of HighJump, once touted as the entry point for 3M into the web world, ends another chapter of the “Synergy Strategy Dialogs for Clueless Corporations” and starts a whole new, and yet unnamed,book for venture firms.

3M initially purchased HighJump in 2004 when the mantra in the supply chain marketplace, thanks to Wal-Mart, was item level tracking.  The label guys, like 3M, thought that this would be an interesting new product for their huge sales force to sell in addition to labels.  Why not high margin software sales, in addition to commodity, low margin label buys?  Well, it turns out one needs much different sales techniques and contacts to sell software. The synergy was not there, but HighJump did a great job on its own growing its overall revenues during the last four years.

Let’s be charitable and assume 3M got most of their money back.  The sale price is estimated at $85 million, essentially equaling the cost of original investment, plus the costs of a few acquisitions and some capital infusions over the years. Not bad in today’s marketplace for a traditional software vendor, perhaps a bit less than 1X revenues, if HighJump’s revenues were $90 million as reported in some sources.  But certainly not a homerun investment.

It will be very interesting to see what Battery has in store for HighJump.  Like any good VC, they will want a nice strategic exit for their LP’s.  Acquisitions will presumably be high on the list, along with sales growth.  But are these enough to drive the value for an IPO or eventual sale to a major ERP player?

I’m not saying HighJump is not a good company.  It is, but the marketplace is crowded with competitors with equally interesting, well capitalized strategies.  Supply chain software, especially mid sized vendors, are being squeezed by the best of breed players from below and the major ERP vendors moving into the mid market from the top.

They have brought in an experienced CEO, Tim Campbell, to drive the business forward.  Let’s hope that Tim is able to quickly drive growth, both organically and by stealing share from competitors.  And make a few well-focused acquisitions to fill in any holes in HighJump’s suite of products.  Battery got a really good deal on the front end; the trick will be to sell this company for $250-300 million in a few years.