Advent Software is for sale, with Frank Quattrone as the sales agent, reports say

Brooke’s Note: Since publishing this article, Advent has clarified its situation. See: After anxiety, Advent Software calls off plans to seek a buyer for the company

Advent Software Inc. is reportedly soliciting interest from potential buyers and is being represented by Frank Quattrone’s investment bank, Qatalyst Partners LP of San Francisco.

Quattrone built technology investment banking practices at Morgan Stanley, Deutsche Bank, and Credit Suisse First Boston and helped handle the IPOs of companies such as Cisco and Amazon.com. Later, he was famously prosecuted for allegedly interfering with a government probe into Credit Suisse First Boston’s behavior in picking who got what shares in what IPOs — a case that was dropped. He founded Qatalyst in March 2008 and has his offices at Embarcadero Center.

Advent Software is best known to RIAs for its Axys and APX software and for ownership of Black Diamond Technology Group LLC. See: Advent Software got a lift from improving APX sales in first quarter.

ROI on Black Diamond $73 million investment

The news of Advent’s potential sale comes on the heels of its own report in a quarterly call that it has encountered unexpected challenges in gleaning value from its Black Diamond acquisition. See: Advent to buy Black Diamond for $73 million.

Advent officials did not respond to queries placed for this article by e-mail and text.

The hope was that Axys users would migrate to Black Diamond to keep them from going to competitors, but this has not panned out as well as expected. This turn of events was reported by RIABiz last week in this article: How Black Diamond is working out — or not — as Advent’s agent of deliberate cannibalization.

Advent shares jumped on the reports and were up $3.07 or 11.55% to a 52-week high of $29.64 for a market cap of $1.49 billion.

Attractive target

RIABiz sources say that Advent’s being on the block has been an open secret among many private-equity firms. Advent has attracted interest mostly from such firms, and the process is in the second round of bidding, the Reuters report said.

The RIABiz sources and Reuters say that reaching agreement on a price has not come easily.

But Advent will likely be a target for private-equity firms, says Steven Levitt, managing director and co-founder of M&A firm Park Sutton Advisors LLC.

“I think Advent is potentially an attractive target for private equity because they have a very scaleable and leverage-able business model,” Levitt equity firms who see potential to improve the company. “Private equity firms right now have a lot of money to put to work and are furiously seeking out sensible deals so that they don’t have to return money to investors,” Levitt added. He also noted that other software firms such as First Data and SunGard were acquired by private equity firms some years back.”

Eric Clarke, president of Orion Advisor Services, LLC, LLC that competes heavily with Advent and Black Diamond said he is surprised but imagines it could be good for RIAs.

“I am somewhat surprised by this. I think that from an advisor’s perspective, the best thing that could happen is for a company to purchase them and take the company private. Nothing plays better in the advisor’s favor than working with a privately held business that is profitable and can serve the needs of its clients first and foremost instead of worrying about quarterly earnings.”

Famous dealer

Levitt says Quattrone, despite legal problems some years ago, is still respected in the industry.

“I haven’t heard his name in a while, but I am sure Quattrone has quite a following,” Levitt says. “Some said he was the leading technology investment banker in Silicon Valley. To land a mandate like this shows he is clearly still a serious player.”

Frank Quattrone is being identified as
the listing broker of the Advent
property.

Succession plan

In response to a question about why Advent is for sale, one source says that it may be a continuing effort by the company’s founder and chairman, Stephanie DiMarco, to cash out of the company and to complete a succession plan. Just last year the CEO reins were passed to Peter Hess. See: Peter Hess will take the CEO reins at Advent Software.

The company may also be seeking support in its continuing efforts to reinvent itself as its competitors become greater in number and more cutting edge. Hess is undergoing fairly radical efforts to restructure the company and revamp the technology — using Black Diamond’s ways as a model for the rest of the firm. Black Diamond founder and former CEO, Reed Colley, was drafted to San Francisco from his Jacksonville, Fla.. home to assist in this process.

With the company in such a metamorphosis, one San Francisco-based analyst at JMP Securities terminated coverage at the end of 2012 — while issuing a final “termination” report citing his concerns about the company’s prospects.

Here are some points made in that Dec. 12 report by JMP analyst David Scharf:

“Our Market Perform rating has been based on our view that the company is facing several layers of uncertainty near term, including deteriorating market demand, a far reaching companywide structural overhaul that is being implemented and a multiyear shift to a cloud based platform that is a “push” strategy on investment managers that are not demanding it, as opposed to responding to existing requests.

Soft bookings

“The soft bookings and renewals were primarily attributed to [Europe, the Middle East and Africa], but it was difficult to avoid concluding that the U.S. market was retreating as well, with fewer fund startups than a year ago.

“Advent has indicated that it will radically change the reporting and “go-to-market” dynamics of the company. The goal is to eliminate redundant layers of management and redundant product development, and present a singular focus to cloud-based initiatives. We do not question the wisdom behind this move, which seems to be long overdue. We only note the risks associated with unintended consequences from shifting around reporting lines and, potentially, sales quotas. It’s a lot to digest in the midst of renewed macro head winds.

“Throughout 2011 and into 2012, Advent management had noted several reasons why the broadly defined investment management industry has not been on the leading edge of cloud technology. All of that seemed to change in the late spring, and the prior year’s acquisition of Black Diamond may have provided them with a window into how to jump-start bookings growth beyond the RIA market. Interestingly, however, management suggested that this major paradigm shift to cloud technology is not in direct response to client demand, but represents a “push” strategy. We believe that we are looking at a less visible margin outlook near term, since the payback on a good portion of product development spending is not as apparent.”

Lisa Shidler contributed to this article.