Transactions

January 2005

SciQuest Recapitalized by Trinity

Company Description

Founded in 1995, SciQuest, Inc., a publicly-held Raleigh, N.C.-based company, is an industry leader in on-demand procurement solutions that integrate organizations with their suppliers to enable comprehensive spend management for the life sciences and higher education markets.  Many of the world’s leading pharmaceutical, biotechnology, and academic organizations rely on SciQuest solutions such as Biogen Idec, GlaxoSmithKline, Pfizer, Roche, Schering-Plough, Arizona State University, Indiana University, University of Michigan, and the University of Pennsylvania.

Objectives

Incorporated in the mid-1990s, SciQuest rode the wave of the dot.com boom, entering the public market and realizing an extraordinary $1 billion valuation as an on-line exchange aimed at the life sciences industry.  As the market reversed and the fortunes of on-line exchanges reversed with it, SciQuest shifted gears and reinvented itself through new leadership and a business model of delivering on-demand hosted software solutions under a vertical market strategy.  SciQuest’s new model quickly realized rapid success, gaining recognition among name brand firms in the pharmaceutical and higher education markets; both competing against and complementing procurement solutions offered by the likes of Ariba, Oracle, Peoplesoft and SAP.

Though in a stage of high growth and rapid customer adoption, SciQuest endured the legacy and burdens of operating as an under-capitalized public company:

- limited analyst coverage;

- low trading volumes associated with widely fluctuating trading prices;

- common stock that provided limited liquidity for stockholders, as well as limited capital resources for growth; and

- growing annual expenses tied to corporate governance, reporting, and insurance.

Without realizing the associated benefits of being publicly traded, the costs posed a future threat to the company’s financial and business operations at a time when execution was paramount and additional opportunities were being created.  As a result, SciQuest’s board initiated the process to evaluate capital alternatives, engaging TripleTree to develop and execute a formal strategy that would maximize shareholder value and position the company to expand its leadership position in the supplier relationship management (SRM) market.

Results

TripleTree’s approach to assisting small and micro-cap public companies in developing a future growth and capital strategy leverage multiple perspectives:  deep financial experience, hands-on operating backgrounds, executive leadership under diverse ownership structures, and leading industry expertise.  Given SciQuest’s robust on-demand solutions model and strong early sales momentum, TripleTree believed both equity funds and strategic firms would see tremendous value in an acquisition that in turn would maximize the risk/reward potential for SciQuest’s shareholders.

In gaining acceptance from the board, TripleTree worked with SciQuest management and the board’s acquisition subcommittee to execute a sale process that addressed a number of key components:

- Draw attention to SciQuest’s rapid customer adoption via its on-demand model, capturing growing market interest for hosted software solutions;

- Engage a select group of both strategic and financial buyers – clearly defining the unique value proposition inherent to both sets of prospects;

- Articulate the future growth opportunities within the Supplier Relationship (SRM) market and the ability to leverage SciQuest as a platform for expansion;

- Conduct an intense and rapid solicitation process within a two month timeframe; and

- Address the unique benefits of SciQuest’s solutions in the SRM market relative to much larger providers such as Aribia, Oracle, and SAP, as well as past investment into the procurement space which has recognized questionable returns.

In a competitive process that yielded interest from name brand public companies, venture-backed firms, and public equity funds, TripleTree successfully negotiated the sale of SciQuest to Trinity Ventures, a $1 billion private equity firm out of Palo Alto, California, that invests in early stage and growth technology companies.  Additional capital was contributed by two additional funds:  Intersouth Partners and River Cities Capital Funds.  The transaction consisted of a final sale price of $25.25 million in a cash merger, translating to a per share premium of 55% over the closing per share price at the time of announcing the initial signing of the definitive agreement.  For Trinity and its co-investors, SciQuest becomes a strong growth platform whose early success can be further accelerated under private ownership and the support of additional capital resources for expansion.  For SciQuest, 100% of its attention can now be focused on servicing its clients and building the company under the support of an engaged and experienced ownership group.  The result:  a win/win for SciQuest’s employees, shareholders, and new owners.