SumTotal inks pact to acquire Pathlore

SumTotal Systems Inc announced on Thursday that an agreement has been signed to acquire US-based Pathlore Software Corporation for approximately $48 million. Pathlore's shareholders will receive $29 million in cash and four million shares of SumTotal Systems' common stock.

The company plans to fund the cash element of the transaction in part by establishing a new $22.5-million credit facility. This means, the company will be taking loans from banks for the aforesaid purpose. The proposed transaction is expected to close within 90 days.

Both SumTotal and Pathlore are enterprise software companies in the learning and business performance management market. While SumTotal has operations in India at Hyderabad, Pathlore has no Indian operations.

Addressing mediapersons, Sudheer Koneru, senior vice-president (international operations), SumTotal Systems, said, "With this synergy, we expect our annualised revenues to touch the $100-million mark and our cash flows from operating activities to reach $10 million on an annualised basis."

For calendar year 2004, SumTotal and Pathlore reported revenues of $55.2 million and $23.9 million respectively. While SumTotal reported revenues of $32.6 million for the first half of calendar year 2005, it was $14.6 million for Pathlore. Cash flow from operating activities was $0.1 million for SumTotal and $1.5 million for Pathlore in 2004.

"Pathlore has, therefore, been a healthy company for us to acquire and we will have consolidated customers of 1,500 worldwide," Koneru said.

SumTotal will continue to be led by Andrew Eckert as chief executive officer (CEO) and Kevin Oakes as president. Steve Thomas, president and CEO of Pathlore, will join SumTotal's board of directors.

While SumTotal has an employee strength of 450 out of which 200 are in Hyderabad, Pathlore employs 150 people. When asked whether the acquisition will lead to employees being laid off, Koneru answered in the affirmative. "There will be some employees who will be laid off from Pathlore and SumTotal in the US offices. Our employees in the Hyderabad office will be retained," he said.

SumTotal spends close to $16 million every year on R&D. After the acquisition, Pathlore's customers will have to shift to SumTotal's products as it will offer one product suite with SumTotal's product base as the sole offering.