Acquisitions fuel growth for Consona: Former Made2Manage roars back after struggling as public company

November 26, 2007

Building Consona Corp. into a billion-dollar company is well within the sights of CEO Jeff Tognoni. But for now, he's content with a recent growth spurt that is earning national recognition.

Indianapolis-based Consona, formerly known as M2M Holdings Inc., grew at a clip of 131.4 percent last year, landing it on Software Magazine's annual list of the 10 fastest-growing software firms in the nation.

While Tognoni is proud of the achievement, he's reticent to toot the company horn too loudly. Heck, no more than a company press release marked the switch to the Consona name back in March.

"We didn't make a big deal about it because we're not trying to overplay our hand," he said. "A lot of software companies have high-priced public relations talent. We're pretty low-key."

To be sure, seven acquisitions in the past two years quietly have helped push revenue from $30 million in 2004 to about $150 million in 2006. M2M Holding's own purchase by a private-equity firm in 2003 provided the horsepower to fuel the spending spree.

The expanding stable of subsidiaries prompted executives to dump the M2M Holdings moniker, under which Made2Manage Systems Inc. functioned. Having a holding company share the same name as a product line became too confusing, Tognoni said, particularly given the recent string of additions.

Consona entities provide systems-integration software for several manufacturing industries. Most of Consona's customers are small or midsize manufacturers and distributors. The company has grown its customer base from 1,700 at the time of acquisition to 4,500.

The Consona name is derived from the concept of "consonance," which can mean the perfect alignment of elements within a single entity. The company has made enormous strides in recent years.

The former M2M staged its initial public offering in 1997, but posted an annual loss of $4.7 million four years later amid a soft economy. Although the loss totaled much less in 2002, executives concluded an investor-led acquisition would be the best elixir to nurse the company back to health.

Acquisition spree

Suburban-Boston-based Battery Ventures, a venture capital giant, acquired the company in August 2003 for $30 million, or $5.70 per share. A subsequent restructuring that included cutting the work force helped put Consona on a path to profitability.

"A private-equity fund will have the vision to take a company and put unlimited capital behind it, put the thing on steroids and blow it out," said David Millard, chairman of Barnes & Thornburg LLP's business department. "That's exactly what they've done with Made2Manage."

Consona first dipped its toes in the acquisition waters by making one purchase in each of 2004 and 2005, but dived in headfirst the following year. In all, the company made six deals in 2006.

The ability to raise an additional $50 million helped fund the growth. Thoma Cressey Equity Bravo, a $2 billion privateequity manager with offices in Boston, Chicago and San Francisco, led the deal, which included both equity and debt financing. The investment gave Thoma Cressey a minority stake in Consona.

Its most notable and largest acquisition was that of Bellevue, Wash.-based Onyx Software Corp. for $92 million. The former public company that makes customer service processing software posted revenue of $60.4 million and solidified Consona's customer relationship management portfolio.

In the case of Seattle-based Intuitive Manufacturing Systems Inc., which Consona purchased in July 2006 for an undisclosed amount, Consona rolled operations into the existing Made2Manage Systems due to the similarity between the two products.

In March of this year, Consona closed on its buyout of Knova Software Inc. of Cupertino, Calif., for $47 million. The deal was Consona's most recent, but shouldn't be its last, Tognoni said.

"That's a strategy for us that won't go away anytime soon," he said. Yet, the acquisitions need to make sense because "we don't go out and buy everything."

In the meantime, the number of employees has grown from a low of 85-sliced from 210 following Battery's restructuring-to about 700. Roughly 175 are based at the Indianapolis headquarters on East 96th Street in Parkwood Crossing.

Jim Jay, president and CEO of Tech-Point, lauded Battery Ventures and Thoma Cressey for helping to advance the state's burgeoning technology sector.

"Consona just goes to show that the suite of products they are offering is providing a portfolio of growth," he said. "The investment made back in Indiana by these private-equity groups allows for more jobs and maintains the ones that we've had."

Public versus private

When M2M Holdings went public a decade ago, it made perfect sense for a growing software maker to cash in on the burgeoning NASDAQ's access to new capital markets. But after the Internet bubble burst and lawmakers adopted burdensome accounting standards, the climate for taking a company public changed dramatically.

Sarbanes-Oxley essentially has eliminated the small IPO, Millard said, referring to the law responsible for the decline. In today's era, he said, Made2Manage would not have gone public.

Indeed, in 2006, locally based Calumet Specialty Products Partners LP, a refining and petroleum products company, had the distinction of being the only company in the state to go public.

IPOs in Indiana completed this year total just two, including one by locally based HHGregg Inc. Marketing softwaremaker Aprimo Inc. filed on Sept. 10 a preliminary prospectus a $50 million IPO.

Whether Consona follows suit is uncertain. Although the motive of a privateequity firm often is to profit from its investment by selling shares, Tognoni said there are no immediate plans to do so. One of the drawbacks he cited to becoming public is that major decisions cannot be made without shareholder approval, which slows down the process.

But large private-equity deals aren't getting done, either, due to the credit crunch that is making banks uneasy about financing big acquisitions.

At any rate, Tognoni is confident Consona has more growth in its future. The company has done so at a rate of 400 percent the past four years.

"There's a good chance the company will be a billion-dollar software company," he said. "It's well within our plans to continue to acquire and to get to that size."
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