The $16 per share deal to acquire Convio (CNVO) by Blackbaud (BLKB) translates into an enterprise value that is slightly below that projected by our March 2011 SaaS valuation model but is still within about 10% of the target. We believe, the price reflects Convio's relatively small revenue of $77 Million and sub-par growth, profitability and efficiency as measured by the MGI Index (CNVO MGI Index is 643). In our view, the valuation offered is also a function of a dearth of potential buyers in this space. BLKB paid a 49% premium vs. the last closing price for CNVO but still seemingly got a good deal.

BLKB (MGI Index of 842), - is the dominant vendor of on-premise software for the non-profit market and enjoys a firm and profitable position in this space. Yet, even after a few acquisitions of SaaS and SaaS-like companies, BLKB still lacked a compelling SaaS solution. Convio brings to BLKB a pure play SaaS alternative that will help BLKB refine its strategy in this space.

This deal may raise some anti-trust concerns even given the small numbers involved. The cultural fit between the two companies - a Mount Pleasant, South Carolina-based Blackbaud and venture-backed, Austin, TX-based Convio, is also in question.

This deal and other recent transactions such as IBM/DMAN, SAP/SFSF, ORCL/RNOW, - provide reminders of the costs inherent in scaling up SaaS businesses to critical mass.

Recent Relevant Research:

SAP Concedes - Questions Concerning SAP's bid for SuccessFactors

IBM Purchase of DemandTec Reconfirms MGI SaaS Valuation Model