From Swallowing to Swallowed-Up

Why sales-force automation company Dendrite decided to sell out

NJ BIZ Staff, Shankar

As a hard-driving 33-year-old entrepreneur, John Bailye brought a start-up company called Dendrite from Australia to New Jersey in 1986. Last week, he stood to pocket about $35 million from the $751 million sale of Dendrite, which makes software for pharmaceutical sales forces, to France’s Cegedim. Earlier this year, it lost its biggest customer, Pfizer, which accounted for a 10th of Dendrite’s $437 million revenue last year.

The deal, announced two weeks ago, marked a turnabout for the companies. It was Dendrite that stymied Cegedim’s attempt to enter the U.S. market four years ago when Bailye outbid the French company for Synavant of Atlanta, another developer of customer relationship management (CRM) software with a strong franchise.

At the time, Bailye shared with NJBIZ his dream of taking the combined entity’s annual revenue from about $400 million to $1 billion in five years.

The expansive mood led Dendrite to relocate from its Morristown offices to its current headquarters across 233,000 square feet in Bedminster’s Somerset Corporate Center. But Dendrite now faces challenging times, with increasing competition and pressure on profit margins. Earlier this year, it lost its biggest customer, Pfizer, which accounted for a 10th of Dendrite’s $437 million revenue last year.

Pfizer decided to take some of the sales-force automation work in-house and parceled out the field-sales support business to IBM. Meanwhile, Dendrite stock slumped from about $20 a share in September 2005 to between $12 and $13 before Cegedim offered $16 on March 2.
The deal values Dendrite at nearly 30 times projected per-share earnings in 2008, higher than the average of 25 times for enterprise software companies, according to Wachovia Capital Markets.

The $16 per-share Cegedim will pay in cash represents a 40 percent premium to Dendrite’s average closing price over the 20 days before the announcement. Dendrite, which operates in 50 countries with 3,000 employees, including 700 in New Jersey, must have seemed an obvious takeover candidate for Cegedim, which had not given up its U.S. aspirations after the Synavant debacle. “We saw it coming: consolidation is occurring in the entire business-applications area,” says Vikas Vats, executive vice president of marketing and business development at Market Rx, a Bridgewater-based supplier of planning and analytics services to the pharmaceutical and life sciences industries. Vats says the CRM industry’s 100 percent-plus growth rates of the early 1990s were not sustainable, and have fallen into the low double-digits in recent years.

Sales-force automation was a nascent business with just nine companies in the United States when Dendrite started out. Dendrite was the smallest and the only one in New Jersey. In recent years, the company has seen competitors eat into its business. Notable deals included rival Siebel’s 2001 win of Johnson & Johnson as a client. David Coman, Dendrite’s vice president for global marketing, says his company continues to have some of the strongest relationships within the pharmaceutical and life sciences industries. “We do business with all the top 20 pharmaceutical companies,” Coman says. Dendrite’s Web site lists 42 clients in the industry’s group.

“The combination [with Cegedim] is going to be a fantastic company with combined revenue of more than $1.1 billion, operating in more than 75 countries,” he says. “The merger will really enable the combined company to compete with some of the horizontal giants trying to come into our space.”