Accenture Unloads Venture Portfolio to CIBC

Just as Berkshire Hathaway ( BRK.A) founder Warren Buffett has been taking advantage of depressed valuations recently, so too, has CIBC World Markets.

The Toronto-based investment-banking arm of Canadian Imperial Bank of Commerce ( BCM) said Tuesday that it would buy an investment portfolio from consulting firm Accenture ( ACN) comprising 80 early- and mid-development-stage technology companies, primarily in the software sector.

"The acquisition of Accenture's portfolio clearly demonstrates our commitment to the technology sector generally, and software specifically," said Marshall Heinberg, a CIBC World Markets managing director and head of U.S. corporate finance.

The value of the investments wasn't disclosed, but the companies said that Accenture will retain a 5% stake in the portfolio. In addition, Accenture will provide CIBC with access to its knowledge of the technology sector. Accenture, which has been struggling amid a weak consulting environment, said it is selling the portfolio to "reduce volatility in future earnings."

Consolidation Plays

Interest in private software companies has increased this year as valuations have come down sharply. In May, Manugistics ( MANU) said it would buy Western Data Systems, while Peoplesoft ( PSFT) announced that it would acquire Skills Village.

Mark Verbeck, an analyst at ThinkEquity Partners, said many public software stocks are trading at around one times sales and that private firms are being bought out for around the cost of research and development.

Like the rest of the tech sector, software stocks have been plagued by a sharp slowdown in technology spending over the last two years. The Nasdaq has fallen 34% this year, while software issues are off by 51%, as measured by the Goldman Sachs software index.

Still, recent data from the government has shown nascent signs of a recovery. In the second quarter, capital spending on equipment and software rose at a 2.9% rate -- the first increase in seven quarters. Meanwhile, technology profits are expected to grow in the second half of the year, albeit at a subdued pace.

Verbeck said software license revenues were down "substantially" in the second quarter, and while valuations are generally more attractive today, concerns about profitability and in some cases, viability, are keeping investors sidelined.

"Many companies like Agile Software ( AGIL) and Commerce One ( CMRC) are trading below cash but the concern is that they won't see profitability before they run out of it," he said.

Verbeck does believe the outlook is improving. Much of the overcapacity in the sector has now been worked through, earnings comparisons are getting easier and software spending budgets are expected to increase by the start of 2003, he said.

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