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Blackbaud Strikes Again for Its Investors

** For an updated post on Blackbaud retiring Common Ground, click here. **

Most people, including myself, were surprised by the announcement today that Blackbaud will be acquiring Convio. As CEO of a small software company that frequently competes with products from both of these large public companies, my first reaction was "Why?".

Why would these two companies, that are direct competitors, agree to this acquisition?

Listening to the PR, it’s being positioned as a gift to the nonprofit community: the coming together of two complimentary companies that will be able to offer a complete spectrum of solutions for nonprofits of all sizes. That may very well be the case, however, it’s important to keep in mind that, as public companies, Blackbaud’s and Convio’s primary responsibility is increasing shareholder value. The following statement makes that clear.

“In addition to the strategic reasons supporting the acquisition of Convio, we believe it is also highly attractive from a financial perspective. We expect the transaction to have an accretive impact on our non-GAAP diluted earnings per share for the full year 2012, and even more so in future years as we realize efficiencies from integrating our companies," said Boor.

I’m sure their customers will be happy to know that the merger will have “accretive impact on our non-GAAP diluted earnings per share…” Other than trying to figure out what "accretive" means there are some real questions about this merger. What impact will it have on their customers? What impact will this have for other nonprofit software companies?

Over the last several years Blackbaud and Convio have been snatching up companies left and right. Having talked to a number of organizations impacted by these acquisitions, I can say the net result hasn’t been all positive for them. In some cases they have languished on the technology of the acquired company, only to later be forced to move to the software of the acquirer. Does GetActive and Convio ring a bell for anyone?

Now I’m not saying that Blackbaud and Convio don’t have good products, they do. What I am saying is, let’s be honest about why this is happening: money! It's great if their customers and the nonprofit community benefit, but the first priority is shareholders.

Let’s also be honest about the impact for their customers. For example: when Blackbaud acquired the bankrupt remains of Kintera, they received an advocacy system that Kintera acquired when they bought CTSG. Are you following me? When Convio bought GetActive, they acquired an advocacy system. Does anyone think Blackbaud will keep supporting and developing two advocacy systems that do essentially the same thing? Of course not. So eventually, Blackbaud will force customers on one of these advocacy systems to move.

Likewise, what happens to Blackbaud’s eTapestry and Convio’s Common Ground? Both of these are positioned as SaaS fundraising solutions for small to mid-sized organizations. Will Blackbaud continue to develop and support both competing platforms? They might if this was a mature market like frozen pizzas, but it isn’t. Shareholder return will put pressure on Blackbaud to create efficiencies by eliminating product redundancies.

Now I’m not an economist, which means my predictions actually have a chance of becoming reality. I also run a software company that competes with both of these companies, so my observations are somewhat selfishly biased. I will say, if any Blackbaud or Convio customers are concerned about this acquisition and are looking for alternatives, my number is 612-455-3504.

Chris Hanson
The Fortunate Technologist and CEO of thedatabank, inc.

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