Blackbaud Is Reaching for the Clouds

Nonprofit software provider Blackbaud (NAS: BLKB) is once again in the news as it strengthens its online offerings by preparing to acquire rival Convio (NAS: CNVO) in a deal valued at around $275 million.

Why would a category leader like Blackbaud be interested in Convio? Delving a little deeper, I found some insight.

Why Convio?
I think the main reason for the Convio acquisition can be summed up as "the need to keep up with the times." Nonprofit organizations bank on continued relationships with their potential donors and supporters, and the best way to reach out to them these days is through social networking. Convio's online expertise will help Blackbaud offer these services to its customers and thus raise cash using the Internet.

Need another reason? Most of Blackbaud's customers are mid-tier organizations, but Convio, even though it's smaller, has the larger clients, having pocketed about 29 of the top 50 U.S.-based charities. That makes it pretty lucrative as a potential takeover option.

Reach up to the clouds...
Blackbaud's CRM software is the darling of nonprofit organizations, which use its services to keep track of donations. But most of this software is static, installed on end-user computers and with hardly any scope for updates. This is where the Convio acquisition becomes significant, as more than 75% of its revenue comes from services offered online. Following this deal, Blackbaud can now hope to get into the area of cloud computing in a big way. Besides this, Convio's proven ability in the software as a service, or SAAS, business model is also something that Blackbaud has been lacking till now.

Adding to the top line
Blackbaud's subscription revenue rose 23% on a year-on-year basis to reach $26 million in its last reported quarter ended September 2011. Now, that's likely to go up even further with the addition of Convio's considerable customer base, numbering around 1,500 in North America and the U.K. At a five-year annual revenue growth rate of 28.6%, Convio is going strong on the growth track, which is also evidenced by its impressive 17.8% revenue growth posted in the third quarter as compared to the year-ago period.

The Foolish take
The Convio deal seems like a solid move by Blackbaud to harness online support and, subsequently, revenue. Cloud computing is the next-generation technology, and it's time Blackbaud latched onto it. Time to take stock of this one.

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At the time thisarticle was published Fool contributor Subhadeep Ghose does not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Blackbaud. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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