Intuit to sell its Blue Ocean unit

Three years after spending $177 million to acquire IT services company Blue Ocean Software, accounting software maker Intuit has put the property on the block.

Intuit made the announcement Wednesday during its third-quarter conference call, saying the resources required by the business would be better spent on other assets within the company. Mountain View, Calif.-based Intuit hired Credit Suisse First Boston to handle the sale.

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Intuit acquired Blue Ocean in September 2002. Now known as Track-It, the business helps IT professionals manage their assets. It had revenue of $42.3 million during the first three quarters of Intuit's fiscal 2005, putting it on track for roughly $56 million in revenue and $17 million in profit for the fiscal year.

During the conference call, company executives said competitors in the business typically offer a suite of products, including IT software, which made it more challenging to sell Track-It products. Intuit CEO Steve Bennett said he hopes to get more than what the company paid for the business through a sale.

Observers said this is a reasonable goal for a business with margins of 30 percent. "Three times revenue does not seem out of line for a profitable business," said one research analyst who asked not to be identified. "They should be able to get full value."

One possible buyer for the business is BMC Software of Houston, which in 2002 acquired a similar business from Peregrine Systems, the analyst said. The two products would complement one another because BMC's offering is for high-end users, while Intuit's is targeted more toward midsize companies.

Other companies that compete with Track-It products include RightNow Technologies of Bozeman, Mont., Front Range Solutions of Pleasanton, Calif., and Parature of McLean, Va.

The sale's another indication that Intuit has abandoned an acquisition strategy of products and companies that are not complementary with its core financial management products. "It was a weird acquisition when they did it," the analyst said of Blue Ocean. "You kind of scratched your head and said, 'What does that have to do with the rest of their business?' I don't know why they came to that resolution three years later."

Eric Wanger, a research analyst with Barrington Research, said Bennett had been under pressure from Intuit's board to diversify its revenue stream, and the strategy led to acquisitions such as Blue Ocean and American Fundware, a maker of accounting software for the nonprofit sector. Intuit acquired that business for $26 million in cash and stock in 2002, then sold it to Kintera of San Diego last November for $11 million in cash.

"Intuit owns the zero-to-25-employee market for financial software, where their customers write checks for $150, $300 and $500," Wanger said. "These are great products, but Intuit's customers don't write $10,000 to $100,000 checks."

Wanger said that in addition to Blue Ocean and Accounting Fundware, Intuit has had other missteps. Its Quicken Brokerage, part of a strategic alliance struck with brokerage firm Muriel Siebert in 2002, was scrapped a year later. Intuit's $78 million acquisition of CBS Employer Services, a payroll outsourcing company, has not performed as well as anticipated and continues to lag industry leader Paychex of Rochester, N.Y., Wagner said.

"Intuit seems to have success when they build things internally," he said. "They don't do a good job of morphing companies and turning them into an Intuit product."

Going forward, Bennett said, Intuit will focus on acquisitions that complement its current products.

"I would not expect us to buy additional standalone businesses that don't have much synergy or adjacency to our core QuickBooks ecosystem," he said during the call.

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