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IMSI Proposes CADKEY Buyout

reprinted by permission of Ralph Grabowski, editor

August 26, 2003

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  IMSI website
  CADKEY website
  IMSI's proposed acquisition of CADKEY Corporation - FAQ
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  TenLinks CADKEY directory
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  CADKEY Reading Room

In a shock press release, IMSI announced Monday it plans to purchase CADKEY for a mere US$2.5 million. Later in the press release, it was revealed that CADKEY had placed itself in bankruptcy protection last Friday (Aug 22).

Brian Vierstra, moderator of the CADKEY CAD Chat forum, speculates that the "bid may need to be hedged against possible legal/financial responsibilities in the settlement of the HLB suit against CK."

Recall that HLB Technlogies had won $5 million in damages ($3.8 million plus interest) against CADKEY (previously Baystate Technologies) for breech of a shrinkwrap license that prevented reverse engineering. The 12-year legal battle ended in June of this year, when the US Supreme Court denied a request from CADKEY to review the lower court's decision against it.

This means that CADKEY owes HLB $5 million. By placing itself in bankruptcy, CADKEY has protection against HLB.

How Can IMSI Afford CADKEY?

How can IMSI afford the purchase, itself a company skirting with financial failure over the last many years? IMSI came into $13 million cash from selling its ArtToday.com Web site a couple months ago. (ArtToday sells subscriptions for downloading clip art, Web graphics, photos, and fonts.) At the time, ceo Martin Wade said only that IMSI planned to use the money to hire additional sales, direct marketing, and product development people.

IMSI hopes to conclude the purchase by October 7, with emphasis on "hopes." CADKEY is required by bankruptcy law to allow bids by other parties interesting in purchasing the company. Interested parties contact Robert Schwartz at 01 (518) 786-7733.

CADKEY is privately-held, so we have no idea of its financial picture, something necessary to knowing whether $2.5 million is fair market value. My feeling is that the amount is low, allowing others to easily up the bid -- even if only to play a bit of mischief.

We can estimate CADKEY's annual revenues at about $5 to 9 million.

The CADKEY-IMSI Connection

The connection began when the two companies offered each other's products earlier this year: CADKEY's online store sells TurboCAD Profesional at a no-discount price of $695, while IMSI marketed Cadkey Design Suite to its TurboCAD customers for $995 -- $2,200 off the list price -- until the end of July.

At the time, I asked why the two were forming the alliance. The reason from IMSI's viewpoint made sense to me. Many TurboCAD customers requested features normally found only in more expensive mechanical CAD systems: advanced NURBS functions, parametric design, and 2D, 3D wire frame, surface, and solid models of fasteners, screws, nuts, bolts, gears, springs, etc. Rather than wait for future versions of TurboCAD, IMSI says they want to offer customers a solution now.

The reason from CADKEY's viewpoint makes less sense: "...via the CADKEY VAR channel, CADKEY customers can purchase TurboCAD to add additional CAD seats at a great price." Why spend $700 on an incompatible CAD package?

The pending purchase of CADKEY is better for IMSI than its purchase of DesignCAD and Instant series software from Upperspace Corporation less than a month ago. (That purchase price was not announced.)

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