A key driver in the financial and accountancy software market at the moment is consolidation. As Philip Carnelly, software research director at Ovum, explains: “There are two major dynamics in this market – the big are getting bigger and the niche are becoming ever more specialised, and that applies to both the top end and SME market.”
Merger and acquisition activity is, however, strongest in the fragmented SME space as vendors here feel the squeeze from the arrival of Microsoft, which is already hoovering up market share, and the renewed attempts of traditionally high-end giants such as SAP and Oracle to boost revenues by coming out with tailored, cut-price bundles.
“Consolidation means that not all suppliers will be around in a couple of years and that can have implications for the business in the long term,” Carnelly warns. “In the short term, the impact is probably minimal as most vendors will continue to support and enhance acquisitions for a fair period of time.”
In the meantime, if FDs have a few pounds to spare price pressures are making it an opportune moment to invest in new purchases. “It’s a great time to buy software because there’s a lot of pressure on vendors to generate revenues, especially at the lower end of the market,” says John Hagerty, vice president of research at AMR Research. “It’s a buyer’s market, not just because of the Microsoft effect, but because of the general economy.”
Coda Group has traditionally focused on accounting and procurement software, but it is attempting to exploit demand for business performance management software with its Coda-Financial Intelligence Suite.
Coda believes that sales of such products to existing customers, combined with the fact that it generates quite a lot of its revenue from the relatively affluent public sector, has helped it weather difficult economic conditions.
But Coda is also pursuing a strategy of selective acquisition, as evidenced by its purchase of SquareSum in January 2003 for £9.3m. The goal here was to obtain a presence at the high end of the SME space, and the company has since rebranded the accountancy packages as Coda-Dream. Another aim in purchasing SquareSum was to help build up a UK distributor network.
PeopleSoft acquired a majority stake in JD Edwards in July 2003, creating a $2.8bn turnover company with 13,000 staff and more than 11,000 customers in 150 countries.
PeopleSoft, which has traditionally sold its enterprise applications to large service-oriented organisations, will run JD Edwards as a wholly owned subsidiary and claims it does not plan to make mass redundancies or merge the product lines. But the supplier is expected to integrate various modules from the product lines of both companies, where it sees cross-selling benefits.
JD Edwards specialises in selling its enterprise resource planning packages to mid-market companies, but neither its future, nor the future of its new owner, is certain due to a hostile bid by rival Oracle.
Although Microsoft Business Solutions has only about 1.5% of the enterprise business applications market, its impact is already being felt in terms of more flexible pricing in the SME sector.
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Such pressure seems set to continue as the software giant has committed to spending £2bn over the next fiscal year to beef up the disparate packages it acquired and integrate them under the .Net banner.
MBS has nearly doubled its revenues since acquiring Axapta, Great Plains and Navision, and is starting to make dangerous noises about its ambitions at the higher end of the market – the traditional stomping ground of old enemy Oracle and traditional ally SAP.
Oracle has made a hostile bid for PeopleSoft in a move it claims is intended to bolster the company’s applications business against market leader SAP and new entrant Microsoft. Although the bid was widely seen as a spoiler for PeopleSoft’s purchase of JD Edwards, since the JD Edwards deal has gone through Oracle has reiterated its offering of $19.50 per PeopleSoft share. Because PeopleSoft issued new shares to JD Edwards’ stockholders, the value of the potential transaction has jumped by $1bn to an estimated $7.25bn. Oracle has also extended the deadline for its bid from 18 July to 15 August, and a US court has granted a postponement of its lawsuit against PeopleSoft from 25 July to 15 September. The legal action is seen as an attempt to force PeopleSoft to remove its anti-takeover measures.
PeopleSoft has now become the second largest enterprise applications vendor behind SAP since purchasing a majority stake in JD Edwards in July 2003, although the acquisition was not expected to close until 15 August.
The supplier is unlikely to outline the plans for its new buy much before September, but is expected to position JD Edwards as its mid-market line of business, while targeting its existing offerings at large corporate customers.
There is a shadow over the horizon in the shape of a hostile and unsolicited bid by Oracle, which PeopleSoft’s board unanimously recommended shareholders to reject. It has also filed suit against Oracle to put an end to what CEO Craig Conway pugnaciously described as “atrociously bad behaviour”.
According to Sage co-founder and MD Graham Wylie, Sage is looking beyond its traditional SME-focused back-office accounting software market for future growth. But it is also continuing its acquisition spree of companies in the sector in a bid to strengthen its push into key territories and vertical markets.
To boost its presence in Europe, it purchased French financial software supplier Concept Group in January 2003. In July, it also agreed to buy US-based Timberline Software to provide it with 20,000 small-to-medium-size customers in two new markets – construction and real estate.
SAP is still the biggest player in the enterprise applications space, and it is trying hard to stay that way by increasing its focus on vertical markets and attempting to boost its presence in the SME space. It has reorganised its development arm into three new business units – one concentrating on manufacturing and distribution, another on service industries and the third on financial and public services.
To make itself more attractive to SMEs, SAP has released its Business One bundle. This is based on software from Israeli firm TopManage Financial Solutions, which the company acquired last year and comprises off-the-shelf applications for customers with 10-150 staff. Business One, SAP claims, can be implemented in as little as two weeks and complements its existing All-in-One offering, which is targeted at SMEs with more than 150 employees.
It has also introduced a fixed-cost packaged services and software bundle that comes with a 30-day implementation guarantee. These are intended to tackle issues in areas such as data archiving, HR-related document management and mobile sales force needs.
Systems Union is embarking on an acquisition programme to boost falling license revenues and is extending its focus on vertical markets.
To boost its appeal in specific sectors, it has signed reseller deals with application suppliers such as Micro Systems, which sells front-office systems to hotels, and has integrated them with its SunSystems’ back-end packages.
Systems Union also intends to roll out its traditionally UK-focused Pegasus software on a global basis under the SunSystems brand and will introduce local language versions. It is currently in the process of moving the two product lines to a shared architecture based on Java under an initiative known as Evolution.
Scala Business Solutions
Scala has just completed a $2.6m restructuring programme in an attempt to boost sales and cut costs after turning in a poor financial performance this year. It axed 10% of its staff and consolidated various senior management positions. In May, chief executive Mike Burdett resigned “by mutual agreement, following a difference of opinion between Burdett and the supervisory board”. He was replaced by Andreas Kemi, chairman of the supervisory board, who is acting as interim CEO.
Scala has also consolidated its European operations, which accounts for 80% of its revenues, and closed satellite research and development facilities, moving staff to its Moscow-based R&D centre. The goal is to save $6m in annualised costs from 2004.
But Scala’s situation has not been helped by delaying the release of its new iScala application suite – its “biggest single development of new software functionality in more than 10 years” – from the first-half of 2003 to September.
This delay, it admits, “has had an adverse impact on new license sales as customers await new functionality”. Although Scala “anticipates performing significantly better in the second half-year of 2003”, it adds that “if trading conditions in the second-half do not show early improvement … changes will be undertaken”.
SSA Global Technologies/Baan
SSA aims to become a $1bn turnover company as a result of internal growth and acquisition.
To this end, it is in the process of integrating enterprise resource planning applications provider Baan, which was acquired for $135m in June 2003 by an investment group comprising Cerberus Capital Management and General Atlantic Partners.
The investment group also owns SSA, which aims to unite itself and Baan under one brand – SSA Global. Baan, however, will operate as a wholly owned subsidiary and retain its sales, marketing, development and support staff.
Over the last six months, SSA has also purchased Infinium Software, a provider of business applications for users of IBM’s iSeries servers, Elevon, which sells collaborative commerce and knowledge management software, and Ironside Technologies, which provides e-commerce applications.