Another One Bites the Dust - SSA Gored to Death
Jakovljevic - May 3, 2000
On April 7, Gores Technology Group (GTG), a leading international technology
and management company, and System Software Associates, Inc. (SSA) announced
that SSA has agreed to sell substantially all of its assets to a newly
formed subsidiary of Gores Technology for a total of approximately $52
million in cash and 25% of the common stock of the newly-formed subsidiary.
The parties intend to effect the sale in an expeditious manner via a voluntary
Chapter 11 bankruptcy proceeding to be filed on or about April 14. The
Chapter 11 proceeding will not include SSA's subsidiaries.
Gores, Chairman of Gores Technology, stated: "We are very pleased to be
adding SSA to the Gores family of technology companies. We place a high
importance on the current and potential value of SSA's extensive customer
base, skilled professionals, strong portfolio of SSA and partner software
and services, and significant international operations. We intend to focus
on the future growth and development of the company."
"This transaction is the result of an intense and thorough evaluation
of all of SSA's strategic alternatives by our advisors, Houlihan, Lokey,
Howard & Zukin, senior management and the SSA Board," said Robert R. Carpenter,
Chairman and Chief Executive Officer of SSA. "We believe that the Gores
Technology Group capital resources, technical and business expertise and
philosophy of creating value for customers, employees and investors make
them a strong partner for the future. We believe that our combined resources
will both allow us to continue to serve our customers, without interruption,
and enable us to continue to build upon our combined strengths after completion
of the sale."
anticipates that it will be required to use all of the cash received upon
closing of the sale to pay SSA's senior secured lenders and administrative
claims in bankruptcy, leaving 25% of the common stock of the newly-formed
subsidiary available for claims of unsecured creditors of SSA in bankruptcy,
including the holders of its 7% convertible subordinated notes due 2002.
SSA does not expect any distribution to be made to holders of its equity
securities. The parties anticipate that the sale will close within 45-60
days. The closing of the sale is subject to, among other things, completion
of definitive documentation, bankruptcy court approval and approval of
SSA's senior secured lenders.
This is the exemplary tale of a software company's rise and fall. SSA
ruled the enterprise software business throughout the 80s and early 90s.
The Company then developed strong affiliations with software and management
consulting firms and provided them with training to market its flagship
product BPCS. As a result, SSA still has the largest installed base of
ERP systems on the AS/400 platform (over 10,000).
from 1996 on, SSA experienced a gut-wrenching experience in transforming
BPCS into a cross-platform and object-oriented product. In 1996, SSA developed
BPCS version 5.1 for UNIX users, but it had very limited success. An improved
version of BPCS (6.0) was delivered in the same year, causing SSA's earnings
to plunge, due to the combined effect of stalled new license sales and
the huge R&D budget overrun. Top management upheaval, staff exodus, and
affiliate partners' defection ensued.
SSA has continually hemorrhaged cash for the past nine consecutive quarters.
Its financial situation deteriorated so badly that the company recently
had to change its stock ticker symbol and execute a 1 for 4 reverse stock
split (reducing the total number of shares available). Its balance sheet
was in a shambles, with approximately $75M of negative stock equity. With
that in mind, it was impossible to see SSA's independent resurrection,
despite its large customer base and attractive product portfolio. SSA's
chance of surviving, in a consolidating market, with new competitors arriving
from all directions, declining revenues, and continuing losses, were equal
to zero without a substantial cash infusion from a big partner or a potential
Technology has a history of buying up depressed software companies for
their customer base and infrastructure. It is early to predict the future
of a product at this stage; notwithstanding, we would have looked more
favorably at SSA being acquired by a software vendor with a tradition
of product development and enhancement. SSA recently became merely a supporter
of its installed base, most of whom were simply buying time until they
could switch over to another ERP system. The market should expect the
likes of J.D. Edwards, Intentia, MAPICS, QAD, Geac/JBA, Ross Systems,
etc. to prey on these disconcerted customers.
We believe that the operations of existing users will not be seriously
jeopardized in the short term. Nevertheless, they should be on a high
alert and develop medium- to long-term plans for moving to new technology.
Alternatively, they may want to consider beefing up their internal resources
from the expected exodus of very experienced BPCS consultants.
the acquisition is consummated and a new product strategy becomes clear,
we do not advise potential users to evaluate this product. We suggest
evaluating the features, price, and corporate viability of other vendors
instead, before making a selection. BPCS could be used as a bargaining
chip against other vendors though (but they should know better than that
anyway) if SSA is willing to provide its solution at a low cost, or even
free of charge.
Should BPCS fit your requirements like a glove, or should your overwhelming
sense of adventure prevail, make sure that you have the prerogative to
change the source code and a team of skilled resources available. .