overshadowed by the Oracle, PeopleSoft and
J.D. Edwards' takeover three-ring circle (no pun intended)
happened Baan's spin-off from the struggling UK-based global
automation and controls group Invensys plc. (London Stock Exchange:
ISYS), and its subsequent merger with recently more than upbeat SSA
Global Technologies (SSA GT) (www.ssagt.com),
an enterprise solutions provider for process manufacturing, discrete manufacturing,
consumer, services and public companies worldwide, which has lately turned into
a ravenous enterprise applications market consolidator. Very likely the new
mid-market manufacturing ERP empire-in-the-making is content to be spared from
any unnecessary controversy and a stalemate that its above bigger brethren are
now embroiled in.
once one of the leading independent providers of enterprise application solutions
for industrial enterprises, and subsequently part of Invensys, was sold on June
3 to an investment group consisting of Cerberus Capital Management,
L.P. and General Atlantic Partners, LLC, two of the
world's leading private investment firms. Backed by nearly USD $14 billion in
investment capital, the investment group plans to employ a growth oriented,
long-term strategy to the Baan business, in the manner similar to SSA GT's incredulous
the next several months the group, which also owns SSA GT, intends to combine
Baan with SSA GT, since the formal sales process is expected to be finalized
in early July. With nearly $600 million in combined revenues, of which $160
million (or ~26.7%) represents license fees for the combined products, and in
excess of 16,500 customers the new company claims the world's largest installed
base in the manufacturing segment. Key to the growth strategy will be the total
iBaan suite and the broad set of product offerings of the combined
sale includes all of Baan purchased by Invensys in 2000, including ERP, customer
relationship management (CRM), supply chain management (SCM), and product lifecycle
management (PLM) product lines as well as CAPS Logistics and
the Enterprise Enabling Technologies (EET) unit, which was
formed to provide interoperability solutions for Baan and non-Baan products
alike. Baan will supposedly operate globally as the Baan division of the combined
entity with dedicated sales, marketing, development, consulting, and support.
the past three years Baan has made significant investment in its solution offerings
including its next generation Enterprise Backbone code-named Gemini' and its
modern integration platform, OpenWorldX. Gemini will supposedly
be launched this fall at Baan World User Conferences in the
US and Europe, with a launch in Asia Pacific planned for the first-half of 2004.
Additionally, Baan reportedly gained 52 new name customers last quarter while
also achieving record levels of customer satisfaction (albeit when compared
to its less than satisfactory levels in the past), although at the expense of
recurred non-profitable operations.
is Part One of a four-part note.
Part Two will cover the Market Impact on Baan.
Three will discuss the Market Impact on SSA GT.
Part Four will make User Recommendations.
SSA GT Financials
to it, Baan's older sibling SSA GT, on May 14 announced its Q3 2003 results,
which marked the eight consecutive quarter that the vendor has met or exceeded
its key financial objectives. For the third fiscal quarter ended April 30, the
company reported total revenue of $79.1 million, an increase of 57% over Q3
2002. Software license revenue, up an impressive 66% to $26.2 million, represented
33% of total revenue. Third quarter earnings before interest, taxes, and amortization
(EBITA) were $26.2 million or 25% of total revenue. Cash-on-hand as of quarter's
end was $43 million. Although being a privately-held company, SSA GT is working
with its outside auditors, Grant Thornton, to certify its financial
statements under the Sarbanes-Oxley Act of 2002 in light of recent widespread
concern about corporate financial reporting practices.
SSA GT again delivered somewhat balanced geographic performance albeit less equitable per regions than in the past, but still contributing to the outstanding results in a severe economy. North America delivered 51% of total revenue while Europe, Middle East, and Africa (EMEA) accounted for another 29%. Emerging growth markets Latin America and Asia-Pacific/Japan, where net new customer business reportedly flourished, provided the remaining 20% of total revenue. Net new customers reportedly accounted for 19% of software license revenue.
experienced protracted languishing and the eventual demise of SSA GT's former
incarnation, Software System Associates (SSA) in 2000 (see
Belle poque Officially Ended With the Demise of Baan and SSA), over a year
ago, its remaining customers demanded financial viability from the new SSA GT
management. Strong FY 2002 and 2003 financial results should therefore have
confirmed its renewed customer focus and sound execution model, which has afforded
significantly higher than industry average growth in an extremely challenging
financial viability and performance continued even while an industry average
research and development spend was maintained (i.e., at 14% of total revenues),
allowing the vendor to continue to reinvest in its product offerings. These
ongoing product enhancements should allow SSA GT customers to extend the life
of their existing technology investments while improving their companies' productivity
levels. During the quarter, SSA GT released version 8.2 of
BPCS, its flagship ERP product and version 6.2
of Warehouse BOSS, its warehouse management system (WMS). The
company also claims to be on track to exceed its previously disclosed fiscal
year 2003 revenue target of $281 million, which represents an increase of more
than 50% from the prior fiscal year.
the market has been aware of SSA GT eyeing multiple more acquisitions of ailing
competitors with notable products/technologies and install bases, former supply
chain management (SCM) leaders i2 Technologies and Manugistics
being speculatively mentioned, another acquisition happened on June 18, when
SSA GT acquired Ironside Technologies Inc. (www.ironside.com),
a global provider of business-to-business (B2B) electronic commerce solutions
for the manufacturing and distribution markets. The company's sell-side and
buy-side eCommerce solutions are seen to extend and strengthen SSA GT's existing
product portfolio and become important components of SSA GT's customer relationship
and supplier relationship strategies. Customers that have already gained benefits
from implementing SSA GT and Ironside solutions include Tyco Plastics
& Adhesives, Mother Parkers Tea and Coffee and ESAB Cutting
synergies between the two companies should include a complementary client base,
industry expertise and technology platform, since SSA GT and Ironside target
mid-market manufacturers and distributors and both run on the IBM iSeries
as well as Microsoft Windows NT and UNIX platforms. This technology-focused
acquisition should offer additional functional extensions to SSA GT current
customers and supports the company's focus on offering products that deliver
incremental value to existing enterprise systems. SSA GT thereby continues to
improve its product offerings through a series of strategic acquisitions that
have provided extensions to the core product line. Ironside Technologies was
represented in this sale by Updata Capital, but financial details
of the Ironside acquisition were not disclosed.
Baan and its enduringly anxious users must feel a deep sigh of relief and a hope that its long and winding journey, which has been much tainted with protracted viability issues ever since the late 1990s, is finally reaching its desired destination. This indeed seems to be a good closure for Baan in light of Invensys' poor financial state, its muddled strategy with several enterprise and plant automation applications it used to own, and given the new Baan owners' intentions of a good care of the solid acquired product and technology, which also came at a steep discounted price tag (~$135 million). In light of recent saga of the publicly owned competitors J.D. Edwards and PeopleSoft, who have until recently seemed quite content and untouchable, only to now have found themselves in a temporary (but with no certain end in sight) limbo owing to Oracle's shrewd way to at least stall its nemeses' new sales, it must feel good for Baan and SSA GT to be backed up by $14 billion of private capital and far away from the Wall Street quirkiness and potential unwanted predators.
The Baan and Invensys Experience
our recent note, we analyzed deeply what had gone wrong between Baan and Invensys
Seeking A New Foster Home -- A Dj vu Or Not Quite?). In a nutshell, Invensys,
with its ambitious 'Sensor to Boardroom' product strategy, seemed once determined
to provide manufacturers a solution that would satisfy all their needs, from
shop floor measuring devices to cyberspace collaboration, since Baan would offer
enterprise-level applications, whereas Invensys would offer manufacturing executions
systems (MES) and plant automation components.
The possibility of integrating and providing all elements of a complete manufacturing solution must have been tempting, and was possibly lucrative, but every effort should have been made in order to avoid the kind of poor piled-up products' execution which partly led to Baan's pre-Invensys demise in the first place. While we in principle approved of Invensys' move to provide manufacturers a solution that may satisfy all their needs, creating functional connections between front office, ERP and plant automation applications was indisputably warned as a colossal task.
Baan's service and support viability was also uncertain in the interim owing to the post-acquisition exodus of Baan staff (on top of already poor record of formerly independent Baan) and questionable Invensys' core competency in extended ERP applications. The need for cross training of the sales force in functionally disparate applications should not have been neglected either. Also, it turned out that there was a cultural gap between many Invensys divisions manufacturing physical products versus Baan as a software division, which had a different business model, uncertain return on investment (ROI) and long and grueling sales cycles with no certain sale at all.
concludes Part One of a four-part note.
Two will cover the Market Impact on Baan.
Three will discuss the Market Impact on SSA GT.
Four will make User Recommendations.