Baan Yet Another ERP Vendor to Find a Sanctuary Under Invensys’ Wing

Baan Yet Another ERP Vendor to Find a Sanctuary Under Invensys' Wing
P.J. Jakovljevic - June 21, 2000

Event Summary

According to Baan's press release, the Boards of Invensys plc and Baan Company N.V. announced the terms of the recommended cash offer to acquire the entire issued share capital of Baan (the "Offer"). The Offer will be $2.65 in cash for each Baan share, valuing the entire existing issued share capital of Baan at approximately $709 million. The Offer is due to commence within three weeks of this announcement at which time Baan shareholders will be invited to tender their shares.

Simultaneously with this announcement, Invensys, as a part of its preliminary results announcement for the year ended 31 March 2000, is announcing the formation of the Invensys Software and Systems division ("ISS") as an extension of its Sensor to Boardroom product strategy for becoming an integrated software and systems provider. Invensys claims that the Baan acquisition is an important step in implementing this strategy and the combined ISS division will be a leader in the supply and development of integrated business application software. The pro forma combined division will have annual total revenue of approximately $2 billion.

The ISS division will be managed by Bruce Henderson, currently the division Chief Executive of Intelligent Automation at Invensys, with Laurens Van der Tang, currently Executive Vice President, Research and Development at Baan becoming President of Baan upon closing. Baan will continue operating under the Baan name and will continue to compete in the open market with the full range of Baan products. Barneveld, in the Netherlands, will remain the headquarters of Baan. The headquarters of ISS will be Herndon, Virginia in the United States.

To restore Baan to profitability, Invensys plans to implement a rigorous restructuring and cost management program under which costs will be reduced by approximately $60 million to $120 million per quarter by Q4 2000. Invensys expects to incur restructuring charges of $400 million over an 18-month period from the date of acquisition. The Board of Invensys believes that implementation of its restructuring plan will return Baan to breakeven within 12 months. Invensys claims to be committed to a strong research and development program at Baan and the full suite of Baan products.

Commenting on the Offer, Allen Yurko, Chief Executive Officer of Invensys, said: "This acquisition is a significant step towards our stated goal of becoming an integrated software and systems provider, offering technical solutions across the entire automation and controls value chain. Baan is an excellent fit with Invensys' existing software and systems businesses and the acquisition of Baan and integration into ISS will create a leader in the business applications solutions field with a strong focus on the manufacturing and industrial sectors."

Commenting on the Offer, Pierre Everaert, Interim Chief Executive Officer of Baan, said: "We think this is an excellent outcome for shareholders, customers and employees. Invensys is a company that is committed to maintaining our strong R&D capability and our leadership position in technology, which has always been the Baan hallmark. Moreover, there is a strategic fit here in that Invensys and their strong management team understand our core customer base of manufacturing companies and industrial enterprises."

Market Impact

This is yet another instructive tale of a software company's rise and fall. Having achieved a meteoric rise until the second half of 1998, and giving SAP a run for its money at some point, Baan has struggled for over two years to turn around its flailing business. Management blunders and its megalomaniac strategy of creating holistic enterprise applications by acquiring a myriad of disparate products sent the company in a downward spiral. Its troubles were only asseverated by a downturn in the entire ERP market combined with current investor pessimism about technology stocks (ERP in particular).

The good news is that the long protracted suspense about Baan's future is over. Baan has resolved its poor vendor viability issue by having a well-capitalized parent with a strong global presence. While the acquisition will be painful in the short term due to severe cost cutting and restructuring, it may turn out favorably for Baan in the long run. Invensys, with its ambitious 'Sensor to Boardroom' strategy, seems determined to provide manufacturers a solution that may satisfy all their needs (from the shop floor to cyber space). Baan offers ERP and e-business software, as well as customer relationship management (CRM) software from its acquisition of Aurum, and supply chain planning and execution software from its acquisitions of Caps Logistics and Berclain.

Another Invensys division Wonderware also offers ERP software from its last year acquisition of Marcam Solutions, which is aimed at process manufacturers, whereas Baan's ERP system is primarily suitable for discrete manufacturers. Wonderware is soon to be part of the ISS Division. The idea of providing all elements of the game is tempting and possibly lucrative, but every effort should be made in order to avoid the poor product delivery execution, which partly led to Baan's demise.

However, Baan's service & support viability remains uncertain owing to the impending exodus of Baan staff and questionable Invensys' core competency in extended ERP applications. These factors may aggravate its customers' anxiety. Speculations that Invensys will only keep Baan's core ERP product to gain strength in manufacturing sectors, but may sell off product lines such as the Aurum CRM business and Caps Logistics to recover the cost of the acquisition, have mounted. Although Invensys has indicated it will not dismantle Baan, stating it "is committed to a strong research and development program at Baan and the full suite of Baan products" it may not be good enough for disconcerted customer base. Invensys should promptly address customers' concerns by unequivocally stating its more detailed product strategy and timeframe for its delivery. Also, it is very important that the company explain why it believes impending layoffs will not jeopardize future product development and/or service & support.

The market should expect a slew of Baan's direct competitors preying on its large, perturbed customer base. SAP, for one, has been working on creating interfaces to ease migration for current Baan customers to its own software offerings.

User Recommendations

We believe that the operations of existing users and organizations in an advanced stage of implementation will not be seriously jeopardized in the short term. Nevertheless, they should be on a high alert and develop medium- to long-term alternative plans for moving to new technology. Alternatively, they may want to consider beefing up their internal resources from the expected exodus of very experienced Baan consultants. Asking for Invensys' assurances and firm commitment to future service & support goes without saying.

Until the acquisition is consummated and a new product strategy becomes clear, we do not advise potential users to evaluate this product. Organizations that are at an early stage of implementation may want to put the project on hold for duration. We suggest evaluating the features, price, and corporate viability of other vendors instead, before making a selection. Baan could be used as a bargaining chip against other vendors though if the company is willing to provide its solution at a low cost, with a written guarantee.

Should Baan exactly fit your requirements, make sure that you have the prerogative to change the source code and a team of skilled resources available. 'Self-sufficiency' should be the name of the game.

comments powered by Disqus