Can Geac Reshuffle the ERP Standings?

Can Geac Reshuffle the ERP Standings?
P.J. Jakovljevic - August 9, 2000

Event Summary

According to the press release from July 13, Geac Computer Corporation Limited, the largest Canadian business applications software vendor, announced its financial results for the fourth quarter and year ended April 30, 2000. Sales for the three months rose 27.8% to $265.4 million from $207.6 million in the prior year (See Figure 2). Sales for the year grew 26.5% to a record $990.1 million compared to $783.0 million last year (See Figure 1).

Figure 1.

Figure 2.

The net loss for the quarter was $9.8 million or $0.16 per fully diluted share compared to a net loss of $234.0 million or $3.74 per fully diluted share last year. For the year ended April 30, 2000, the Company reported Adjusted Net Income of $153.2 million or $2.39 per fully diluted share compared to $78.0 million or $1.25 per fully diluted share last year. Net income for the year was $49.1 million or $0.79 per fully diluted share compared to a loss of $111.6 million or $1.80 per fully diluted share last year.

The acquisition of JBA Holdings Plc. and the integration of that business with Geac Enterprise Solutions has been completed and made a positive contribution to the company's earnings before interest, taxes, and amortization during the second half of the year. The acquisition significantly increased Geac's presence in Europe and transformed Geac into one of the largest enterprise applications businesses in the world.

Douglas Bergeron, President and CEO commented: "We have concluded a busy year of growth and transition of the Company, completing eleven acquisitions and generating $153 million in Adjusted Net Income. Importantly, we have demonstrated our ability to integrate these businesses to contribute to our operating performance. The recently announced revenue weakness experienced by several other application software and services companies is being felt in several areas of our business and will result in revenue and earnings weakness in the coming two quarters. Moreover, our current quarter is also affected by the traditional summer slowdown in our now significant European operations. However, the current environment does provide an excellent climate to execute our acquisition strategy. We remain on track to build a $2 billion business over the next three years and to own a significant percentage of the world's corporate enterprise installations. We are building a branded global business from a highly fragmented marketplace. As well, we hope to continue to transform and opportunistically divest businesses where value can be prudently unlocked."

Earlier, on June 26, Geac solidified its enterprise systems presence in North America by consolidating its various North American ERP operations into one business unit - Geac Enterprise Solutions. Headquartered in Atlanta, Geac Enterprise Solutions now incorporates all former product offerings from Geac SmartEnterprise Solutions (SmartStream, SQL Financials/HR, E Series and M Series), Geac/JBA (System21 and Style) and Geac HR and Financial Solutions (TotalHR, World Class Series Financials, HR and Payroll).

According to Harry Debes, President of Geac Enterprise Solutions, this new amalgamated division will bring added value to customers' ERP requirements and combine expertise across all areas of systems strategy and implementation within Geac. "This name change and combining of business units both reinforces and complements Geac's overall e-business and acquisition strategy," adds Debes. "More important, Geac Enterprise Solutions allows our customers to continue to leverage current investments while benefiting from the latest technology advancements through our Active Architecture framework."

This name change also serves to reinforce Geac's recently announced strategy to build upon its position as a consolidator of the highly fragmented ERP marketplace. Presenting customers with e-business, CRM, SCM and e-commerce and business intelligence solutions wrapped around a core set of ERP financial and human resources systems, Geac intends to expand into numerous new product offerings, enabling cross-selling possibilities through a dedicated program of strategic acquisitions.

Market Impact

While Geac reported a profitable year, the general feeling is that the company has missed the opportunity to topple PeopleSoft's and/or J.D. Edwards' revenues. Although Geac has proven itself an adept and disciplined acquirer of application software businesses, its aggressive acquisition strategy despite the overall weakness of the ERP market has resulted in insufficient growth and modest profits. Consequently, the investors' diminished confidence has caused its market valuation to drop to almost 60% of its annual revenue.

We believe that Geac will not establish itself as an ERP leader as long as it remains perceived only as a company that acquires, botches up, and possibly divests other under performing software vendors and/or products. The company will have to become a true software-developing vendor, not simply a software collector and/or dealer. It will need to add much more value to its products and services to attract and retain customers instead of only increasing the investment in the existing, possibly outdated, core products and support services.

Its applications must be able to support future business requirements, which are nowadays directly related to customers' e-business strategies. While the company is currently not in a position to offer a comprehensive e-business solution, it should, nevertheless, be able to at least provide a back-office hub and bridges to e-business components in the fashion similar to J.D. Edwards' EAI strategy.

The possible software connector can be the Geac's latest product integration strategy enveloped in its above-mentioned Active Architecture. This should be the crucial Geac's undertaking in order to breathe fresh air into its arsenal of products that are based on diverse technologies and that serve different, fragmented markets (e.g., System 21, SmartStream, E- and M-Series mainframe packages, etc.), as well as any other products it may acquire in the future. To that end, Geac must develop standard, common components that will be readily available within its product portfolio. One can get an idea of how painstaking an effort this may be by looking at Epicor Software's agonizing experience during the last two years.

User Recommendations

Geac customers should certainly consider the company's latest value proposition, but avoid selecting it without looking at what the other vendors have to offer. As for potential customers, we generally recommend including Geac in a long list of an enterprise application selection to mid-market and low end tier 1 companies (with $100M-$1B in revenue), based on a very deep understanding of customers' needs within the following industries: Library Systems; Construction Systems; Property Management Systems; Hospitality Systems; Public Safety Systems; Publishing Systems; Manufacturing & Distribution Systems; Real Estate Systems; Cash & Securities Reconciliation Solutions. We also generally recommend including JBA System 21 in a long list of an enterprise application selection to mid-market and low-end Tier 1 companies (with $50M-$1B in revenue), within the following industries: Automotive Components, Apparel & Footwear, Beverage, Food, and Electronics.

Other industries might also benefit from evaluating the respective Geac point solution, bearing in mind inevitable integration issues with other systems in place. Future clients are also advised to request the Company's written commitment to promised functionality, general availability date, price, length of implementation, and seamless future upgrades. Each component should be put through its paces using a well-documented set of requirements, scripted scenarios demonstrations and rigorous reference checking.

If a complementary product beyond core ERP (e.g., CRM, e-Commerce, SCM, etc.) is of a critical importance, users should think carefully about the possible integration implications and may benefit from considering competitors' value propositions too. Furthermore, users will benefit from informing themselves about what the company plans for future service & support (or divestiture and/or product stabilization?) of its individual products are and what would the ramifications of migrating (or not) to its new product offering be.

comments powered by Disqus