Deltek and Maconomy: Gearing Up for the Global Service Economy?

Both the “old” Deltek (pre-2005) and “new” Deltek (from 2005 on) have not been strangers to acquisitions, but these were largely well thought-out and appetizing (“nip in”) purchases of smaller companies that had either an attractive piece of technology or install base (or both). However, in early June 2010, immediately after its Insight 2010 user conference, Deltek announced its intent to acquire Maconomy A/S, a Denmark-based provider of solutions to the professional services market. On July 6, Deltek announced the completion of its tender offer to acquire the European enterprise resourceplanning (ERP) provider.

Founded in 1983 and public since 2000, Maconomy has more than 200 employees and 600 customers in approximately 60 countries and has a significant presence among top advertising, public relations (PR), accounting, and consulting companies. Maconomy thus complements Deltek's market-leading position in the architecture and engineering (A/E) and management consulting vertical markets.

Having long established its supremacy in the highly regulated US government contractor (“GovCon”) sector via the well-attuned Deltek Costpoint and GCS Premier offerings, Deltek seems determined to become a potential global leader in other project-based and service-based industries via this much more significant acquisition. Deltek’s professional service automation (PSA) software market coverage has thus far been largely limited to North America and some English-speaking countries around the globe via the Deltek Vision offering.

Deltek believes that the combined entity should become the undisputed global leader in enterprise solutions for professional services and project-based businesses. The vendor is committed to both the Maconomy X1 and Deltek Vision product lines, whereby no customer will be forced to move off the product that they have today or in the future.

Deltek pledges that the two products’ roadmaps will only be merged where it adds customer value, while technologies will also only be shared across platforms where it makes sense. Most important, there will be no layoffs, since basically all current employees will be needed for the company’s desired “1 + 1 = 3” success story, from Day One.

Initial Market Reactions

A slew of seasoned market observers have promptly produced their related blog posts and research notes, largely endorsing the merger in terms of its complementary product offerings and in the industries and geographic markets that will be expanded on both sides due to the acquisition. I certainly concur with the opinions of SPI Research’s principal David HofferberthForrester’s Margo VistacionIDC’s Michael Fauscette, and Altimeter Group’s Ray Wang. Rather than parroting these folks’ statements and opinions, I have asked Deltek a few clarifying questions about the acquisition itself.

Up Close & Personal with Deltek

The questions below were answered by Deltek’s Senior Director of Corporate Marketing and Communications, Patrick Smith:
PJ: Is this move complementary or competitive to Deltek Vision?

PS: It is very complementary. Maconomy has some A/E customers in Europe, but not many. Conversely, we have some marketing agency customers in the US, but not many. We can use Maconomy’s European market knowledge to accelerate Vision adoption on the continent. By the same token, Maconomy can leverage our US market knowledge and marketing machine to sell Maconomy X1 in the US to their core verticals – advertising/PR agencies, audit & tax firms, law firms, and various consulting firms.

PJ: Will this acquisition finally help Deltek penetrate Europe?

PS: Definitely. It will help accelerate Vision sales to A/E firms onto the continent, and it gives us a broad portfolio of solutions we can sell in Europe in Maconomy’s core verticals.

PJ: What about technology convergence?

PS: We will leverage common technology, development resources, etc. as much as we can. One thing we won’t do, though, is move either X1 or Vision off of their existing technology platforms or force any customers or prospects to move off of one platform or another. This is not a “kill a product line” acquisition. It is all about expanding Deltek’s offering and using the assets of both companies to accelerate Vision sales, accelerate X1 sales, and sell Maconomy People Planner (a very strong resource planning application) across all of Deltek’s markets – GovCon included.

PJ: Who were (and still are) Maconomy’s biggest competitors?

PS: Like Deltek, Maconomy is a very unique company with no direct competitors that run up against time and time again. Typically, Maconomy competes against either generic ERP providers that don’t offer dedicated project-based solutions, or regionally-focused, vertically-specific niche vendors.

PJ: Why didn’t you announce this major acquisition at Deltek Insight 2010?

PS: While it might have been optimal to announce our tender offer at Insight, we needed to make sure that the due diligence process was complete. That takes time. Deltek Insight 2011 should be full of compelling Maconomy-related content.

PJ: Was Maconomy shopping itself around and turned down for profitability and balance sheet issues by other suitors (as some rumors might suggest)?

PS: I can’t comment on whether someone else was going to acquire Maconomy, but I can comment on their balance sheet and income statement. Maconomy struggled a bit with profitability several years ago, but they have returned to profitability, particularly in 2009. On the balance sheet front, they are debt-free, and have about US$7 million in cash. All in all, Maconomy has been in growth mode and doing pretty well. This acquisition is far from being a rescue on our side.  We acquired a very strong company on many fronts.

What to Watch For

In summary, and to use a sports analogy, putting together two transatlantic PSA leaders (stars) on the same team should bode well for making a world championship combination. However, one should always beware of possible personality clashes in terms of who should be the alpha male in the house (think of Kobe Bryant and Shaquille O’Neal’s love-hate relationship within the LA Lakers winning era in the early 2000s). 

Moreover, to remain on the sports analogy, Deltek and Maconomy should watch for new PSA “draft picks” and up-and-coming stars. One example would be Appirio, a 2007 startup public cloud computing evangelist company that already has over 200 employees and thousands of customers. Appirio has built a suite of connectors that bring together, Google Apps, Workday, Amazon Web Services (AWS), and Facebook, as well as a next-generation PSA suite built natively on the cloud platform and called PS Enterprise.

Since its launch in 2009, PS Enterprise has garnered over 10,000 professional service employees as subscribing users. The product features Salesforce Chatter and Google Apps extensions for real-time collaboration and the service company’s ability to follow its people, customers, projects, and relevant transactions.

Another case in point would be OpenAir, a NetSuite company, with nearly 1,500 corporate customers. Appirio and OpenAir’s surge indicate that professional service companies are early adopters of on-demand solutions.

While Deltek has a valid justification against offering a slew of on-demand software applications in the highly conservative and secretive GovCon sector, this is certainly not the case in the PSA sector. In this difficult economic environment, nimble service firms have no choice but to deploy inexpensive and capital expenditure-friendly software as a service (SaaS) solutions. The good news is that Deltek is reportedly exploring SaaS and Cloud offerings, and it is fully embracing alternative licensing structures for its software products all in an effort to give customers flexibility in how they are consuming its software.

We will have to stay tuned to see how the merger will pan out and how the value proposition of PSA (and perhaps SaaS) will further be explored by Deltek. Your views, comments, opinions, and particular experiences with Deltek and Maconomy are as usual welcome in the meantime.
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