EAI Market Consolidation Continues With Peregrine Acquisition of Extricity

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EAI Market Consolidation Continues With Peregrine Acquisition of Extricity
M. Reed - April 3, 2001

Event Summary

Peregrine Systems, Inc. (NASDAQ: PRGN), a provider of Electronic Market Enablement and Infrastructure Management solutions, announced that it has signed a definitive agreement to acquire Extricity, Inc. (privately held). Extricity will contribute its B2B relationship management software as Peregrine creates a digital business offering that provides a full range of software products and managed Internet services using Peregrine's Get2ConnectSM global trading network. The vendor intends for the combined offering to remove frictional cost from collaborative commerce by seamlessly connecting businesses, people, and applications.

The two companies will leverage Peregrine's core competence in electronic commerce transactions over a multitude of data formats - from XML to RosettaNet to EDI - and its online catalog offering with Extricity's market-leading business process and application integration software. The vendors state "the result will be a new platform that represents a major shift in the business landscape - helping companies move from batch-oriented document exchange to real-time, process-based collaboration".

According to Louis Blatt, senior vice president and general manager of Peregrine's E-Markets Group, unrealized return on B2B investments will be decreased "as we move buyers and suppliers beyond simple connectivity and discrete document transformation to a continuous electronic dialogue. With Extricity, we are assembling the platform required to link our customers' internal business applications, then leverage that connection beyond the firewall to build more productive business relationships for customers, suppliers and employees".

Under the terms of the agreement, Peregrine will issue approximately 9.2 million shares of common stock for all of Extricity's outstanding stock in a stock-for-stock tax-free reorganization. Based on a closing stock price of $18.3125, the transaction value is approximately $168 million. It is expected to close late in the March quarter or shortly thereafter. Peregrine will integrate key product offerings within 90 days after the close.

Market Impact

The number of vendors at least partially classified as Enterprise Application Integration (EAI) vendors continues to shrink quickly. On the heels of the Sybase acquisition of New Era of Networks (NEON), IONA's purchase of Saga's Sagavista technology from Software AG, and others, it is now clear that access to capital for continued product development and marketing is becoming more difficult for the smaller vendors, and partnerships and acquisitions are the current solution.

Extricity has been a player in the market the vendor refers to as "B2B Relationship Management", and has marketed an EAI product suite based on the Extricity B2B Alliance Manager, a software server which supports the execution of business processes, integrates back-end systems, and coordinates interactions with external processes. In the current market it becoming increasingly difficult to differentiate between a vendor in the B2B space and one in the EAI space, since EAI could (perhaps arguably) be considered the "2" in B2B. Perhaps less time should be spent by vendors in the marketing of amorphous solutions, and more time spent explaining actual functionality to the market and prospective customers.

User Recommendations

Companies contemplating application integration technology selections should first pay careful attention to the financial health and stability of any vendor that they include on a long list of candidates. If a product shows promise in specific areas of required functionality but the vendor seems less than well funded, the prospective buyer should consider having an "out clause" negotiated into the contract to protect their investment in case of vendor or technology acquisition.

In addition, as is always recommended by TEC, due diligence must be paid during the initial phase of vendor evaluations to understand exactly what it is the vendor is offering. In the EAI and B2B world of today, custom-made acronyms and "buzz terms" with no industry standard definition are the rule, not the exception. The proffered technology must be distilled down to what functions it actually provides, so the vendor can be effectively compared to its competitors.

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