EAI Vendor Mercator Drops to a Lower Place on the Map

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EAI Vendor Mercator Drops to a Lower Place on the Map
M. Reed - August 4, 2000

Event Summary

Mercator Software, formerly known as TSI International Software, missed their earnings estimate by 4 cents a share (predictions were 8 cents a share), and dropped 54 percent in value in early market trading. Latest estimates showed the stock at $24.75, which is a 60.5 percent drop from their prior market capitalization. The company reported higher than forecasted marketing expenses, and the fact that Ira Gerard, the CFO, was stepping down due to health reasons. Kevin McKay, former chief executive officer of SAP America, will take over as executive vice president, CFO, secretary, and treasurer.

Mercator is attempting to put a positive light on the change in management. According to Connie Galley, president and chief executive officer of Mercator, "I am extremely pleased to welcome Kevin as a key member of the Mercator management team. Kevin's experience in guiding an elite software company through a period of unprecedented growth could not be a better fit for us as we move to the next level. His leadership of critical operational areas of our business will help us build the infrastructure needed for accelerated growth. I look forward to working with Kevin to fully exploit Mercator's significant opportunities." McKay also spearheaded many of SAP's strategic long term planning efforts, including SAP America's expansion plans, mergers and acquisitions, and the launch of mySAP.com.

Market Impact

Despite Mercator's sharp drop in market capitalization, their capabilities in the areas of XML and enterprise application integration are still solid. The market has strongly penalized many software companies recently for missing the so-called market "whisper number". Victims recently have included Computer Associates, BMC Software, Compuware, Brio, Applix, and MicroStrategy. Most are expected to recover in at least the mid-term. Especially on the NASDAQ market, investors have been exceptionally skittish, but the fundamental value of the firms and their products remains the same.

User Recommendations

Companies looking at Enterprise Application Integration products should still include Mercator on a long list of vendors to be considered. However, it would be wise to keep an eye on where their stock evaluation goes in the near to mid-term, since their capitalization will effect how they can fund research and development efforts going forward. In addition, an insufficient market capitalization can make Mercator subject to a buy-out by another software firm, which could put their product development plans in turmoil.

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