Examples Of How Some Mid-Market Vendors Might Remain Within The Future Three (Dozen)?

Event Summary

Amid extensively reported controversial takeover bids & counter bids, lawsuits & counter lawsuits tug-of -wars amongst the three renowned Tier 1 application vendors, Oracle, PeopleSoft and J.D. Edwards (see Frantic Merger-Mania Spiced Up With Vendettas Leaves Customers Anxious), almost unnoticed or only briefly reported by market observers have been recent moves of some much smaller and less visible enterprise software providers globally (albeit not necessarily within their sweet spots) in their bids for securing their future.

This note deals with two other notable acquisitions:

  • Agilisys International's acquisition of Future Three Software, Inc.

  • Made2Manage Systems Inc. (NASDAQ: MTMS) agreement to be acquired by an affiliate of Battery Ventures VI, L.P. Battery Ventures

This is Part One of a three-part note.

Part Two will discuss the Agilisys Market Impact.

Part Three will cover the Made2Manage Market Impact and make User Recommendations.

Agilisys International

Most recently, on June 10, Agilisys International, a provider of enterprise resource planning (ERP) and supply chain management (SCM) solutions for the automotive industry and for certain process industries, which was formed in 2002 as a privately-held spin-off of former process manufacturing & distribution division of SCT Corporation (NASDAQ: SCTC) (for more information, see Agilisys Continues Agilely Post-SCT), announced the acquisition of Future Three Software, Inc. (www.future3.com), a privately-held SCM provider for mid-tier automotive suppliers. The acquisition, which is the second for Agilisys post-SCT and within the same market segment (see How Much Wisdom Will BRAIN Bring To Agilisys?), was again financed through funds managed by Golden Gate Capital and Parallax Capital Partners in conjunction with Future Three's investor Summit Partners.

The Future Three acquisition too seems consistent with Agilisys' stated growth strategy of acquiring niche vendors with deep vertical expertise and long-term direction. To that end, this acquisition should expand Agilisys Automotive's (a future name for Agilisys' division comprising former BRAIN AG and BRAIN North America and soon to include Future Three) market share in North America and allow the vendor to further concentrate on its customers' distinctive automotive requirements. The merging of the two automotive industry prominent mid-market providers should create a comprehensive suite of global solutions that should meet the stringent requirements of the automotive industry, and also support a variety of technology platforms and ERP systems to provide needed flexibility and scalability. Headquartered in Northville, MI, Future Three has mustered a notable customer base and a long history of delivering SCM solutions for mid-tier automotive suppliers, and the addition of its approximately 400 automotive installations to the Agilisys Automotive customer base should enlarge Agilisys' footprint in the industry, bringing its total number of automotive installations to over 2,400 worldwide.

Following up on the heels of the above acquisition, on June 25, Agilisys Automotive also announced improvements to its Automotive Message Exchange Server Solution with AutoEx 4.0. Formerly called BRAIN-eX, the product espouses a new name, as well as improved functionality in the areas of: simplified routing, testing configurations, extensive on-line documentation, improved query capabilities, comprehensive e-mail information and capabilities, scheduling improvements, network specific additions and updates along with infrastructure enhancements.

Therefore, backed by committed private investors and by maintaining and fulfilling focused acquisitive aspirations, Agilisys seems to somewhat look like a smaller counterpart of SSA GT. Namely, like its acquisitions-famished larger privately held competitor, and also because of the large financial backing of its investors, Agilisys believes it can grow faster and without the typical legal intricacies associated with its publicly traded competitors. The going private' recipe seems to be bearing fruit during these difficult economic times and withered investors' enthusiasm.

As an aside, from hindsight, Deltek Systems incidentally seems to have been quite visionary to de-list from NASDAQ even a way back at the beginning of 2002. Given its good performance due to sharp focus on project-based industries, government contactors and professional services, solid financial situation at the time (and nowadays too, with over $100 million in revenues), and the fact that its founders (i.e., the father and son deLaski) still co-own the majority share of the company, it did not even need an investment backing.

Made2Manage Systems

Incidentally, another seemingly honorable exit strategy from the public eye happened on June 5, when Made2Manage Systems Inc., a provider of broad enterprise business systems for small and mid-market manufacturers, announced a definitive agreement to be acquired by an affiliate of Battery Ventures VI, L.P. Battery Ventures, one of the leading venture capital firm focused on technology investments, which manages nearly $2 billion in committed capital and has a 20-year history in successfully making investments in software companies. The acquisition of Made2Manage Systems by Battery Ventures should allow the vendor to better serve the business needs of its well-established customer base, as well as to continue new product development initiatives, optimize sales and marketing efforts, and evaluate complementary acquisition candidates to enhance its position in the space.

Under the terms of the agreement, an affiliate of Battery Ventures will acquire Made2Manage Systems for cash consideration of approximately $30 million or $5.70 per outstanding common share of Made2Manage Systems stock. Consummation of the transaction is dependent upon approval from the company's shareholders and is expected to close in the third quarter of Made2Manage Systems' fiscal year 2003. The transaction price is at significant premium over the market price at the time of the announcement (i.e., 36% compared to the ~$4.20 value) and reportedly affords liquidity for all shareholders. The company will continue to operate as Made2Manage Systems Inc., with employees and operations remaining headquartered in Indianapolis, IN.

Public since 1997 and with 2002 revenues of ~$30 million, Made2Manage Systems is focused on meeting the needs of small and midsize manufacturers and distributors throughout the US, Canada and the UK. The company's management team supports the acquisition of Made2Manage Systems as the most effective way to enhance its position as a notable player in the small and midsize enterprise software market. The privatization of the company will supposedly enable senior management to increase their focus on meeting customer needs and demands — including even more responsive customer service and support, and the ongoing development of the Made2Manage Enterprise Business System — without the close scrutiny of skeptical analysts and fastidious shareholders and without fear of any unwanted acquisition. Upon completion of the acquisition, Made2Manage Systems will be a wholly owned subsidiary of Battery Ventures' affiliate, BV Holding Company, Inc.

This concludes Part One of a three-part note.

Part Two will discuss the Agilisys Market Impact.

Part Three will cover the Made2Manage Market Impact and make User Recommendations.

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