November 25, MAPICS, Inc. (NASDAQ: MAPX) and Frontstep,
Inc. (NASDAQ: FSTP), renowned global providers of extended enterprise
solutions for world-class manufacturers, announced the signing of a definitive
agreement whereby MAPICS will acquire Frontstep, formerly known as Symix
Systems and headquartered in Columbus, OH. This transaction should
create one of the largest providers of extended ERP, CRM and SCM applications
that are focused exclusively to solving the challenges of discrete manufacturers.
The combined company will have solutions that have been implemented in more
than 10,000 customer sites worldwide in only a handful of industries of focus.
Both MAPICS and Frontstep customers should now be served by a much larger, global
company with a heritage of continual delivery of practical business solutions,
and excellent service and support.
Terms of the acquisition include the purchase of all Frontstep shares for 4.2 million shares of MAPICS common stock subject to closing conditions. MAPICS currently has approximately 20.5 million shares (diluted) outstanding. Frontstep shareholders will receive approximately 0.30 MAPICS shares for each share of Frontstep stock held. As part of this combination, MAPICS will assume up to $21.5 million of Frontstep's debt as well as certain outstanding stock options and warrants. Closing, which is expected to occur during the first calendar quarter of 2003, remains subject to certain conditions including, but not limited to, regulatory clearance and approval of the acquisition by MAPICS and Frontstep stockholders.
MAPICS reported revenues of $128.3 million for its fiscal year ended September 30, 2002, while Frontstep recorded total revenues of $92.6 million for its fiscal 2002 ended June 30, 2002. MAPICS expects to record special charges of $9 to $11 million before taxes in connection with the acquisition. Excluding acquisition-related charges, the company anticipates that this transaction will be accretive in the quarter ending December 31, 2003, the first quarter of MAPICS' fiscal 2004 year.
is Part One of a three-part note.
Two will continue the Market Impact.
Part Three will discuss the Challenges and make User Recommendations.
one could find elements of a marriage of convenience due to the all-too-common
current overriding market dynamics consisting of the mounting pressure from
juggernaut vendors a la SAP, PeopleSoft, Microsoft
and Oracle on one side, and of smaller vendors scrambling to
survive by any means on the other side, one could also find strategic merits
to this merger. True, both companies have strong product sets and sizable loyal
customer bases, and they both acknowledge the size matters' factor as to compete
with the larger ERP vendors targeting the mid-range market from the above, and
the likes of Microsoft Business Solutions, Best Software,
ACCPAC and Intuit coming from underneath.
this is by no means only about increasing the customer base and milking indefinitely
support & maintenance revenue. Due to both vendors' traditional aim at the upper-end
of the mid-market, and consequently at multi-national companies with diverse
technologies enterprise-wide, going forward, newly enlarged MAPICS logically
desires to become an active dual (i.e., both J2EE and Microsoft .NET compliant)
platform vendor. To that end, the company will continue to sell and enhance
its traditional breadwinning product for the IBM iSeries (formerly
AS/400) platform along with Frontstep's newly rejuvenated SyteLine
7 product, which was recently completely re-architected on Microsoft
.NET. (see Frontstep
Ups The .NET Ante).
fact that the acquisition will not have been a mere opportunistic knee-jerk,
me too' reaction, might also be deducted from the price tag while ~$50 million
including debt might not be a bad price for an over $90 million in revenues
vendor, it is still a good chunk of money these days of software bargains and
capital scarcity (see Epicor
Picks Clarus' Bargain At The Software Flea Market and PowerCerv
Finally Overpowered By The '02 Hurricane Season). Not to mention that MAPICS
will also inherit some sizeable premarital baggage (over $20 million of debt
and outstanding liabilities) from Frontstep, which revenues are also expected
to be even less in fiscal 2003.
importantly, however, MAPICS is inheriting the technologically advanced and
functionally strong product, as Frontstep has apparently recently solved a big
piece of its long-plaguing predicament of developing a next generation product
and of migrating its large user base. The company had long been in a conundrum
of concurrently enhancing its Progress Software-based flagship
SyteLine product while developing a more technologically viable and amenable
product to its target market. As Microsoft-centric technology and the .NET initiative
have become mainstream in the business applications mid-market, Frontsteps
decision to focus solely on these was prudent, given that, at the same time,
Progress-based SyteLine faced a legacy status only several years after its delivery,
making it painfully less attractive to new prospects.
To that end, Frontstep shareholders undoubtedly benefited more in the deal, since the company had all but exhausted itself completing the above described feat. In fact, the company, in desperation for working capital, recently completed a $5 million convertible note transaction with some preferred shareholders.
During the late 1990s in which the company, then known as Symix, achieved a stellar performance as a traditionally strong player in the mid-market ERP space, achieved impressive growth, resolved some functionality weaknesses (e.g., international capabilities of its financial modules) in its own product and successfully partnered with and/or acquired vendors that offered complementary functionality. Then the company embarked on a strategic technology transition from Progress to .NET platform even as it was feeling the malaise of the shrinking market and economic depression. Further, the company had made efforts to also keep abreast of the enterprise applications market trends by providing both front- and back-office solutions, which, during the time of shrinking revenues, was excruciatingly painful (the vendor consequently suffered three years of losses, and saw revenues decline from $129 in fiscal 1999 million to $92 million in fiscal 2002).
The MAPICS Perspective
it was a worthwhile effort, at least from MAPICS' perspective, given Frontstep
had already spent ~$60 million to deliver its entire product line, which includes
ERP, CRM, and SCM, on a single technology platform. An indeed notable feat,
given that many of its peers have mostly only recently embarked on this technology
transition path, or, in a better case (e.g., of Syspro, Made2Manage,
and Epicor), have managed to deliver a module or so on the
.NET platform, while it will take some significant time and resources to have
their entire product suites rewritten.
While the re-architecture to .NET is important, it is the combination with new functional capabilities in areas like advanced planning and scheduling (APS), flexible multi-site deployment, and flexible business process automation that position Frontstep well going forward, particularly now as a part of a larger entitiy with a strong balance sheet. Frontstep remains a visionary vendor in terms of functional requirements of the mid-market, by providing extended ERP and significant web-based supply chain and front-office functionality in a modular manner, bundled with a strong international presence.
on its hand has not been sitting still either, as the company has made every
effort to avert the relegation to legacy Atlantis' as often speculated by some,
and it has therefore lately rebuilt its technologies, reviewed its implementation
partners, and thus shored up an impressive customer base, and retained profitability
and security while doing so (see MAPICS
Moving On Pragmatically). For the last several months, the vendor has indeed
embarked on a painstaking process of producing a strategy going forward that
would pragmatically blend the company's traditional values and success factors
with new approaches to stay in tune with market trends. Therefore, it remains
a company that will likely continue to strengthen.
in the second half of the exuberant 1990s, MAPICS prolonged existence in the
market, its former IBM AS/400 platform confinement, and its inability then to
rejuvenate its own mature product has given it a real negative "old and uncool"
perception. Although the company had long sought to embrace new technologies
while at the same time providing a smooth migration path for existing customers,
it had suffered from continually being perceived as late to market with its
new technology forays. Its protracted inability to deliver an all-the-rage Windows
NT platform-based product made it struggle to sustain momentum in the
then booming mid-market increasingly intrigued with the low-cost and pervasive
Microsoft technology. To that end, owing to the acquisition
of former struggling competitor Pivotpoint (see How
Has MAPICS Been Extending?), MAPICS had delivered over the last two years
a number of new e-business modules and expanded its platform reach from its
solely IBM iSeries and DB2 platforms to include Microsoft Windows
NT, UNIX and Linux operation systems and Oracle
However, while expanding its offering and platform support bundled with a functionally strong former Pivotpoint's Point.Man ERP product for high-tech industries, the company has since been burdened with an immense task of blending different corporate cultures (i.e., less formal Pivotpoint's vs. more rigid MAPICS' one) and with the inherited problems of Pivotpoint. At the time of the acquisition Pivotpoint was in a state of a flux, it had poor financial viability, channel erosion, employee exodus, and a poor service & support record. The management of dual flagship product lines had also initially and long after been awkward for MAPICS and its affiliate channel. One is to expect that, two years later, MAPICS will have learned important lessons, which it will leverage in the case of Frontstep's acquisition as another attempt at harnessing Microsoft's technology.
concludes Part One of a three-part note.
Two will continue to analyze the Market Impact.
Part Three will discuss Challenges and make User Recommendations.