The Mid-Market Is Consolidating, Lo And Behold
Written By: Predrag Jakovljevic
Published On: May 11 2001
The Mid-Market Is Consolidating, Lo And Behold
Microsoft's acquisition of Great Plains (see Microsoft
And Great Plains - A Friendship That Turned Into A Marriage) and the
merger of Navision Software and Damgaard (see Does
NavisionDamgaard Merger Mark Further Mid-Market Consolidation?) at
the end of 2000, combined with the anxiety of looming economic slowdown,
seem to have triggered the spate of mergers and acquisitions from the
beginning of 2001.
most recent was the April 9 merger agreement between Kana Communications,
Inc. (NASDAQ: KANA), a provider of enterprise relationship management
(eRM) solutions and Broadbase Software, Inc. (NASDAQ:
BBSW) a provider of customer interactions business intelligence solutions.
The combined company will be called Kana Software and will
have an install base of more than 1300 customers.
in a move to address a market not covered by its BPCS product,
on April 2, SSA GT, a reincarnation of once all but deceased
ERP vendor System Software Associates (SSA) acquired
ICL MAX International Limited (MAX International)
and its product, MAX. This strategy attempts to leverage its existing
channel to reach the small to medium enterprises (SMEs). See SSA
Acquires MAX Hoping To Leap From Its MIN for more information.
March 27, Interact Commerce Corporation (NASDAQ:IACT),
the makers of SalesLogix, possibly the principal product in mid-market
CRM, and ACT!, one of the best selling contact manager products, announced
a definitive merger agreement with The Sage Group
Plc., one of the leading worldwide suppliers of business management
solutions and services for small and mid-sized enterprises (SMEs) and
a direct competitor to Great Plains and Navision. Interact Commerce will
become a wholly owned subsidiary of The Sage Group Plc., which is listed
on London Stock Exchange (LSE).
February 26, AremisSoft Corporation (NASDAQ: AREM) a global
supplier of Internet-enabled enterprise solutions for the manufacturing,
hospitality, healthcare and construction industries with international
headquarters in the UK, announced a definitive agreement to acquire Fourth
Shift Corporation (NASDAQ: FSFT), a worldwide supplier of
ERP and e-business software for small to medium enterprises. With this
acquisition, AremisSoft expands its web-enabled ERP offerings and intends
to more aggressively participate in the large Tier 3 market for integrated
ERP solutions. In addition, the Company hopes to deliver a more comprehensive
web-enabled e-business solution to market more quickly. The acquisition
brings to AremisSoft approximately 1600 active customers in North America,
Europe, the Mid-East, and Asia, and expands AremisSoft's customer base,
market coverage, and sales presence in the US and other key markets, including
China. AremisSoft plans to combine its UK based manufacturing software
operations with Fourth Shift and expand its resource commitment to supporting
both ERP systems and new e-business applications.
but not least, on February 8, Macola, a privately held mid-market
ERP vendor, announced its growth has reached global proportions, as a
result of the signing of a definitive agreement with Exact Holding
NV, a Dutch-based provider of e-Business and ERP solutions, listed
on the Amsterdam Stock Exchange (AEX). According to Exact Software Vice
President Lucas Brentjens, this acquisition sets the stage for Exact's
plans to establish an aggressive product presence in the US. Macola and
Exact immediately plan to execute a product strategy for full integration
of Exact's e-Synergy e-Business suite with
Macola's Progression Series to bring these e-business solutions
to the U.S. marketplace. According to both company officials, this strategy
allows them to build upon their unique product strengths while bringing
new e-Commerce and e-CRM capabilities to Macola's product suites and providing
a product offering that will be unique to the United States marketplace.
recent frenzy of enterprise applications software company acquisitions
is not exactly a big surprise. After all, consolidation is normal to almost
every industry. Over the last two years, the applications market became
stratified into growing and profitable vendors on one side, and stagnating
and cash burning vendors on the other side. The Y2K-problem caused market
slump in 1999 and the recent global economic slowdown have been excruciatingly
hard on the smaller vendors. They have the same need to expand their offerings
but much scarcer resources at their disposal to do this than their bigger
counterparts. We believe that this will become more accentuated owing
to the growing demands on the underlying product architecture and functionality,
with customers becoming more vendor viability cautious. Customers will
also increasingly look for one strategic vendor to fulfill the vast majority
of their business application needs, particularly in the lower end of
the market. Consequently, consolidation, mergers and acquisitions in the
lower end of the applications market are expected to intensify.
we do not necessarily expect larger vendors to gobble up their direct
smaller competitors, more intra mid-market acquisitions and/or mergers
such as the above-mentioned are very likely. We also expect companies
with related software products (e.g. plant automation or Internet trade
exchanges providers) to move into the ERP space through acquisitions.
For one, providers of business-to-business (B2B) trade exchange software
have been striving to evolve into providers of sourcing solutions for
direct materials. Good examples of this trend are FreeMarkets' acquisition
of Adexa, a provider of collaborative supply chain planning software (for
more information, see FreeMarkets'
Surprise Acquisition of Adexa Leaves Many Heads Shaking) and, in part,
the above mentioned Exact's acquisition of Macola.
the other hand, in the ERP market, the major vendors focused on the high-end
of the market have virtually evolved into providers of comprehensive e-Business
suites. They also compete with a slew of smaller extended ERP vendors
for the market for small to medium enterprises (SMEs). While the heyday
of the ERP market in the mid 90s have postponed the consolidation in the
lower tiers of the market, it is, however, not the case today. The above
announcements reflect the morphing enterprise applications landscape as
vendors scramble to outrival competition or, more often, survive during
the next phase of e-Business.
at the high end of the market, vendors of enterprise applications suites
face fierce competition from CRM, SCM, B2B exchange providers and other
niche players, in the mid-market, a more conventional consolidation has
been taking place, mainly with an aim of combining the resources to deliver
extended enterprise software suites that meet the 'one-stop shop' requirements
of smaller companies. Look for more smaller applications vendors to acquire
new functionality and/or merge to protect themselves. There is a multitude
of players in the market and it is very unlikely that all will survive
in the long run. The most likely acquisition candidates are vendors with
poor financial performance and depleted market capitalization but with
a large customer base and a deep focus and expertise in a certain industry.
Fourth Shift, Macola and MAX fitted the description either partly or completely.
These acquisitions seem to offer both geographic and products/platforms
synergies, with the new owners pledging to let the acquired business run
as usual at this stage, with the possible product lines blending down
to one is odds" seems to be the main reason for the Kana/Broadbase merger
rather than the product synergy. Both firms were among the many that recently
fell prey to pessimistic investors and diminishing global corporations'
appetites for technology. There is some functionality complementing fit,
though, since Broadbase's analytic system that is devised to analyze customer
information to increase sales and customer satisfaction, fits well with
Kana's CRM package. On the problem side, however, there appears to be
some conflicting overlap. Namely, Broadbase recently acquired ServiceSoft
for its knowledge management and e-service systems, two areas already
existing in Kana's product portfolio. Furthermore, owing to low resources
even after combining them makes Kana/Broadbase vulnerable to further acquisitions
once the merger is complete. Nevertheless, the need for providing a full,
comprehensive eCRM suite rather than an individual solution or a bundle
of point solutions for each distinct CRM area remains firm, and will urge
further CRM market consolidation.
acquisition of Interact is much more justifiable and might give pause
to Microsoft Great Plains, Navision, Epicor, as well as to Siebel
Systems, Oracle, SAP and PeopleSoft that have
been eyeing the mid-market for some time. For more information, refer
to the following articles:
has long been considering acquisition of a CRM product, and it might have
hit the bull's eye with Interact Commerce. The two vendors may indeed
marshal a powerful back-office and front-office systems' combination to
the market for SMEs. In fact, Microsoft Great Plains', Epicor's, and/or
Navision's officials in discussions with TEC have often flagged Sage
as one of their fiercest competitors. Interact's product strategy with
ACT! for smaller businesses matches well with Sage's portfolio of low-end
operational systems (e.g., MAS90, BusinessWorks, and Peachtree).
SalesLogix, on the other hand, should complement well Sage Enterprise
products for midsize companies.
downside, as a rule, is the painstaking integration effort yet to be exerted.
The mitigating factor though is the fact that Sage and then SalesLogix
had long formed the product alliance, so the integration task may not
start from scratch. However, integration is never a simple task despite
SalesLogix' Open CRM initiative and a number of mid-market ERP product
alliances and subsequent product integration experiences (a deal with
Macola being one, as a matter of interest). Sage has a myriad of products
in its portfolio that could benefit from integration with ACT! and/or
SalesLogix, and the company must clearly articulate its plans and the
timeline for integration for each of its products. Otherwise or it may
face confusion and/or anxiety among both its current and potential customers.
That would be the music to its direct competitors' ears, which have already
(or all but) rounded up their CRM offering after daunting integration
experiences (for more information, see Epicor
Software Corp.: Completing Painstaking "e"Volution).
Experience teaches us to be wary of the outcome of mergers' and acquisitions'
as the market has witnessed both success and disaster stories in the past.
Although Sage, AremisSoft and Exact have shown strong financial discipline
and/or have successfully acquired other less fiscally sound companies
with attractive products in the past, one never knows when bad luck may
we believe that the above mergers might be synergistic in the long run,
some growing pains, integration issues, and discontinuation of redundant
products are always to be expected. Consequently, until each merger is
consummated, users evaluating the above individual products should exercise
moderate caution, keep themselves informed, and consider generally available
(GA) functionality only. Potential clients should conduct preliminary
research on the industry expertise and reference accounts of regional
offices or affiliate service providers of merged companies in case. Existing
users should urgently clarify their support status and the long-term product
development and migration strategy with the new management. Customers
adopting the first integrated product in case should anticipate significant
changes in later versions of the product.
more recommendations pertinent to SSA GT's acquisition of MAX only, see
Acquires MAX Hoping To Leap From Its MIN.