When the Bigger Fish Eats the Smaller to Become a Bigger Fish

Event Summary

On March 4, 2003, Firstwave Technologies, Inc. (NASDAQ: FSTW) a leading web-based CRM solutions provider, announced the acquisition of Connect-Care Inc., a vertically specialized CRM solutions provider to software industry. Through a merger agreement, Firstwave will deliver 200,000 shares of common stock to the shareholders of Connect-Care, as well as an additional potential earn out payment of $300,000 in cash payable in 2004 if certain revenue goals are attained.

Since 1984, Firstwave, an Atlanta-based company, has evolved from the early days of contact management, to sales force automation and finally in 1998, has offered the first Web-based suite of CRM solutions. In 2002, the company has secured a net income of $3 million on $14.4 million in revenue. Firstwave is exerting its efforts in building strong relationships with Systems Integrators and would consider strengthening its presence in the mid-market.

Connect-Care was created in 1990, also an Atlanta based company, first introduced its in-house CRM application known as Service Call Management. (SCM), and turn out well to be a provider of an Enterprise-wide Customer Relationship Management (CRM) Suite of Software Solutions. The majority of Connect-Care's customer implementations are on thick client/server technology. Connect-care has strongly marketed the Software industry and as such has gained vertical expertise.

Market Impact

This time the merger and acquisition of Connect-Care by Firstwave appears to be a search for vertical market access. Connect-Care provides a direct reach to 87 software vendors that may represent both vertical expertise and a network of resellers. Firstwave claims that its advanced .NET IDE CORE Integrated Development Environment will play an important role in securing business through a ease of customization and even as private-labeling to other software companies. The stakes are high. Will the Firstwave technical lead and the Connect-Care vertical expertise bring a best-of -breed CRM application that the market needs?

Richard Brock, Firstwave CEO, is very likely the architect behind this acquisition. He has presented the merger as a move that fits into his company's growth plans. He has anticipated on the CRM market trend. The mid-market is the place to be in CRM these days and Firstwave is trying to catch that wave.

Brock and David Simmons (Firstwave COO) are both stressing on the ability of their .NET IDE CORE Integrated Development Environment to capture market interest. The technology focuses on ease of use and its ability to be highly customizable. When it comes to functionality differences, Firstwave and Connect-Care are presented as equal opportunities. The real enhancement to Connect-Care product is moving the application towards a true Web platform environment and to replace PowerBuilder tools as a mean for the development and the customization by Firstwave proprietary IDE technology.

Jeffrey Longoria, President and Co-Founder of Connect-Care and now Vice-President of U.S. Sales, indicated that both companies share high commitments to customer satisfaction and therefore Connect-Care customers will continue to be serviced by Connect-Care people.

The one change that Connect-Care customers will see for the coming weeks is an easier to customize version of their application. Firstwave will continue to support Connect-Care customers and gradually introduce its technology to improve Connect-Care application. Firstwave strategic plan could be portrayed as follows:

  • Now, in one hand Connect-Care represents a vertical expertise to Firstwave and to that end it should open the gate to the software industry. Davis Simmons claims that Firstwave is currently strong in government and growing stronger in sports, professional services, medical, and the beverage industry.

  • Having technology provider players at his doorstep, Firstwave is also seeking an access to potential business partners. They claim that potentially they could become a reseller of their product.

  • The other expected revenue stream for Firstwave is the potential for software houses to be interested in their technology and to generate private labeling royalty opportunities.

On thing for sure, as late adopters of CRM applications, software companies are potentially an interesting niche market for more adaptive CRM providers. The real challenge for Firstwave is to demonstrate the real value of its CRM applications. Didn't we say that CRM is all about the processes and not much about the technology?

User Recommendations

Now for the end-users perspective and especially for the existing Connect-Care customers, the ability to upgrade to a fully thin client (zero client footprint) web browser access technology is undoubtedly an improvement. Connect-Care could not have offered such transition, at least not in 2003. Software houses by nature are relying on existing internal resources for software implementation and as such would welcome a more user-friendly customization tool. To my question about the potential for functional enhancements, Jeffrey Longoria's answer did not meet my expectations. The two products offer quite similar functions, but do not add any improvement to each other. Let's hope that this merger will bring the momentum and the critical size for a unique and enhanced CRM application offering in the near future.

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