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chinadotcom in the "Process" of Acquiring Ross Systems Part Two: Challenges and User Recommendations

Written By: Predrag Jakovljevic
Published On: October 4 2003

Challenges

On September 4, Ross Systems, Inc. (NASDAQ: ROSS), a global provider of enterprise software primarily for midsized process manufacturers, and CDC Software Holdings Inc, a wholly owned subsidiary of chinadotcom corporation (NASDAQ: CHINA), an integrated enterprise solution and software company, announced that they have signed a definitive agreement whereby CDC Software will acquire Ross Systems in a merger valued at approximately US$68.9 million. Following the merger, it was announced, Ross Systems would operate under chinadotcom's CDC Software unit. The transaction is expected to close no later than the first quarter of calendar year 2004 subject to approval by Ross Systems' stockholders, certain regulatory approvals and customary closing conditions.

Given the market opportunity for all types of manufacturing in China, chinadotcom will have to resist the temptation to expand a highly focused Ross' software product to new, unsupported verticals. Ross Systems will need to leverage its past successes and deep domain expertise in the process industries in order to remain competitive against larger, less focused software vendors.

Both chinadotcom and CDC Software will have to be careful not to lose the deep domain knowledge present in Ross Systems today. Vertical industry depth and expertise is critical to ongoing success, and should be encouraged and nurtured. However, it may be easily neglected with the slew of recent complementary acquisitions (e.g., IMI) and subsequent attempts of intertwining these.

While the product overlap is small, there is still the challenge of integrating the companies. Company cultures and work styles may come into play, although the successful past partnership between chinadotcom and Ross Systems is encouraging. Still, experience teaches us that often following a seemingly promising acquisition, a major difference in philosophy might emerge between the former and acquiring management teams on how to execute strategies for growing the company while "increasing operational efficiency," which inevitably results with the exodus of the first.

The iRenaissance suite of products lacks a comprehensive, integrated product footprint that includes native SCM and CRM applications. Mid-market companies prefer pre-integrated solutions, so the development of strong offerings in these areas will be critical to future growth in existing geographies. While the IMI acquisition and CDC's own CRM product promise some cross-selling opportunities, only time will tell how effective these integrations will be. Current successful partnerships with Prescient and Selligent will likely be re-evaluated to align with Ross and CDC product development and acquisition strategies.

This is Part Two of a two-part note.

Part One detailed the event.

User Recommendations

Ross customers should not feel any increased sense of urgency from this event. If anything, existing customers should be comforted by the backing of a financially stable parent company with money to invest.

Although this acquisition sounds like a very positive event, and chinadotcom appears to have strategic growth intentions, look for proof in the actions they take in the coming months. Additional acquisitions that provide strategic value and synergy with Ross Systems should be welcomed, while significant cost-cutting and management turnover should be looked at cautiously. Typically successful software acquisitions have been those where the acquirer valued the acquisition of "brains" rather than only a code base.

Watch for continued vertical market focus, particularly for meeting likely differing regulatory requirements in diverse geographic regions. Customers in the chemical, food and beverage, life sciences, metals, and natural products industries should be wary of any discrete market focus using the iRenaissance product suite. While the discrete industries may be good markets for chinadotcom, the software requirements for discrete would not mesh well with the process requirements already incorporated in the iRenaissance product suite. Opportunities may be available for chinadotcom in the discrete manufacturing markets, but not with iRenaissance.

Mid-market process manufacturing companies that are looking for enterprise solutions should put Ross Systems' iRenaissance on their short lists. Manufacturers with plants in Asia should give chinadotcom and iRenaissance special consideration, even if they have larger ERP products running corporate administrative applications on a global basis.

Summary

The chinadotcom acquisition of Ross Systems and the iRenaissance suite is a positive development for Ross Systems, chinadotcom, and iRenaissance users. Initial indications are that this is a strategic investment by chinadotcom that will allow Ross Systems to expand its product footprint and capitalize on its process industry expertise. Ross at least seems content for not being acquired by a direct ERP competitor with sinister intention. With the exception of any unforeseen shift from the process manufacturing markets or drastic cost cutting, this looks like the kind of acquisition that we would like to see more of in the industry.

Very detailed information about iRenaissance ERP is contained in the ERP Evaluation Center at http://www.erpevaluation.com/

 
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