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iProcess.sct Enters Golden Gate Opportunity

Written By: Predrag Jakovljevic
Published On: May 2 2002

Event Summary

On April 11, Golden Gate Capital, a San Francisco based investment firm, announced the signing of a definitive agreement with SCT Corporation (NASDAQ: SCTC), a global provider of leading technology and business solutions, to acquire the process manufacturing and distribution software business of SCT. Golden Gate Capital, which has appointed Jim Schaper, a 25-year software industry veteran, to be the CEO of the newly independent company, Agilisys (formerly called SCT GMDS), will retain the existing management team and division staff. Mr. Schaper was previously the president and CEO of Dun & Bradstreet Software and was most recently the chairman and CEO of Primis, a financial services company, which was sold to LandAmerica Financial Services Corp. (LFG). Mr. Schaper has also held senior management positions with Banyan Systems and Medaphis Corporation (now Per-se Technologies). Mr. Schaper, who first worked with Golden Gate Capital's managing directors in 1996 while at Dun & Bradstreet, has subsequently advised the partners on several buyout opportunities.

Joining Golden Gate Capital on this deal was Parallax Capital Partners, a private investment firm from Irvine, CA. The companies signed a definitive agreement for $13.2 million in cash, subject to adjustment based on the net book value of the assets at closing. SCT could receive up to an additional $3 million based upon the new company achieving specified revenue targets over the next three years. The consummation of the transaction is subject to customary closing conditions and required approvals. Upon closing the new company will be called Agilisys.

The company pledges to continue to build upon its integrated suite of software solutions that address the unique needs of the process manufacturing industry, including supply chain management (SCM), supply chain execution (SCE) and other ERP applications such as forecasting, inventory management, procurement, formula and process management, and customer order management. Customers of the company's "iProcess" business solution are leading manufacturers, including Godiva, Horizon Organic, Valvoline, Bristol-Myers Squibb/Mead Johnson, Coca Cola Fountain USA, Eastman Kodak, Miller Brewing Company, Molson, GlaxoSmithKline, The Kroger Company and Safeway.

On the other hand, the sale of the process manufacturing software division is just one in a series of actions that SCT has taken since January to improve profitability and predictability. This transaction reportedly conforms to SCT's practice of continually evaluating its business and focusing on areas that advance its long-term strategy. The divestiture of the process manufacturing software business positions SCT to focus on investments in its core markets and to concentrate on delivering solutions to those sectors, such as education, energy, and utilities.

"There is always pain in any transition. But in this case, it will be a short one because GMDS has already been running as a standalone business within SCT and has proven itself in the marketplace. The business now has its own destiny in its own hands - that means it has the ability to do what is best for its customers, partners and employees. The company has also added an experienced executive as its new CEO, Jim Schaper, which adds to my positive view of its future", said Olin Thompson, a principal of Process ERP Partners and a guru in the enterprise applications market for process industries.

Market Impact

Assuming Agilisys will have been provided with enough funding, the divestiture should, in a mid-to-long-term be beneficial for both the company and its customers. The favorably low purchase price for a fraction of SCT GMDS' estimated revenue will hopefully not make the new management complacent and they will continue to provide substantial future investment in the product. Agilisys should offer GMDS direct access to market capital and greater visibility in the marketplace.

SCT's process industry division has significantly repositioned and extended itself lately. When the company first entered the process manufacturing scene in 1995, it provided only Adage, its flagship ERP suite. Through 1998 acquisition of Fygir Logistic Information Systems B.V., it subsequently became involved in supply-chain management (SCM) applications, and most recently developed and introduced a number of e-business components. GMDS continues to execute well in the operational level-centric applications, unlike most of the other process ERP wannabes who are still mainly selling generic 'white collar' applications (e.g., HR, financial accounting, procurement) into the process industries.

Still, while some customers use the entire SCT product suite, many more use only portions, coexisting with other solutions. For example, SCT has shown success with integrating its SCM products with the SAP and PeopleSoft back-office. It is therefore important that the company continues to enhance its product offering footprint and interconnectivity both internally and via partnerships like it has done it until recently, in order to fill some product gaps (see Is SCT And Logistics.com Partnership A Dj vu?, SCT Extends Into Business Intelligence, and SCT Corporation Means (e)Business For Process Manufacturing).

The new company should have more resources available to grow unfettered by SCT's corporate direction and overhead, which has always been very different from the GMDS'. From now on, it can focus exclusively on the process manufacturing sector. The GMDS division of SCT Corporation was challenged to establish itself as a name brand in the process manufacturing segment owing to its late market entry and a small client base, primarily in North America. Its marketing efforts were both limited by and overshadowed by a traditionally conservative parent company that manages a plethora of other businesses within diverse industries with different market dynamics. SCT's user conferences have in the past pointed out a consistent problem with SCT's marketing. The conferences would combine all SCT divisions (education, government, utilities, plus process manufacturing) and therefore, the messages became very confusing. Under the SCT approach of lumping together all its business segments under one name, user conferences or so, each division would suffer in the competition for mind share within its individual target market. Another indicator of SCT's somewhat conservative approach towards GMDS was reliance upon a third-party proprietary development tool set (Computer Associates' OpenRoad) rather to develop its own development environment.

Challenges

Therefore, the divestiture should annul the above conundrums as long as the new owners grasp the challenges the company faces going forward. The enterprise applications market in general has not been very strong since the late 1990s. Although the process manufacturing and consumer packaged goods (CPG) target markets, comprised of more than 8,000 manufacturers, have long been under-served by traditional ERP vendors who primarily designed their products for discrete manufacturing, the situation has been rapidly changing recently.

The recent revival of its direct competitor Ross Systems, while hinting a strong opportunity, also reveals the challenges all the players might face (see Ross Systems - A Bright Spot On A Difficult Enterprise Application Landscape (article ID 85.2.15.2002.1585). Therefore, a pure process enterprise applications player like iProcess.sct (or whatever its future brand name might be) does need to be able to differentiate itself from increasing competition both from the larger players, particularly SAP, Oracle, J.D. Edwards, Intentia, IFS, Ramco Systems, Geac, SSA GT and QAD, which have recently made significant in-roads in the relevant sectors (e.g., CPG and chemical verticals) and from a growing number of process enterprise applications incumbents like Ross Systems, AspenTech, Baan/Invensys, ProcessPro, Infinium, MAI Systems (with its CIMPRO product), and eWorkplace (with its BatchMaster product).

The investors also need to understand the exacting requirements (e.g., regulatory compliance) of these verticals, as a deep domain knowledge should go a long way in creating opportunities (see Ross Systems' Focus Yields More Value For Process Manufacturers). Most of these markets live with the reality of very slim margins. To compete, these companies must continue to reduce costs while increasing the level of service to their customers. These companies, whose time-to-market is often constrained by the idiosyncrasy of handling natural resources (e.g. seasonality and perishability), the speed of communications promised by Internet has evolved into a new era of competitiveness that is not that typical within the discrete manufacturing sector.

As a summary, although the acquisition will inevitably cause some setbacks going forward, as the company will feel the impact of the change (e.g., a likely new brand name confusion, possible staff departures and competitors' negative propaganda), in six to twelve months, all the constituency will likely be glad this has happened.

User Recommendations

Experience teaches us to be wary of the outcome of divestitures', mergers' and/or acquisitions' as the market has witnessed both success and disaster stories in the past. Although Golden Gate and Parallax have a good track record for acquiring other less fiscally sound companies with attractive products in the past, one never knows when bad luck may strike.

While we believe that the above acquisition will be positive in the long run, some growing pains and transitional issues are always to be expected. Consequently, until the acquisition is consummated, users evaluating the above individual products should exercise some caution, keep themselves informed, and consider generally available (GA) functionality only. Existing users should clarify and enforce their support status and the long-term product alliances, product development and migration strategy with the new management.

Process manufacturing enterprises from the food, beverage, pharmaceuticals, chemicals and CPG industries that are looking for e-commerce or other enterprise solutions should place the newly independent GMDS on their initial list of prospective vendors. Potential and existing users should be aware of the fact that it is a long journey from vision to execution though. Therefore, prod Agilisys executives about firmer product availability dates and bear in mind typical issues associated with immature product releases.

Become a part or enquire about the state of affairs of Special Interest Groups by company type (e.g., food, chemical, etc.) and functional area (supply chain, etc.), which had in the past allowed customers and SCT field and product management to share experiences. The tone of these sessions revealed that the user community is attacking in-depth business issues and getting results, as the users would also identify additional requirements that remain to be addressed.

 
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