Event Summary
On May 7, after couple of weeks of the press' speculations, and the parties' courting and 'playing hard to get' game, Microsoft Corporation (NASDAQ: MSFT), the world's largest software provider, announced it has reached an agreement to acquire Navision (CSE: NAVI), a Danish provider of enterprise business solutions for mid-sized companies. The acquisition is seen to bring together the complementary geographic and product strengths of Navision with Microsoft Great Plains Business Solutions, enhancing Microsoft's ability to deliver interconnected .NET business solutions for small and mid-market businesses. The acquisition is structured as a stock and cash purchase based on an offer to shareholders of 300DKK per share. The total transaction value is estimated at approximately $1.3 billion.
Once the acquisition is completed, Navision will reportedly become part of Microsoft's Business Solutions division. Navision's corporate headquarters in Vedbaek, Denmark, will become the center of development and operations for Microsoft Business Solutions in Europe, the Middle East and Africa (EMEA), and will become Microsoft's largest product development center outside the United States. Current Navision co-CEOs, Jesper Balser and Preben Damgaard, will reportedly remain deeply involved with the business. Once the acquisition is completed, Balser will be Director of global strategy and Damgaard will be Director of EMEA operations for Microsoft Business Solutions, based out of Vedbaek, Denmark.
The purchase, which follows Microsoft's well publicized acquisition of former Great Plains for $1.1B in 2001 (see Microsoft And Great Plains - A Friendship That Turned Into A Marriage), while seen by many as an opportunity to create a true juggernaut within the small to midsize business applications market, is also seen by some as Microsoft's tacit conceding its inability to turn its Great Plains Business Solutions Division into a true global business on its own.
This is Part 1 of a 2-part analysis of the acquisition of Navision by Microsoft.
Part 2
covers the challenges this presents and make User Recommendations.
Market Impact
The move might indeed be Microsoft's 'second bite at a cherry', the cherry in case being the enterprise applications mid-market, whose landscape might change profoundly this time-with continued market consolidation and turmoil in the near future, and Microsoft's domination in the long run. Although its Great Plains' acquisition would be a far cry from a failure, it has not made the desired (and possibly expected) dent on the market worldwide either.
Indeed, Microsoft Great Plains division has hardly created much new business outside North America, with some honorable sporadic exceptions in the UK and Germany. One reason for it would be the products' limited multi-language capabilities; it still supports only a handful of languages. Moreover, even within its geographic stronghold, the company has not become a serious contender in the manufacturing sector (see How Great Is Great Plains' Manufacturing Offering (Did Somebody Say Microsoft)?). To be fair, one could hardly find any product strategy mismanagement and/or Microsoft's lack of desire to enhance the products, as we have been made aware of significant manufacturing and distribution functional enhancements for all Great Plains product lines (i.e., eEnerprise, Solomon, and Dynamics) since the acquisition. All the products have kept their identities and niches, Solomon being a good example in project management and professional services sectors, despite skeptics' initial belief that the product had only been acquired so that then Great Plains would assimilate its customer base.
Still, many of these new features had already long been offered by major manufacturing ERP incumbents, as Microsoft's huge R&D investment can help only so much in swiftly producing functionality that has taken decades for others to deliver natively. Some attempts to compensate for both the lack of strong manufacturing functionality and geographic presence through partnerships (see Kewill And Microsoft Great Plains To Further Mutually Complement), have also had only a limited success.
To that end, Navision, almost the Great Plains' European replica (but with stronger multi-national, multi-language, and localization as well as manufacturing and distribution functional product capabilities to booth) would logically complement it both functionality- and geography-wise.
Navision Strengths
Navision brings to the merger a strong international presence, proven execution and a profitable business model, also with a more scalable, technologically more sophisticated and functionally stronger product for the higher end of the market, namely Axapta, formerly Damgaard Axapta. Note, however, that small manufacturing companies have typically used Navision Attain/Navision Financials for order fulfillment and accounting, rather than for manufacturing control, which resembles Great Plains product families' case as well. Navision offerings provide Financial Management, Human Resources (HR), Customer Relationship Management (CRM), Supply Chain Management (SCM), Warehouse Management, E-Commerce/Portal Slutions, Business Intelligence (BI) and Knowledge Management (KM) capabilities. These are supplied through a diverse product lines including Navision Axapta, Navision Attain, Navision Financials and Navision XAL, while a legacy-like product Navision C4/C5 is marketed only in Denmark.
Navision also brings a revenue stream of ~$180 million and close to 1,400 employees worldwide in its offices in 29 countries, called Navision Territory Representatives (NTRs). Navision has possibly a unique product development model -- its main R&D team delivers a core product to which NTRs and over 2,200 resellers, called Navision Solution Centers (NSCs), add local and/or industry-focused functionality to satisfy the diverse markets worldwide.
Therefore, Navision's likely more important dowry, in addition to the broader product footprint, is its extensive channel of more than 2,200 partners worldwide, but primarily across Europe, the Middle East, and Africa (EMEA). Consequently, Navision has realized that encouraging the NSCs' and partners' vertical specialization is of key importance for global expansion and penetration of some well-defended markets. The practice of allowing the local representative (NSC) to develop locally endemic functionality, has been proving to be one of Navision's tenets of success. This practice proves particularly useful when product time-to-market is critical.
As applications such as financials, HR and manufacturing must be adapted to meet local needs in terms of language, legal requirements and business practices, Navision would combine local autonomy with the need to leverage local best practices across national boundaries. To that end, Navision US operations has recently announced Navision Industry Solutions (NIS) Program in order to support partners that are focusing sharply on a narrow industry segment and that consequently better leverage their marketing and R&D expenses, as well as the experience.
Further, there has been some level of rigorousness to the vertical solutions qualification procedure that Navision has imposed upon its resellers. A reseller is supposed to provide a sound business plan and marketing strategy, a total industry solution as opposed to an add-on (a specific functionality that is highly desired by a specific industry segment rather than from many different segments), customers willing to be pilot sites, and to have a certified developer on staff and full access to all development tools.
The main differentiator though should be the sharpness of vertical focus that Navision intends to deliver; Granularity of vertical focus will go down to the level of six figures US-SIC (Statistical Industry Classes) codes. This level of vertical focus possibly represents a thought leadership that other vendors may find hard to emulate. The above practices should come in handy to Microsoft Great Plains' team, which has also been grappling lately with devising its localization and vertical industries approach.
Cultural Compatibility
Therefore, the closeness of corporate cultures and business models of former archrivals Navision and Great Plains (oriented mainly toward license revenue rather than revenue from services, and consequently leveraging a strong indirect channels for sales, local services and support, and product localization) should bode well for the merger. What also helps hereby is the Great Plains' monogamous relationship with Microsoft; it has ever since its inception solely been using Microsoft technology in all of its products. The two had long partnered in the development of Microsoft's .NET platform for the deployment of applications via the Web (for more information, see Great Plains' eEnterprise Solution 'N Sync with Microsoft's New Platforms).
Also, although not completely faithful to Microsoft, Navision has recently embraced the .NET Framework, which should make it much easier to blend the products. While it has not been that long ago since Navision committed itself to follow Microsoft's guidelines for application development, the company points out that, it has the first solution that was awarded Windows 95, Windows 98 and Windows 2000 certification, and it was one of the first to incorporate eXtensible Business Reporting Language (XBRL) standard and the Microsoft Digital Dashboard and Microsoft BizTalk solutions. Despite jumping much later than erstwhile Great Plains on the Microsoft bandwagon, Navision has proven its superior flexibility and adaptability.
The math is simple - the combined company should have nearly $500 million in revenues, will sell its products completely through an indirect channel of 4,500 resellers, and will have more than 300,000 customers using its portfolio of products, nearing or exceeding thereby the stature of the likes of Baan, Lawson Software, Geac, Best Software and Intentia. Also very beneficial could be the new division's leverage of Microsoft brand name, its global marketing power and enormous sales resources to expand its global presence, particularly in the Asia-Pacific region where the enterprise applications mid-market enterprise has still not largely penetrated and where the companies' presence has been quite insignificant.
Navision might, therefore, more effectively leverage its large partner network to promote brand awareness in the global market. TEC has witnessed in selections' engagements, ever since Microsoft's acquisition of Great Plains, clients inquire about Microsoft Great Plains' capabilities, even in the cases of apparent product functional inferiority (which might be much less of a case with Navision's product line).
This concludes Part 1 of a 2-part analysis of Microsoft's acquisition of
Navision.
Part
2 discusses the Challenges this acquisition presents and make User
Recommendations.