Event
Summary
According to the press release from July 13, Geac Computer Corporation
Limited, the largest Canadian business applications software vendor, announced
its financial results for the fourth quarter and year ended April 30,
2000. Sales for the three months rose 27.8% to $265.4 million from $207.6
million in the prior year (See Figure 2). Sales for the year grew 26.5%
to a record $990.1 million compared to $783.0 million last year (See Figure
1).
Figure
1.
Figure
2.
The
net loss for the quarter was $9.8 million or $0.16 per fully diluted share
compared to a net loss of $234.0 million or $3.74 per fully diluted share
last year. For the year ended April 30, 2000, the Company reported Adjusted
Net Income of $153.2 million or $2.39 per fully diluted share compared
to $78.0 million or $1.25 per fully diluted share last year. Net income
for the year was $49.1 million or $0.79 per fully diluted share compared
to a loss of $111.6 million or $1.80 per fully diluted share last year.
The
acquisition of JBA Holdings Plc. and the integration of that business
with Geac Enterprise Solutions has been completed and made a positive
contribution to the company's earnings before interest, taxes, and amortization
during the second half of the year. The acquisition significantly increased
Geac's presence in Europe and transformed Geac into one of the largest
enterprise applications businesses in the world.
Douglas
Bergeron, President and CEO commented: "We have concluded a busy year
of growth and transition of the Company, completing eleven acquisitions
and generating $153 million in Adjusted Net Income. Importantly, we have
demonstrated our ability to integrate these businesses to contribute to
our operating performance. The recently announced revenue weakness experienced
by several other application software and services companies is being
felt in several areas of our business and will result in revenue and earnings
weakness in the coming two quarters. Moreover, our current quarter is
also affected by the traditional summer slowdown in our now significant
European operations. However, the current environment does provide an
excellent climate to execute our acquisition strategy. We remain on track
to build a $2 billion business over the next three years and to own a
significant percentage of the world's corporate enterprise installations.
We are building a branded global business from a highly fragmented marketplace.
As well, we hope to continue to transform and opportunistically divest
businesses where value can be prudently unlocked."
Earlier,
on June 26, Geac solidified its enterprise systems presence in North America
by consolidating its various North American ERP operations into one business
unit - Geac Enterprise Solutions. Headquartered in Atlanta, Geac Enterprise
Solutions now incorporates all former product offerings from Geac SmartEnterprise
Solutions (SmartStream, SQL Financials/HR, E Series and M Series), Geac/JBA
(System21 and Style) and Geac HR and Financial Solutions (TotalHR, World
Class Series Financials, HR and Payroll).
According
to Harry Debes, President of Geac Enterprise Solutions, this new amalgamated
division will bring added value to customers' ERP requirements and combine
expertise across all areas of systems strategy and implementation within
Geac. "This name change and combining of business units both reinforces
and complements Geac's overall e-business and acquisition strategy," adds
Debes. "More important, Geac Enterprise Solutions allows our customers
to continue to leverage current investments while benefiting from the
latest technology advancements through our Active Architecture framework."
This
name change also serves to reinforce Geac's recently announced strategy
to build upon its position as a consolidator of the highly fragmented
ERP marketplace. Presenting customers with e-business, CRM, SCM and e-commerce
and business intelligence solutions wrapped around a core set of ERP financial
and human resources systems, Geac intends to expand into numerous new
product offerings, enabling cross-selling possibilities through a dedicated
program of strategic acquisitions.
Market
Impact
While Geac reported a profitable year, the general feeling is that the
company has missed the opportunity to topple PeopleSoft's and/or J.D.
Edwards' revenues. Although Geac has proven itself an adept and disciplined
acquirer of application software businesses, its aggressive acquisition
strategy despite the overall weakness of the ERP market has resulted in
insufficient growth and modest profits. Consequently, the investors' diminished
confidence has caused its market valuation to drop to almost 60% of its
annual revenue.
We
believe that Geac will not establish itself as an ERP leader as long as
it remains perceived only as a company that acquires, botches up, and
possibly divests other under performing software vendors and/or products.
The company will have to become a true software-developing vendor, not
simply a software collector and/or dealer. It will need to add much more
value to its products and services to attract and retain customers instead
of only increasing the investment in the existing, possibly outdated,
core products and support services.
Its
applications must be able to support future business requirements, which
are nowadays directly related to customers' e-business strategies. While
the company is currently not in a position to offer a comprehensive e-business
solution, it should, nevertheless, be able to at least provide a back-office
hub and bridges to e-business components in the fashion similar to J.D.
Edwards' EAI strategy.
The
possible software connector can be the Geac's latest product integration
strategy enveloped in its above-mentioned Active Architecture. This should
be the crucial Geac's undertaking in order to breathe fresh air into its
arsenal of products that are based on diverse technologies and that serve
different, fragmented markets (e.g., System 21, SmartStream, E- and M-Series
mainframe packages, etc.), as well as any other products it may acquire
in the future. To that end, Geac must develop standard, common components
that will be readily available within its product portfolio. One can get
an idea of how painstaking an effort this may be by looking at Epicor
Software's agonizing experience during the last two years.
User
Recommendations
Geac customers should certainly consider the company's latest value proposition,
but avoid selecting it without looking at what the other vendors have
to offer. As for potential customers, we generally recommend including
Geac in a long list of an enterprise application selection to mid-market
and low end tier 1 companies (with $100M-$1B in revenue), based on a very
deep understanding of customers' needs within the following industries:
Library Systems; Construction Systems; Property Management Systems; Hospitality
Systems; Public Safety Systems; Publishing Systems; Manufacturing & Distribution
Systems; Real Estate Systems; Cash & Securities Reconciliation Solutions.
We also generally recommend including JBA System 21 in a long list of
an enterprise application selection to mid-market and low-end Tier 1 companies
(with $50M-$1B in revenue), within the following industries: Automotive
Components, Apparel & Footwear, Beverage, Food, and Electronics.
Other
industries might also benefit from evaluating the respective Geac point
solution, bearing in mind inevitable integration issues with other systems
in place. Future clients are also advised to request the Company's written
commitment to promised functionality, general availability date, price,
length of implementation, and seamless future upgrades. Each component
should be put through its paces using a well-documented set of requirements,
scripted scenarios demonstrations and rigorous reference checking.
If
a complementary product beyond core ERP (e.g., CRM, e-Commerce, SCM, etc.)
is of a critical importance, users should think carefully about the possible
integration implications and may benefit from considering competitors'
value propositions too. Furthermore, users will benefit from informing
themselves about what the company plans for future service & support (or
divestiture and/or product stabilization?) of its individual products
are and what would the ramifications of migrating (or not) to its new
product offering be.