Event
Summary
On April 3, Geac Computer Corporation Limited
(TSE: GAC), a struggling Canadian supplier of enterprise management software,
announced that it has completed the sale of its hotel business to Galaxy
Hotel Systems LLC for approximately $ 1 million (US).
Galaxy Hotel Systems is a subsidiary of Starwood
Hotels & Resorts Worldwide, Inc., the
largest client of the hotel business.
"The
sale of the hotel business is indicative of our intention to be a more
focused company," declared John E. Caldwell, Geac's President and Chief
Executive Officer. "We have had a long relationship with Starwood, a client
whose needs and expectations our employees know well. This bodes well
for the transition." "The sale of the hotel business is indicative of
our intention to be a more focused company," declared John E. Caldwell,
Geac's President and Chief Executive Officer. "We have had a long relationship
with Starwood, a client whose needs and expectations our employees know
well. This bodes well for the transition."
The
event follows the company's unsuccessful attempt to sell itself as a whole.
On March 26, Geac announced the conclusion of the strategic review process
regarding the sale of the entire company. Following an extensive process
involving several interested parties and facilitated by CIBC World Markets
and Lazard Frres, no formal bid for Geac was received.
"Since
we initiated the process, stock valuations have fallen markedly, particularly
in the enterprise software sector. Combined with a tougher market for
acquisition-related financing and the prospect of an economic slowdown,
these circumstances had a negative impact on the potential sale of the
entire Company," noted Caldwell. "We do not believe that Geac's current
stock price accurately reflects the Company's long-term value. Today's
announcement will remove customer uncertainty and enable management to
implement focused plans to improve performance on a go-forward basis."
"As
a matter of policy, the Board continues to examine all ways to maximize
shareholder value. Other strategic alternatives continue to be considered,
including the potential sale of some businesses. Over the next several
weeks, significant additional cost reduction measures, including a substantial
reduction of Geac's current staffing level, will be implemented to improve
profitability. Our goal of placing customers' requirements first will
be the center of our agenda. Our product and geographic diversity provide
the platform to drive shareholder value. We will, however, be more focused
on the industry sectors where our market presence and portfolio of solutions
can most rapidly generate value for our customers and shareholders," concluded
Caldwell.
On
March 13, Geac announced the results for the three months ended January
31, 2001. Revenues from continuing operations were $218.0 million (Can)
during the third quarter, a 21.6% decrease compared with $278.3 (Can)
million during the third quarter last year, but a 7% increase compared
to $203.8 million in the second quarter of the current fiscal year (See
Figure 1).
Figure
1.
"Last
quarter, we committed to improve operational and financial performance
and to strengthen our cash position," said Caldwell. "The restructuring
and cost control initiatives implemented over the past months contributed
to measurably improved results. Going forward, further initiatives will
be implemented in a number of our businesses to further focus on our customers
and to improve our profitability. Operationally, the Company performed
well. We successfully completed and launched SmartStream 6.5 as well as
a number of new products. It was also a strong quarter for customer renewal
of maintenance support contracts."
Following
a review of the carrying value of each of its businesses, Geac wrote down
the value of acquired software and goodwill associated with certain past
acquisitions. A net charge of $211.4 million was recorded in the third
quarter for this purpose. This reduction in carrying value relates primarily
to the 1999 purchase of JBA Holdings plc. Including
this adjustment to carrying value, the net loss for the quarter was a
hefty $218.9 million, compared with net income of $0.9 million during
the same period last year.
"Geac
will increasingly focus on the industry sectors where its market presence
and portfolio of solutions can most rapidly generate profits and deliver
the best value to our customers," Caldwell continued. "We will apply our
efforts to improving our performance, with an emphasis on the higher margin
enterprise software marketplace, and to build upon the exciting opportunities
in the real estate software sector through our Interealty division."
Market
Impact
These
are the bleak days in Geac's history, and not many expected the speed
and extent of events. From the prospects of fiercely competing with other
ERP players, Geac has virtually overnight found itself fighting for a
bare survival. Its unbridled acquisition strategy in a number of unrelated,
diverse fields and in the face of the overall weakness of the ERP market
has resulted in insufficient growth, a disconcerted user base, and dismal
results. Executives' departures and numerous staff reduction initiatives
have been the final straws in this slew of negative events.
While
Geac's difficulties partly originate from the slump of the ERP market
and current economic slowdown, the main culprit was poorly executed acquisition
of once prominent UK-based ERP vendor JBA in 1999. The acquisition has
unfortunately stopped short of producing the great synergy it seemed to
have offered initially. Whether the reason for it was the clash of platform-aligned
cultures (NT-based Geac products opposed to mainly AS/400-based
JBA System 21) and the subsequent (in)voluntary exodus
of former JBA management is now less important. The reality is that Geac
has not significantly enhanced System 21 since (except for Web-enabling
it through Universal Commerce Adapter (UCA) based
on Jacada technology and for embedding acquired CRM and SCE products
for the apparel industry only). Consequently, Geac has been unable to
successfully market its System 21 product. The bottom line - more agile
competitors have functionally leapfrogged a once very attractive product
and captured the market share, while the existing JBA System 21 users
have increasingly been voicing concerns for their investment, as recently
reported by VNUnet.com, a leading European IT news portal.
A
well-known problem for Geac has been its preference for acquiring new
products rather than pursuing in-house product development and/or true
strategic alliances. While the strategy might have worked in a number
of esoteric industries with a low penetration of competitors like hospitality,
real estate and publishing, it is indisputably, a completely different
ball game in the global enterprise applications market in the mainstream
industries. Modern enterprise applications must be able to support dynamic
business requirements, and every vendor is compelled to add much more
value to its products and services portfolio to attract and retain customers,
rather than mainly investing in the existing bundle of disparate core
products and hoping for endless support revenues.
Sticking
to this thrifty strategy instead of taking decisive action to breathe
fresh air into its arsenal of products, have backfired on Geac and relegated
it in the back seat of the enterprise applications market. Therefore,
it is positive news that Geac continues development of its flagship SmartStream
product, having just recently launched SmartStream v6.5. That is not going
to appease the System 21 users though, that are shouting blue murder for
not being appropriately informed about the product's future. Realizing
the crying need to change its faltering business model, Geac seems to
be taking a more vigorous posture in addressing its strategic options.
Look for more product strategy announcements in the near future if Geac
is serious about appeasing and shoring up its large customer base.
User
Recommendations
While Geac's balance sheet was boosted by recent sales of its parts, its
cash resources are not infinite. The positive sign is the company's intent
to become a true software-developing vendor, not simply a software collector
and/or dealer. The "catch 22" for current and potential users is to discern
Geac's corporate strategy viability within the product line/industry in
question. Users will benefit from approaching Geac and 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 be the ramifications of migrating (or not) to its new product offering.
Users should vigorously question Geac on its future options and investigate
alternative solutions now to fully understand their situation and options.
Manufacturing companies considering a new ERP system should be wary of
the System 21 offering, until Geac more clearly states its future plans.
In
any case, make sure that you are comfortable with Geac's declared product
strategy for your industry and keep a close eye on the future developments.
More
comprehensive recommendations for both current and potential Geac users
can be found in Geac
Lives By Acquisitions; Will It Die By An Acquisition?