Is SSA GT Betting Infini(um)tely On Acquisitions? Part Two: Market Impact

Event Summary

Seemingly strange and things once considered unlikely can happen in the enterprise applications market. It might even be quite ironic that, during these days of general lethargy of the market, the rare upbeat pieces of news have been coming from some reformed traditional enterprise resource planning (ERP) vendors. These very vendors not that long ago exemplified failed business models, thus giving ammunition to some pundits to announce the obsolescence of ERP. A vendor that many have long considered gone south' seems not only to be shyly coming back onto radar screens, but has rather noisily been re-creating a sort of an IBM eServer iSeries (formerly AS/400) platform-based ERP empire, which was also once considered vanishing like Atlantis.

On October 28, SSA Global Technologies, Inc. (SSA GT), www.ssagt.com, a worldwide enterprise solutions and services provider, announced it has entered into an agreement to acquire 100% of the common stock of Infinium Software (NASDAQ: INFM), www.infinium.com, another like provider, although mainly within different industry segments. In the agreement, each outstanding share of common stock will be converted into the right to receive $7.00 per share in cash. The agreement specifies that the transaction is subject to approval of Infinium's shareholders as well as regulatory and certain other customary conditions. The transaction is expected to close before January 1, 2003 at which time Infinium should become wholly owned by SSA GT.

This is Part Two of a four-part note on recent developments at SSA GT.

Part One covered recent announcements. Part Three will continue to discuss the Market Impact.

Part Four will discuss Challenges and make User Recommendations.

Market Impact

With hindsight from two previous like-acquisitions, we tend to be more favorable and less skeptical about this acquisition of Infinium. While, at the time of interBiz acquisition, CA was in quite a quandary with its eroding finances and impending SEC investigation, and had for long not known what exactly to do with its bunch of aging ERP products and with confused and disconcerted customers and stuff members, Infinium has, contrarily, lately been praised for its successful comeback and for its crystal-clear focused strategy and energized organization (see Infinium Returns To Its Core Competencies To Succeed).

At about the same time as its new adopted parent, in late 2001, Infinium seems to have successfully bitten the bullet and began reversing its slew of preceding bad fortunes (see Figures 1 & 2). Consequently, the fast tracked return to profitability during the last four quarters. A several million positive cash flow and revenue growth in the last few quarters have renewed customers' and investors' confidence. The companys recent stock performance and a hefty cash price of over $100 million SSA GT is willing to fork out at the time of less than $1 million software bargains like PowerCerv or Clarus, speak volumes in that regard.

Figure 1.

Figure 2.

Like the previous two acquisitions, this one too seems aimed at enlarging SSA GT's customer base, market share, and, more importantly, its predictably recurring support revenue and consequently larger R&D pool. The acquisition nears SSA GT closer to the landmark number of 10,000 active installed customers, although at a price stretching its R&D and service & support resources. Yet, after close scrutiny and assessment of Infinium's strengths and weaknesses, the SSA GT management will have concluded that Infinium's over two decades long operating history, its functional and scalable solutions, over $50 million of recurring service & maintenance revenue stream (out of $67 million total revenues in 2002), and loyal customer base (with over 90% customer retention) due to traditionally exceptional customer care should help its comeback cause provided the merged company can curb certain challenges.

Adding New Market Opportunities

Another favorable difference from the interBiz' acquisition would be a much lesser functional overlap and a possible adversarial competition between SSA GT and Infinium products and target industries. Having not been entirely manufacturing-centric, Infinium should add diversity in terms of new market opportunities (competing rather with the likes of PeopleSoft, Lawson Software or Geac in certain service-based industries), while also expanding functionality and customer base, which has become important possibly more than ever nowadays for all software vendors in a shrinking economy.

SSA GT's current staff members have known as much about gaming and healthcare industries as mere hotel/casino/hospital visitors in the past. This is Infinium's forte. And, vice versa when it comes to Infinium's staff expertise in the automotive industry, it rests with SSA GT's current staff. Furthermore, when the inevitable products' redundancy rationalization soul-searching exercise is done, there should be a good potential for SSA GT to gain even more of a traction in some process industries, like batch-process chemicals, food & beverage etc., and to also up- and cross-sell some of its applications, including certain warehouse management systems (WMS) and BPCS role-based portal developments, to Infinium customers.

Conversely, SSA GT can expect to further sell to its own customers Infinium's CRM, HR/payroll and financials add-ons. In fact, a great number of SSA GT customers will have already deployed Infinium for astute HR/payroll and financials administrative back-office functions interfaced to SSA GT's superior BPCS product on the manufacturing shop floor, which should bode well for any tighter products' integration moves in the future.

Current Technology

Further contrary to the former interBiz' products, Infinium, while not at the cutting edge of product technology, is also a cry far from being outdated. One of the Infinium's crucial recent decisions was also the sole focus on iSeries platform and on IBM WebSphere technology and infrastructure, which was a prudent decision against the backdrop of the company's recent business circumstances and its resources. While not a platform with a high growth potential, iSeries remains a proven technology that is highly regarded for its reliability, stability, and robustness, which all typically result with a low TCO. The fact that IBM continues to invest in the platform's rejuvenating development and its Web-integrated infrastructure was yet another reason for Infinium to stick to its long partner's recognized technology.

Having decided on its platform support, Infinium energetically embarked on the mission to modernize its products architecturally while preserving its customers' manageable migration and their investment in its older product releases. Furthermore, a brand new browser-based user interface (UI) should have an appeal to current users and prospects, and should alleviate Infinium's proverbial problem of bland UI and unexciting metaphor that has often plagued its sales in the past and prevented its more widespread recognition.

Also, to alleviate anxiety of many of its users, which have heavily customized its older, green-screen' product versions, the company released recently a redevelopment tool designed to extend the business logic and interfaces of these product instances to the Internet. The tool uses XML to communicate with the IBM's WebSphere Application Server. Additionally, while Infinium's product is not based on object oriented programming (OOP) code per se, it has nevertheless long provided a great number of application programming interfaces (APIs) for interconnectivity among its own and third-party applications, all providing for flexibility and incremental deployment.

Cultural Synergy

Consequently, the similarity of the companies' recent cultures as well as their very similar product rejuvenation and functional expansion roadmaps should indicate many synergies that could exist between the two product lines/organizations, including the cited closeness of product codes at the base level and both camps' heavy reliance on proven IBM iSeries platform. These sorts of economies of scale are blessings in disguise could still allow SSA GT to build on its core ERP transactional capabilities while being able to offer viable extensions to the core products. Also the companies have similar philosophies illustrated in pragmatic product development approach and unrelenting focus on profits and cash generation lately.

The companies indeed belong to a group of vendors recently benefiting from the market sobering up from its recent 1990s infatuation with cool' (and often unproven and immature) technologies at any cost and from its subsequent reversal to a show me' attitude illustrated in a pragmatic home improvement' approach to utilize and/or rationalize already implemented software to excess ("shelfware") and to deploy new technology incrementally with a proven quick return on investment (ROI).

To their favor, mid-market enterprises have increasingly adopted the concept of a single-vendor application suites (ensuring thereby a single throat to choke) and tend to buy extended functionality from their ERP backbone vendor rather than to risk intricacies of a multi-vendor concocted solution. For vendors targeting mid-market manufacturers, current loyal customers have become pivotal to their success in selling upgrades and extended applications such as supply chain management (SCM), CRM, BI, portals, and SSA GT should have secured a fertile ground thus far.

This concludes Part Two of a four-part article on recent developments at SSA GT.

Part One covered the announcements. Part Three will continue to discuss the Market Impact.

Part Four will cover Challenges and make User Recommendations.