PowerCerv Finally Overpowered By The '02 Hurricane Season

PowerCerv Finally Overpowered By The '02 Hurricane Season
P.J. Jakovljevic - October 25, 2002

Event Summary

What has long loomed as inevitable fate has finally happened at the beginning of October, when PowerCerv Corporation (OTCBB: PCRV, www.powercerv.com), a Tampa, FL-based provider of enterprise software solutions for small-to-medium sized discrete manufacturers and distributors, announced that it has signed a definitive agreement to sell substantially all of its assets to ASA International Ltd. (NASDAQ:ASAA, www.asaint.com), a holding company of vertical enterprise software business-to-business (B2B) software solutions and value-added services, based in Framingham, MA. Under terms of the agreement, in addition to ASA assuming certain PowerCerv liabilities, upon closing ASA will pay PowerCerv $500,000 cash and issue a $90,000 note due in six months, although the purchase price may be subject to certain post-closing adjustments. Following the closing, PowerCerv will reportedly use its best efforts to settle its remaining liabilities and possibly buy another operating business. Closing of the transaction is subject to the satisfaction of various conditions, including the approval of PowerCerv shareholders.

By becoming an ASA company, PowerCerv hopes to continue to focus on its core competencies and vertical segments knowing it has a stable parent behind. Marc Fratello, CEO and a co-founder of PowerCerv claimed its 24 employees will keep their jobs and he will remain chief executive of what will become an ASA subsidiary.

Market Impact

This would be yet another harsh object lesson of how a solid product and an intriguing value proposition can be hampered with a poor market perception due to the company's plunging viability. PowerCerv has indeed had an interesting rise-and-fall 10-years ride, since its founding in 1992. The company grew from less than $1 million in revenue to ~$38 million in 1996. PowerCerv, which started first as a reseller of PowerBuilder tools, then evolved into one of former Powersoft's (now part of Sybase) first VARs, reselling the development tools and providing complementary services, spent its first several years crafting its business applications product and expanding its sales & marketing organization to support application sales. Over that time PowerCerv developed a suite of products aimed at abounding PowerBuilder developers including an object class library, workflow and asynchronous processing tools and a security system.

Owing to the extraordinary growth of PowerBuilder adoption during the mid 1990s, a market consequently emerged for PowerBuilder-based applications, and, in response, PowerCerv had logically begun to develop and garner a set of modern enterprise applications, called initially the EnPower Series. However, the rampant transition from a software tool reseller to an enterprise software developer took its toll in 1997, and PowerCerv has since been going through numerous major attempts to revitalize itself. The first one had happened throughout 1996/97 when the company did away with the unfocused strategy of serving many markets to focus on the discrete manufacturing mid-market with a single product suite named ERP Plus. As a result, PowerCerv then divested several businesses that were not in tune with the new strategy including a general consulting business, an application development tools business, and reselling database software.

Its dismal price tag nowadays that equals a value of a decent piece of real estate in any larger US city's middle of the range suburbs should be a sign of the dj vu' downfall of an ERP software maker once viewed as one of its region's more ambitious technology companies. The company has been shrinking since 1977 -- it had ~$6 million in total revenues in 2001, more than six times down from a peak in 1996, with almost no new license revenue in 2002.

The company went public in 1996 for $14 a share, equivalent to $126 a share adjusted for last year's 1-for-9 reverse stock split, with its shares lately being traded for about a penny (reminding us all of our own personal investments and/or 401k funds dwindling across the board). PowerCerv's bad luck includes a protracted shareholder lawsuit from 1997 (which was eventually settled last year) that prevented an earlier sale of the company when the price could have been reasonably higher.

The nature of PowerCerv's more recent difficulties has indisputably been different than in 1997, as it is particular to a slew of Tier 2 and Tier 3 vendors that have been feeling the Y2K-caused pinch that morphed afterwards into seemingly never-ending economic slump. Lately, the company simply could not compete with many larger vendors considered as more viable in a tough environment for all technology companies, with customers becoming ever more vendor viability cautious and eager investors vanishing.

Its situation has been additionally exacerbated by its late market entry, resulting with low presence (around 200 customers) in an already cramped marketplace and already marked territories, an undeveloped international distribution channel, high staff turnover, the lack of indirect channel to supplement its direct sales force, inferior service & support due to growing pains in the past, and a rapidly eroding financial situation. The reliance on PowerBuilder development tool, despite some of its advantages over Microsoft Visual Basic for Applications (VBA) (e.g., true object orientation, platform independence, scalability, release migration, etc.), has not helped either, given Microsoft .NET's and/or Java camp J2EE's recent capture of both market and mind share, and consequently becoming perceived as de facto enterprise applications development standards, rendering all other development environments almost archaic. Fronstep's recent abandonment of its initial Progress development tool and database speaks volumes in that regard (see Frontstep Ups The .NET Ante).

This concludes Part One of a two-part note on PowerCerv.

Part Two will discuss PowerCerv's Strengths and make User Recommendations.