Event
Summary
On February
27, Baan Co. interim chief executive Pierre Everaert said he could not rule
out a takeover of the troubled Dutch business-management software group. "If
someone comes along and offers a good price and can assure further growth at
Baan, how can I say no?," Everaert said in an interview at the CeBIT trade fair
in Hannover, Germany. Everaert took up his post after the departure in January
of CEO Mary Coleman, followed by the resignation of chief financial officer
Jim Mooney.
Earlier
in February, Baan reported a sixth consecutive quarter in the red and a full-year
loss. Its fourth-quarter net loss amounted to $236.2 million. The results, combined
with the resignation of Coleman and Mooney, sent Baan's shares plunging to a
five-year low. The shares plunged 60 percent in three days.
Everaert
said Baan would rather not be taken over. "The primary goal is to survive with
the structure we have. But we face challenges," he said. "Baan today is something
quite different to the Baan of two years ago." He said the company needs to
cut costs, change its strategy and solve its problems in attracting shareholder
equity. Everaert was confident he could achieve a speedy revival in Baan's fortunes
and said it would take two to three months get the company on track.
Formerly
chairman of Baan's supervisory board, 60-year-old Everaert has a strong record.
He served on the management board of Dutch consumer electronics giant Philips.
But he has no ambition to hold onto the top job at Baan. "I am paving the ground
for my successor, who should have the same strategic reasoning as me. But this
could take another two to three months," Everaert said.
The
struggling software vendor suffered another body blow last week, as the prospect
of losing its prized blue-chip status on the Amsterdam stock exchange coincided
with its share price slumping to a new five-year low. The ERP vendor has been
given four weeks to raise shareholder equity from its current level of $9m (5.5m)
or face suspension from the blue-chip index of the Dutch stock exchange. Katrina
Roche, Baan's worldwide marketing director, told press that going public with
the threat had been a mutual decision between Baan and the Dutch financial authorities.
"There has been a lot of speculation about what our current equity situation
is," she said. "It was mutually agreed that we should clear that up."
Baan
needs to achieve $50m in equity to satisfy both the stock exchange and backer
Fletcher International. It has hired merchant banker Lazard Freres to help sell
off more parts of the company. Options may include its Aurum customer relationship
management (CRM) software unit and the Cap Logistics scheduling and planning
software businesses. Some now openly doubt whether Baan has a future. Unfortunately,
Baan's internal problems have coincided with the external problems of ERP vendors
as a whole. The main concern has to be for the ongoing support of the customer
base.
Many
U.S.-based financial analysts have already dropped coverage of the company.
Prudential dropped research coverage mid February. CIBC dropped coverage last
month. "No one likes to be associated with it anymore," an analyst said. "The
financial situation of Baan is critical", HSBC Investment Bank of London wrote
in a report dated February 16.
Market
Impact
We believe that Baan's troubles have progressed to such a terminal disease status
that a sale is almost the only remaining option. We duly acknowledge our skepticism
about the likelihood of Baan's takeover in our news analysis from January 20
("Is Baan Clinically Dead?"). However, we also acknowledge the fact that its
market capitalization value has in the meantime dropped to a bargain value of
slightly over $1 billion, which substantially changes our position. The company
has sunk so low due to poor marketing skills and execution of projects and products
that it is hard to envisage how it can survive without being taken over. The
company has little hope of regaining, under its own steam, the customers and
share price it has lost.
It
is nonetheless an ungrateful job to speculate who would be the most likely buyer
willing to inherit Baan's dowry. The overriding problem has been the gradual
emergence of a negative aura around the company. This has led to a downward
spiral that has become uncontrollable, as viability of the vendor is of utmost
importance in the ERP space. We would hereby like to round up all the usual
and some unusual suspects.
The
very unlikely buyers (5% probability) are its largest direct competitors. SAP,
Oracle, and PeopleSoft. They seem to be well enough set with their product strategies
that this acquisition would only confuse things. Wasting management capacity
to boost a troubled company would be more detrimental than the potential benefit
of annexing its customer base.
JD
Edwards and Geac, on the other hand, could possibly benefit from acquiring Baan
both by using some of the components to close gaps they currently have to rely
on partner products to fill, and to boost their international clout. This could
allow them to gain more control over the front office part of their businesses.
However, we do not put a high probability here either (15%). JD Edwards will
not want to derail its slew of product partnerships, some of them in very advanced
stages, while Geac, renowned for its aggressive acquisition strategy, may choke
with this lump in its throat.
The
other names that logically cross our mind are the "front office" vendors themselves.
However, companies like Siebel Systems and Clarify/Nortel currently regard ERP
only as a necessary evil lurking in the back office. They consider it largely
irrelevant to the CRM business so that acquiring an ERP company would represent
a distraction and a dilution of their value proposition. However, this attitude
may change very soon, as SAP is on the quest of converting its defector-users
currently using Siebel's CRM products to switch to its latest CRM offering that
is coming of age (slowly but surely) and obsoletes the need for 3rd party integration.
The same holds true for i2 Technologies a high-flying supply chain software
maker with a significant penetration within the SAP customer base. Both Siebel
and i2 are currently worth well over $20 billion, and a Baan acquisition may
prevent them from being stranded after SAP's imminent and fierce onslaught.
Therefore we assign a somewhat higher acquisition probability here (20%).
One
can never discount large software houses as potential candidates. An "outrageous"
idea is that the possible break-up of Microsoft, would open the door to the
applications division buying Baan as a way of moving up the food chain (this
probability is subject to Microsoft's break-up likelihood, therefore not accounted
for in this case). Microsoft, in its current form, will not want to go down
this route as it would run into the same problems as Oracle has on the database
side - i.e. it would find itself in a direct competition with major partners
like Siebel and SAP. IBM's approach to this matter is very similar to Microsoft's
current strategy (5% probability). Computer Associates too, otherwise an active
predator in the software wildlife and always with a watchful eye, is currently
busy devouring its latest $4 billion prey, namely Sterling Software.
The
type of buyer that might also make sense is an organization looking for a product
foundation to enter the Enterprise ASP market. This area is still wide open
at the moment and possible candidates for a Baan acquisition could include large
ISPs, telecom companies, possibly some systems integrators, particularly some
of its largest VARs like Metamor Worldwide or Vanenburg Business Systems. The
benefit of this would be that the new owner could resolve the tarnished image
problems by re-launching and repositioning the product under its own brand (15%
probability).
There
are also the possibilities that Baan could 1) bounce back under its own steam
(10% probability), 2) gradually fade away into the second tier space (20% probability)
or 3) sink into legacy oblivion (10% probability). We apply the above probabilities
that cumulatively add up to 100% only for the next six months.
We
apologize to any unintentionally omitted interested buyer.
User
Recommendations
We have no intentions of advising current Baan users, particularly those in
the middle of implementations, to remain cool, calm, and collected. However,
we believe that their endeavors will not necessarily be seriously jeopardized.
They may want to consider beefing up their internal resources from the expected
spate of laid off, very experienced Baan consultants.
Furthermore,
for existing Baan clients, we suggest keeping the "E-Enterprise" and CRM solutions
on your long list. If you are interested, perhaps the existing relationship
could be leveraged to dramatically reduce the cost of those suites. Consider
negotiating a pilot or trial period at no cost to you. Moreover, leverage the
Baan opportunity to negotiate a lower price with competitors. If Baan is willing
to provide its solution at a low cost, or even free of charge, use that information
with other vendors. Should loyalty to Baan or an overwhelming sense of adventure
prevail, make sure that you have the prerogative to change the source code and
a team of skilled resources.
New
users currently evaluating Baan products are advised to exercise extreme caution
in making any critical decision about future partnership with the company, due
to its dire present situation and very uncertain future. This company is in
a serious trouble. We suggest you evaluate the features, price, and corporate
viability of all vendors before making a selection .