Event Summary
In the year marked by depressing news coming from almost all corners of the world economy and particularly from the tech sector, which has also resulted in a recent flurry of acquisitions (often for ridiculously low prices), it may be refreshing to hear an upbeat strategy, including the Xmas-shopping-like acquisition, coming from still a relatively less known, but certainly up-and-coming vendor.
On
December 19, Adonix (www.adonix.com),
a privately held French enterprise applications provider for mid-sized mixed-mode
manufacturing and distribution companies, announced that it has acquired CIMPRO,
a Tarrytown, NY subsidiary of MAI Systems Corporation (NASDAQ:
NOW), a provider of business solutions primarily to the hospitality industry.
Adonix will reportedly assume all CIMPRO employees, net assets, technology (including
flagship CIMPRO V process ERP product), and contractual rights
to all 250 customers and business partners. The vendor believes the combination
of its X3 flagship ERP solution (primarily for discrete manufacturers)
and CIMPRO V will bring to the legacy replacement market a powerful offering
tailored for specific process industries such as the chemical, pharmaceutical
and food & beverage sectors. CIMPRO, standing for Computer Integrated Manufacturing
for Process, is specifically designed to address the needs of these process
industries.
This
is Part Three of a three-part article.
Part
One detailed recent events.
Part
Two discussed the Market Impact.
Challenges
However, it remains dubious how this acquisition can, at least in a short term, mitigate the fact that CIMPRO exhibits inferior product technology and multi-national capabilities, and that it supports only English. Adonix will also have to demonstrate substantial progress in developing an indirect channel to supplement CIMPRO's meager direct sales and product implementation force, since, without it, its growth and international expansion will be hampered.
Moreover, limited financial resources to adequately fund multiple key strategic initiatives including multiple products' assimilation, brand marketing, undeveloped global channel and brand recognition, and formidable competition within the market of Adonix' future expansion focus (particularly the North American market) are the challenges the company has yet to overcome. The above feat would likely give pause to much more resourceful vendors than Adonix with its estimated ~$80 million in revenues (including the recent acquisitions). Internationalization requires significant investment, and Adonix, with its limited R&D funding compared to the bigger players it will likely compete against, still has a burden of beefing up its channel, possibly with some high-profile partnerships to further back up the above-cited notable momentum.
The
company has another predicament to solve in the growing conglomeration of Adonix
legacy applications now nearing 7,000 customers, many of whom need to upgrade
mainframe applications to newer architectures. Although one may expect a substantial
recurring revenue stream or a new license opportunity from this large installed
base from, e.g., former Prodstar and ABEL
products and older versions of Adonix, and while Adonix is targeting these as
well, it is dubious whether the new X3 product can meet the demands of larger
corporations among this install base that continue to rely on the legacy applications.
The company will thus have to walk on the tightrope of the obscure balance between functional depth and ease of use. And, its focus on mid-market might not fly with these companies, where it will have to overcome the market perception of a "small unknown ERP vendor". Incidentally, the company has to be careful not to spread its development resources too thin trying to maintain its multiple platform product configurations, which roster will be even more increased with CIMPRO's esoteric technology set. On the one hand, multi-platform support creates additional opportunity (and R&D liability), but, on the other hand, the trend for the company's target market is towards the Microsoft technology.
Also, the company must continue to augment a base of reference accounts from the ~ 650 companies that have purchased X3 so far. A couple dozen sites in the US might still be insufficient to boost brand recognition and make a serious go of the North American market, despite this acquisition given CIMPRO's subdued profile of late. However, because CIMPRO customer retention will be important to also fund the new integrated product's development, Adonix must continue to devote some resources to existing legacy CIMPRO instances' enhancements. To maintain a minimal level of sales, we believe that Adonix will have to urgently rejuvenate (i.e., Web enable at least) CIMPRO's product technology and graphical user interface (GUI) because these have been its competitive liability and the primary weakness. The dilution of R&D resources between the old CIMPRO and the new integrated X3 product, together with product-absorption issues and infrastructure ramp-up, will inevitably delay initial delivery of X3 next-generation integrated product for at least 12-18 months.
While
the products are definitely likely to converge down the track, the short-term
strategy will only likely be to align the sales strategy of both companies.
In the short term, Adonix plans to utilize the CIMPRO formula management engine
and combine it with the rest of Adonix X3 and release it as an Adonix
CIMPRO process manufacturing solution, with expected availability by
the end of Q2 2003). This should overcome some of the challenges mentioned earlier
as far as multi-country capabilities, etc. that limited the marketability of
the previous CIMPRO package. Still, the job of gaining traction will by no means
be easy for the merged companies, while the competition will not ease any time
soon. This acquisition and the Agilisys' acquisition of BRAIN
(see How
Much Wisdom Will BRAIN Bring To Agilisys?) may indicate a trend of the discrete
and process ERP markets convergence, but the merger approaches seem to be quite
opposite.
While Adonix' prospects of delivering a unified all-rounder ERP product will bring benefits in the long run, the devil lies in the price to achieve the synergy a likely new process manufacturing customers' reluctance to buy CIMPRO until new proven generally available (GA) product, and the existing customers' disconcert. Conversely, Agilisys and BRAIN will likely assume business as usual' given minimal integration intentions and any ramifications for customers.
Therefore, Adonix will also have to vigorously deliver an assuring message to the current customers about the support, enhancement, and migration plans for its respective products. Not to mention the need to quickly articulate the future integrated product blueprint, and the impending effort of cross-training of combined direct sales and VARs. Long-term, Adonix will of course be integrating CIMPRO V functionality into the existing Adonix X3 framework, but the firm timeframe is yet to be outlined. The ever-important technological migration path for CIMPRO users will have to be announced too, much beyond typical data conversion tools, and a consequent virtual reimplementation if they upgrade to the new product. A mitigating factor in this regard should be Adonix' product openness, and its previous expertise in assimilating products with disparate technologies.
On the other hand, CIMPRO's need to partner with many providers in the past for lack of its own sophisticated consumer packaged goods (CPG) order management functionality, and more complex financials, will have contributed with some experience in product interfacing. CIMPRO's simple, focused functionality has also helped to make it easy and inexpensive to implement, as long as there are few to no modifications, which could be enshrouded within Adonix above-mentioned implementation coffee-like' flavors. Finally, Adonix' expertise in CPG and retail segments should not make its channel's cross-training into process manufacturing an insurmountable feat.
Summary
As a summary, the caveats notwithstanding, the merger looks indisputably like a positive move for both companies and their customers. Adonix extends its foothold in the process manufacturing and it obtains a functional product that it might embed into its own suite and possibly even cross-sell to some existing customers. CIMPRO finds a committed partner and a solid upbeat management team, more certain R&D budgets, and many added functional capabilities from the Adonix side. Both companies needed increased visibility and clout. CIMPRO users should benefit from Adonix' financial stability, which may in turn have done the acquisition at a good time, as to be ready with a compelling product portfolio when the market eventually recovers.
User Recommendations
Combined respective customers, particularly CIMPRO ones, should consider this event as a move toward quite a more viable position for their IT investment, given Adonix' previous acquisitions' experiences, its stability, and sustained support for the ongoing development of its products, likely by deepening its ability to provide both discrete and process manufacturing functional capabilities bundled with logistics execution. Thus, users contemplating these needs should keep an eye on CIMPRO's future within Adonix.
Adonix' target market, general multi-site and multi-national distribution and manufacturing companies either independent businesses or large autonomous units of global giants with $20 to $300 million-a-year revenue range and up to 100 concurrent users per site, should consider the company's value proposition, bearing in mind other competitive products. Adonix often comes ahead of larger global players in terms of functional fit, pricing, and understanding of the local requirements in the distribution area. Like enterprises in France or Southern Europe (especially Spain, Italy and Portugal) should short-list X3. However, customers outside Adonix' successful geographies may want to do their due diligence and check Adonix' regional support before moving forward.
Prospective customers in Adonix' core industry verticals -- the discrete and process industries with standard manufacturing and extensive distribution requirements such as CPG, wholesale, retail, chemicals, industrial & commercial machinery, electronic & electric supplies, furniture, and rubber & plastics, should look favorably on the acquisition in the long term. CIMPRO is a functionally strong product for process manufacturing-focused, mid-market enterprises or individual sites of larger enterprises in North America, with up to $50 million in revenues. CIMPRO supports batch-oriented manufactures particularly well with features such as flexible packaging, formula scaling, formula management and hazardous materials reporting. However, CIMPRO is less capable in a true continuous-flow environment and is best suited for individual rather than multi-site environments with interdependencies.
There will be a few rough spots on the path until the unified international solution, though. Although the products are complementary to each other, the integration work ahead will involve some areas of overlap in light of basic back-office functional areas (e.g., cost accounting), which will have to be handled carefully. Users should not expect a unified global suite of applications to be available before second half of 2004 (with 70% probability), and should challenge the company to commit to more certain product development and migration strategy roadmap. Consequently, until the merger is consummated, users evaluating the above individual products should keep themselves informed, and consider generally available (GA) functionality only. Somewhat assuring should be the fact that Adonix will grant to those CIMPRO customers who would like to just make the technical leap from CIMPRO Classic to CIMPRO V that they will still have the option to do so. Adonix is also enhancing the Adonix CIMPRO maintenance contract to assist those customers who would like to make the leap from older CIMPRO systems to a more modern future product, and users are encouraged to enquire about its content.
Users
should ask the following questions when evaluating the Adonix-CIMPRO combined
offering:
-
Are there any price advantages offered to existing clients who elect to purchase/migrate
to the future integrated products?
-
What technology will be used to integrate the applications?
-
Will (and when) the applications share a common server platform and user interface?
Existing users of earlier Adonix product releases should position X3 central to their collaborative B2B and B2C e-Business strategies although being informed about competitive products cannot hurt. They should also question the company's future product development strategy, product migration path (upgrade licensing arrangements and ongoing service & support, and/or ramifications for not opting for X3). Existing CIMPRO customers looking to expand well beyond its process manufacturing modules should place X3 on their short list. Existing CIMPRO users that have been delivered to in partnerships with other products (e.g., Great Plains) should urgently clarify their support status and the long-term product development and migration strategy with the new management.
Very
detailed information about both Adonix X3 and CIMPRO
V is contained in the ERP
Evaluation Center at http://www.erpevaluation.com/