STG to Buy IBS for $35 Million

Published: June 6, 2011

by Alex Woodie

The troubled ERP software company International Business Systems (IBS) is set to be acquired by Symphony Technology Group (STG), a private equity firm based in Silicon Valley. Under terms of the deal, STG will pay 217.5 million Swedish Kronor, or about $35 million, for all outstanding shares in IBS. The deal was announced mid May and is nearly certain to be approved by IBS shareholders by the end of June.

IBS has been looking for a buyer on and off for the last 18 months. When the first go-round of talks failed last April, the board reacted by terminating Mike Shinya, the CEO and president who had been hired in 2008 to lead the newly restructured IBS and complete the move away from the doldrums of RPG and the IBM i server to the promised land of Java and Windows (a move that began way back in 2005 ).

Despite the big move, there continued to be disagreement over what direction IBS should take, which was plainly evident last October when two of five directors suddenly quit and the remainder announced they'd be seeking "strategic alternatives," which is executive-speak for selling the company.

IBS continued without a permanent top executive until this February, when its three-man board hired former Intentia executive Johan Berg to be its CEO and president. Berg has been working with IBS for just a few months, but so far he's been successful at one big task he was assigned: selling the company. It appears Berg used his old Intentia connections to push the deal through with STG.

STG's founder and managing partner, Romesh Wadhwani, owned a considerable stake in Intentia and was a co-chairman of Intentia and a member of the board when it was acquired by Lawson Software in 2006. Since then, STG and Wadhwani have continued their relationship with Lawson, including having Wadhwani as a co-chairman (with Richard Lawson) and a member of Lawson's board. An India-based affiliate of STG called Symphony Service Corporation also had contracts with Lawson to sell the company's software and provide offshore development and support services.

It's unclear what impact STG's Lawson connections will have on the newly minted and restructured IBS company, or whether the pending acquisition of Lawson by Infor has anything to do with all this. (One would have thought that Infor would have made at least one offer for IBS over the years.) With its roots in Sweden, its historical focus on the AS/400 and its core industries, and the desire to move from RPG to Java-based development, IBS has always seemed like a clone of Intentia. Perhaps it will eventually become part of the organization that it so closely resembled, albeit within the Infor structure.

While STG had close roots with Intentia and Lawson, Wadhwani is probably best known as the founder of Aspect Development, a B2B e-commerce company that was bought by i2 Technologies in June 2000 for $9.3 billion. That stands today as history's largest merger or acquisition of software companies, according to Wikipedia's entry on Wadhwani. i2 was subsequently sold to JDA in January 2010 for the paltry sum of $396 million.

That IBS is being acquired for the equivalent of $35 million shows how far enterprise software companies have fallen from the go-go days of the dot-com bubble. As recently as fiscal 2007, the company recorded revenue of 2,260 million SEK (or nearly $350 million at then-current exchange rates), on a loss of less than $1 million. In fiscal 2008, revenue dropped to 2,030 million SEK, which corresponded with $236 million at then-current exchange rates. Revenue dropped another 11 percent (as measured in SEK) in fiscal 2009, and earnings dropped almost 60 percent from the previous year. For fiscal 2010, revenue dropped another 19 percent, although it narrowed its losses thanks to big cost reductions.

The company has also taken a hit in its stature and standing in 2009, when it was de-listed from the Nasdaq OMX Small Cap exchange, and relisted under the Nasdaq OMX First North, an alternative exchange that has lighter requirements and rules than the main market.

The deal between IBS and STG is all but done. Its truncated board of directors unanimously approved the deal, and its majority shareholder, Deccan Value Advisors Fund, has voted to approve the deal. With all the positive energy flowing between Solna and Palo Alto, STG decided last week to declare that its offer to buy all 124.3 million IBS shares 1.75 SEK each is unconditional.

In a written statement, STG managing director J.T. Treadwell had this to say about the transaction:

"Symphony Technology Group believes that the IBS group would strongly benefit from a change in ownership as well as a partner who can provide capital and competence to invest in strengthening the company's operations and value to customers. Symphony Technology Group has a long history in working with enterprise software companies such as IBS successfully, and we are optimistic that we can be good partners for the company."

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