OS/400 Edition
Volume 11, Number 41 -- September 30, 2002

Inovis Rises from Peregrine's Harbinger and Extricity Ashes

by Alex Woodie

The EDI and B2B e-commerce software components of Peregrine Systems' struggling business were quietly given new life earlier this month, when a group of investors launched a new company called Inovis to sell software that used to be marketed by two of Peregrine's recent acquisitions, Harbinger and Extricity. Based in the iSeries stronghold of Atlanta, Georgia, Inovis boasts some impressive figures for a startup: 520 employees, a $100 million annual revenue stream, and most important, profitability.

That the group of investors, led by Golden Gate Capital, was able to purchase Peregrine's supply chain software unit for $35 million this June has to go down as one of the biggest M&A coups of this young century. As Inovis vice president of marketing, Steve Gaylor, pointed out, Peregrine wasn't in much of a position to bargain. Indeed, the once high-flying San Diego technology company has been rocked by a Securities and Exchange Commission investigation into its accounting practices, finger pointing between the company and its long-standing auditing firm Arthur Andersen, unusual public pronouncements made by Peregrine's short-lived auditing partner KPMG, of likely accounting fraud at Peregrine, mounting investor lawsuits, and a plummeting stock price.

In fact, the Peregrine scandal is now so ugly that Inovis has attempted to remove that part of its lineage by using the words "formerly Harbinger and Extricity" when describing itself on its Web site and in press releases. "People recognize Harbinger, especially in this market," said Gaylor, who became a Harbinger employee in 1995. "If they've got something bad to say, they call you Peregrine. If they've got something good to say, they call you Harbinger."

Nevertheless, that Golden Gate and its two partners (Parallax Capital Partners and Cerberus Capital Management, which owns 85 percent of SSA Global Technologies) were able to buy the assets of a profitable, $100 million business with 20,000 customers and hundreds of experienced employees for a fraction of that, is a tremendous feat, especially considering that Peregrine paid $2 billion in stock in the merger with Harbinger in June 2000 and about $170 million in stock for Extricity in March 2001. Golden Gate paid roughly 10 times less for the old Harbinger and Extricity businesses than BMC Software paid just last week for Peregrine's Remedy help desk software unit, which Peregrine also acquired a year ago for about $1 billion.

But the plan at Inovis isn't to sit back and milk the golden egg that seems to have fallen into its lap so easily. The company is readying a four-pronged plan to provide whatever its customers need in terms of trading community enablement, be it software licenses, implementation services, or full-on outsourcing support for transactions using EDI, XML forms, or industry-specific formats supported by the RosettaNet, UCCNet, or HIPPA trading networks.

Gaylor says that the first part of that plan is to continue to market the data transformation software developed by Harbinger. This includes the TrustedLink, Power.Connect!, and Power.Enterprise! data translators, which run on OS/400, Unix, and Windows platforms. The second part concerns a business process management (BPM) application called Alliance Manager that was developed by Extricity. This software runs on Unix and Windows platforms; Gaylor said the company was considering developing a version for OS/400.

Services make up the other two components of Inovis' plan, and accounts for the biggest chunk of revenue and potential for revenue growth in the future (70 percent of the company's current revenues comes from services or maintenance contracts, while the other 30 percent comes from one-time software license fees, Gaylor said). Today, about 80 customers rely on Inovis for EDI outsourcing. Inovis has a multi-year contract with IBM Global Services to use its data centers, although Inovis personnel manages the software. Because Inovis manages the transactions using its own software, it's an easy matter for customers to move between fully outsourced and partially outsourced environments, depending on their needs, Gaylor said.

The final piece of the puzzle has to do with trading community enablement, in which Inovis acts as consultant and services provider to help companies establish partnerships with their trading partners and eventually settle on some form of electronic pipeline to help them cut costs on of the price of a transaction, be it point-to-point EDI connections, browser-based XML forms, or participation in one of the aforementioned industry networks.

Inovis offers a formalized methodology to help companies take stock of their capabilities and requirements. "We don't believe trading community enablement is a technology problem, but a marketing problem," Gaylor said. "We do a survey of their capabilities first, then we worry about how to do the technology."

If a leading-edge electronic marketplace is a good fit for a company and its partners, Inovis offers the electronic marketplace platform developed by Extricity called Get2Connect, to connect buyers and sellers over the Web. Now under Inovis' watch, Get2Connect still handles 1.4 million transactions a day for about 44,000 trading partners.

But Get2Connect might not be the right solution for everybody. "Rather than push one standard over another, we want to be flexible and accommodate anything the customer wants to do," Gaylor said. "We have one customer who's participating in Web commerce, RosettaNet, and pure EDI . . . EDI has its place and a set of problems it solves." Indeed, Inovis has clients that are still seeing up to 15 percent annual growth in their use of EDI transactions, Gaylor said, noting that about half of the EDI traffic Inovis manages is transacted over the Internet, as opposed to more expensive value-added networks.

In fact, market heavyweights like Wal-Mart and Lowe's are driving up the use of EDI, as they mandate their suppliers to either use specific electronic notices or face steep fines. Gaylor finds that, as the suppliers are forced to implement more advanced technologies by the companies at the top of the food chain, the suppliers often turn around and mandate it to the companies below them. "The companies that were previously victims to a 'channel master' are now turning around and doing unto others as they had done to them," Gaylor said. They say, " 'Let us become a channel master and push this on to our trading community.' "

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Managing Editor
Shannon Pastore

Contributing Editors:
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Joe Hertvik
Kevin Vandever
Shannon O'Donnell
Victor Rozek
Hesh Wiener
Alex Woodie

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Last Updated: 9/30/02
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