The Four Hundred

OS/400 Edition
Volume 11, Number 46 -- November 4, 2002

Infinium Probably Not the Last Acquisition for SSA GT

by Alex Woodie

SSA Global Technologies shook the midrange market again last week with its acquisition announcement of Infinium Software, which comes just six months after the company acquired PRMS, along with 12 other applications, from Computer Associates. While SSA GT appears to have stabilized since its first acquisition, and even delivered a new release of PRMS two months ago, it simply hasn't had the time to fully execute its integration strategy. The fact that SSA GT moved forward with the Infinium acquisition--and the deep pockets of its backers--indicates that more acquisitions are likely to follow.

In a conference call with analysts last week, Infinium chief executive Jim McGowan said SSA GT's offer to buy the company was simply the right deal at the right time. "We think SSA is probably the best-positioned player in the industry to realize the value of Infinium. SSA GT has a global presence, broad product set, and financial strength, all of which creates value for our customers," he said. "Given our evaluation of the market and this offer, we believe that our shareholders are receiving good value. We believe that, strategically, this is the right deal to do at the right time."

Infinium's board of directors last week accepted an offer by SSA GT to purchase the 13.5 million in outstanding shares of Infinium stock for $7 per share, or about $95 million. The deal still must be approved by shareholders, but Infinium said that it is very likely to go through. Selling the company's assets to SSA GT already has the backing of Infinium founder Robert Pemberton, who holds 17 percent of Infinium's stock. Another 5 percent is held by Infinium executives and board members, while the rest is held mainly by institutional investors.

The offer of $7 per share had to look tempting to Infinium. Last year at this time, the company's stock, which is traded on the Nasdaq market, was worth less than a dollar per share. While the company was never in danger of running out of cash to pay its bills, it wasn't operating profitably and its revenues were slipping further behind the $100-million-per-year pace that it set in 2000. The company also announced its fiscal year 2002 revenues last week, which held both good news and bad news. The bad news is that revenues had slipped 13 percent, to about $67 million. The good news is that the company had trimmed down fast enough to post $4 million in income for the year. That Infinium was running a lean operation, with a steady $40 million maintenance revenue stream, had to make it a tempting buy for a company hungry to grow through acquisitions.

"We have similar strategies and views of the market opportunities," McGowan said in the conference call. "Specifically, we both believe that the ERP space is a consolidating market. And we believe participating early in this consolidation provides the best return for our shareholders and the best opportunity for our customers."

The acquisition announcement leaves several questions unanswered. What exactly will SSA GT take away from Infinium? What should Infinium customers watch for in the ensuing months? Will SSA GT continue to develop Infinium's software in the long-term? How will Infinium's software be integrated with other SSA GT products? And what will other acquisitions mean to SSA GT's Infinium holdings?

First, SSA GT will own outright all of Infinium's assets. Of primary concern to SSA GT are the contracts that Infinium has with 1,800 of its active customers. SSA GT says that it will honor all contracts Infinium has with its customers, and that it will continue to support the software. SSA GT has not specifically stated how Infinium's operations will be integrated into the SSA GT fold. Some offices are expected to be closed, and some employees may be laid off. Other matters the company must consider are how it will actually deliver support to Infinium's customer base, and the relationships that Infinium has with its business partners.

Whether SSA GT inherits Infinium's Nasdaq listing is not known at this point. Because the transaction is officially being recorded as a merger, it is possible that SSA GT may keep that listing, due to the greater visibility and prestige it provides in the financial community. However, since emerging from the ashes of bankruptcy in 2000, SSA GT has been a privately held company and has reserved the right not to share sensitive financial details with the public, as it would be required to do as a publicly traded company. In any case, SSA GT's majority owner, Cerebrus Partners, a New York City investment group that has $6.5 billion in holdings, probably has little to gain in taking the company public during a bear market.

SSA GT's commitment to Infinium's ERP applications, which were written in RPG and have been continuously updated through the years, appears solid at this point. SSA GT was already committed to supporting two OS/400 ERP applications--BPCS and PRMS--and the addition of one more only helps to solidify SSA GT's commitment to the OS/400 platform (from which it garners most of its revenue, even though it owns applications that run on about 17 other operating systems, as a result of the interBiz acquisition from Computer Associates). The company recently delivered its first major update of PRMS, which it acquired in April from Computer Associates. SSA GT is also working to deliver a single underlying software layer that is common to BPCS and PRMS, which would allow it to roll out new products to both ERP suites from a single development effort. Infinium says that SSA GT will do the same with the Infinium suite of ERP applications.

This single underlying computer layer will obviously be a benefit to Infinium users, as they will be given the opportunity to purchase and use SSA GT extension products that are built to integrate with the Infinium software (as well as BPCS and PRMS). In the last year and a half, SSA GT has rolled out a host of private-label extension products that provide collaborative commerce, CRM, business intelligence, and other capabilities for BPCS. In the six months since it has acquired PRMS, SSA GT has delivered some of these extension products to PRMS, and it is working on rolling out more, as the strategy for that acquisition called for.

Statements by SSA GT executives that indicate the company is considering merging PRMS and BPCS into a single product at some time in the future should be taken into consideration by Infinium customers as they make strategic decisions about their infrastructure. In a note to its employees, Infinium said that "SSA GT will continue to support Infinium products as is technically feasible and will remain committed to delivering on-time version updates." Of course, any software company's ability to support any product is always dictated by what is "technically feasible." In any event, it behooves all Infinium customers to consider the possibilities.

One of the wildcards in looking at SSA GT and Infinium's place in the mix is the possibility--some say the likelihood--of future acquisitions. SSA GT's executive team is loaded with personnel who are experienced in acquisitions and know what it takes to integrate a fresh acquisition under the corporate mantle. From 1990 to 1998, Michael Greenough, SSA GT's chief executive and president, served as general manager for Geac Commercial Systems, a subsidiary of Geac Computer Corporation, a $1 billion, Toronto, Ontario, computer company that has made dozens of acquisitions in the last decade. One of Geac's acquisitions was JBA Software, which owned System 21, the OS/400 ERP suite that is very popular in the clothing and apparel industry.

Greenough is not only taking SSA GT down the same road that Geac traveled as SSA GT accumulates applications such as PRMS and Infinium. He is bringing Geac to SSA GT. One third of SSA GT's executive team has come to the company directly from Geac. Since joining SSA GT last May, Greenough has persuaded several executives to jump ship and join his operation in Chicago.

Former Geac executives who recently joined SSA GT include:

Shelley Isenberg, who left Geac in 2002 to become SSA GT's senior vice president of acquisitions and corporate development. During his 11 year tenure at Geac, Isenberg oversaw more than 90 acquisitions by the company, helping Geac's revenues grow from $600 million to more than $1 billion (Canadian dollars). Isenberg is SSA GT's point man in making acquisitions. He also is involved in helping to integrate acquisitions into the company.
Warren Fletcher left Geac in 2000 and is now SSA GT's regional president of North America. Fletcher spent 20 years at Geac, where he made his way up the ranks to the position of vice president of vertical markets, where he oversaw five different vertical industries. According to his corporate biography, Fletcher brings SSA GT skills in sales, marketing, public speaking, people management, negotiations, and mergers and acquisitions.
Mark Rosenberg left Geac in September 2001 to become vice president of information technology and global support at SSA GT. Rosenberg spent 19 years at Geac Commercial Systems, where he held positions in professional services, customer support, development, and product management. Today, he's in charge of SSA GT's Global Customer Support program.
Marvyn Turk left Geac in June 2001 to become SSA GT's vice president of taxation and business development. Turk's role at SSA GT is the same as it was at Geac: handling tax issues connected to acquisition and disposition activities.
In addition to the trio of executives--Isenberg, Fletcher, and Turk--who were involved in Geac's growth-through-acquisition strategy, John Walles, SSA GT's senior vice president and chief financial officer, plays a major role in SSA GT's acquisition activities. Walles is Greenough's number-three man, behind Graeme Cooksley, the company's executive vice president of global sales and marketing. Walles joined the company in August 2000 from Composite One, where, over a period of six years, he helped drive the company's revenues from $160 million to $650 million through acquisitions as well as organic growth. Walles appears to be where the rubber meets the road, in terms of what commitments SSA GT can afford to make to its newfound installed bases. His executive bio basically says he's in charge of balancing the financial/administrative arm of SSA GT with its "customer focus" strategy to support the company's acquisition strategy.

All told, the company appears well-prepared to continue its acquisition course. The addition of Infinium pushes SSA GT's customer base to more than 9,300 and its revenues to close to $300 million. If the economy doesn't improve in 2003--and the economic indicators are mixed about a recovery at this point--there could be many more midmarket ERP software companies looking to find some way to ease the heavy burden of servicing their customers and updating their software. If that occurs, SSA GT could be there to swoop in again and add another product to its growing empire.