With Baan Acquired, SSA Global Decides to Go Public

by Timothy Prickett Morgan

Those of us who have been around the midrange for a long time have watched the soap operas of Unix software vendors Baan and System Software Associates as they imploded in the late 1990s. The drama has come full circle now that SSA Global filed for an initial public offering last Friday. SSA Global has become, with the acquisition of Baan last fall, the number-five player in the worldwide ERP market.

The second that the company filed its S1 with the Securities and Exchange Commission, its top brass had to go into a quiet period, which means no one would talk to us about what the IPO deal might mean. As SSA Global becomes a public company, it must abide by the rules and not indulge in selective disclosure. The executives running Salesforce.com, who filed to go public late last year, had to delay the IPO because they had given interviews prior to going public that could get them into hot water with the SEC and could have apparently even forced the company to buy back shares at market value after going public if investors were disgruntled. This would be a fiscal nightmare, to say the least, which is why the people in the investor relations office at SSA Global would not even answer the phone on Friday. They basically said read the S1 if you want to understand the plan.

The S1 filing with the SEC is not an exhaustive document, but it is detailed. It certainly does not go into the drama of the original SSA as it caught open systems fever of the mid-1990s and tried to extend beyond RPG on the AS/400 to object-oriented, client/server code that ran on OS/400, Unix, and Windows--ironically coming to market late and underwhelming to customers just as the Web and the Internet boom took hold. Rival J.D. Edwards, now part of PeopleSoft after it was acquired in June 2003 for $1.7 billion, went through a similar trying experience as it moved from its RPG-based WorldSoftware suite to OneWorld at about the same time. And it does not go into the trials and tribulations of Dutch software maker Baan and the financial shenanigans of its founders, John and Paul Baan, that contributed to its downfall from being a serious contender against SAP in the Unix ERP software market.

SSA Global takes the old SSA software business as its kernel. Four years ago, venture capitalist Cerebus Partners acquired the company and it suddenly had access to lots of cash. When the bottom fell out of the IT market in 2000, SSA Global, as the new company was called, was generating cash and had access to venture money. In early 2002, it started making acquisitions, buying the interBiz unit (with suites formerly known as PRMS, ManMan, MK, and Masterpiece) in April of that year, followed by Infinium (formerly Software 2000, costing $95 million), Ironside Technologies, Elevon, and EXE Technologies. All of these companies were good companies trying to sell into a down market, and when venture capitalist General Atlantic Partners kicked in $75 million for SSA Global to make acquisitions, these companies were happy to take the money. So was upstart Baan, which in June 2003 was sold by Invensys to SSA Global for $135 million. Invensys, a specialist in manufacturing plant controls that had aspirations to control everything from the shop floor to the data center, paid $710 million for Baan three years earlier and could not make it work.

When it announced the Baan acquisition, SSA Global said that it would have annual revenues in the range of $600 million per year and 16,500 customers. Mike Greenough, SSA Global's chairman, president, and CEO (who hailed from Canadian software conglomerate Geac) , and Graeme Cooksley, executive vice president of sales and marketing (who ran the Asia/Pacific operations for the old SSA), have pretty much grown the company exactly as they said they would. Both have benefited nicely from their posts at SSA as it has grown through acquisitions, with Greenough bringing in $2.6 million in total compensation from 2001 to 2003 inclusive, and Cooksley bringing in close to $2.2 million. While this doesn't seem like a lot, if SSA had been a public company throughout this acquisition phase where even a half million dollars falling to the bottom line would have been a big deal, executive compensation might have been an issue. (Don't get me wrong. I don't think a million bucks is worth all that much today.) The S1 does not detail how many shares--if any--these two executives or other key employees hold in the company.

What the S1 does show, however, is that when General Atlantic Partners kicked in that $75 million in April 2003, it got 25 percent of the shares of SSA Global, which means it was valued at approximately $300 million at the time. This is prior to many of SSA Global's acquisitions, which have subsequently boosted its value as well as its debts to its venture capitalists. As of January 2004, according to the S1, SSA Global owes Cerebus Partners $223.7 million and General Atlantic $7.7 million.

The prospectus for the IPO says the initial value of the stock that SSA Global will float is around $200 million worth of shares. Goldman Sachs and Credit Suisse are handling the IPO, and the company says that the $200 million figure was put out there--as is often the case--just to reckon the fees going to Goldman Sachs and Credit Suisse. The offering could generate more money if the company raises the striking price on the shares or floats more shares; it could also offer a second pass at the IPO if it is oversubscribed. The Chiacgo-based company plans to trade once again on the Nasdaq National Market, this time under the symbol SSAG.

It is hard to guess the valuation of SSA Global at this point, but the company has 3,700 employees, a broad portfolio of products with customers who by and large pay for software maintenance, and was making some money until it started to absorb Baan. According to the S1, SSA Global had software license sales across all of its product lines of $68 million for the six months ended January 2004 and services revenues of $229.7 million, for a total of $297.7 million. Gross profits were $203.3 million, or about 68.3 percent. Operating income was $28.8 million and net income was $13.6 million. However, it kicked out $14.1 million in dividends on preferred stock, which pushed it to a $500,000 loss for the six months. The company has $94.4 million in cash and equivalents in the bank, which means it can pay off its investors and still have about $65 million in the bank if it only raises $200 million on the IPO. The odds are it will try to raise a lot more and thereby build a new war chest for acquisitions and get a cushion against any potential hard times in the future. SSA Global, perhaps more than many other companies, knows the value of a cushion. BPCS V6, the object-oriented software that debuted in 1997 for Unix, Windows, and OS/400 servers from the original SSA, cost $200 million to develop, which was $75 million over budget and which contributed mightily to the company's downward spiral. You can bet SSA Global won't make that mistake again, even as it tries to glue together its disparate product lines.