Mainframe Vendor BluePhoenix Ready to Purchase ASNA
August 3, 2007 Dan Burger
ASNA, one of the oldest of the System i independent software vendors, is very close to being purchased by BluePhoenix Solutions, a software and services vendor with a history in the mainframe market. The letter of intent covering the merger of the two companies was announced August 1 in a press release posted on the BluePhoenix Website, a day after the publicly held company reported its financial results for the second quarter. Officials at ASNA are not commenting on the pending deal until it has been finalized, which is expected to occur by August 15.
ASNA, short for Amalgamated Software of North America, develops and markets visual programming and systems software for AS/400, iSeries, and System i servers. Its product list includes Visual RPG for .NET, an RPG compiler for building Web services and broader service oriented architecture applications; DataGate, for System i database access from Windows and .NET applications; and Monarch, a tool that automates the transformation of RPG programs or entire applications to the Microsoft‘s .NET programming model for Windows. Because the ASNA software portfolio is designed for organizations that are inclined to move their application development forward in the Windows environment, the company, like others with similar products, has sometimes been at odds with IBM, which for years took a very strong pro-Java development approach in the OS/400 and i5/OS customer base. Despite that friction, ASNA has been a long-time IBM business partner, and its products are certified under the ServerProven program and are also part of the System i Developer Roadmap. ASNA is also closely affiliated with Microsoft through various partnerships, and is a founding member of Microsoft’s Midrange Alliance Program.
According to the BluePhoenix press release, the purchase price for obtaining ASNA is $9.5 million. In addition, a contractual provision notes that BluePhoenix will pay an earn-out to ASNA shareholders if certain profit targets are achieved by ASNA. The additional consideration will be calculated incrementally based on a multiple of between 6.5 to 8 times ASNA’s average net profit in the years 2008 and 2009, provided that the average annual net profit during those years exceeds $1.5 million. The completion of the acquisition is subject to BluePhoenix’s due-diligence of ASNA and the execution of definitive agreements.
Although the two firms have built their software businesses around distinctly different computer operating systems–ASNA in the OS/400 and i5/OS market and BluePhoenix in the MVS and z/OS market–the two companies are similar in their application modernization goals of helping organizations implement more efficient, standardized IT systems that lower programming and maintenance expenses. Both companies emphasize that their software also offers benefits relating to shorter time-to-market, easier application integration, consolidation of subsystems, and the capability to expand functionality while preserving proprietary business information.
The BluePhoenix application portfolio is similar to that of ASNA. It includes IT Discovery, a product for tracking system inventories, resources, and interrelationships; LogicMiner, a COBOL business logic analysis tool; AppBuilder, an application development infrastructure and tool used to build, deploy, and maintain applications and generate code for COBOL, Java/J2EE, and C#; and Nebula, an application repository that spans platform boundaries and development tools. Central to its BluePhoenix’s business is the application and database migration package that includes assessment and project impact analysis. BluePhoenix also offers platform migration and rehosting services with an emphasis on J2EE, .NET, Linux, and Unix destinations. The company’s list of customers includes Aflac, DaimlerChrysler, Merrill Lynch, Safeway, Smith Barney, Ford, BMW, Pratt & Whitney, and Charles Schwab.
ASNA, which is based in San Antonio, Texas, has been in business for more than 25 years. It also has offices in Guildford, England, and more than 20 international distributors. Its customer list includes Barnes & Noble, Nautica, YMCA, Kia Motors, and Roto-Rooter. BluePhoenix was founded 20 years ago. It is a member of IBM’s PartnerWorld for Developers and also has partnerships with Sun Microsystems, Fujitsu, and Micro Focus, among others. BluePhoenix is headquartered in Herzlia, Israel, and has offices in the United States in Cary, North Carolina. The company has 14 other locations around the world.
In its most recent financial report, for the second quarter ended July 31, BluePhoenix reported sales of $21 million. That was an increase of 27 percent compared to $16.6 million in the second quarter of 2006. That Q2 sales figure is also a 5 percent improvement compared to the $20.1 million brought in during Q1 2007. This was the tenth consecutive quarter of growth for the company. On Friday afternoon, BluePhoenix had a market capitalization of $194 million; the company’s shares are traded on the Nasdaq market. It ended the quarter with $19 million in cash and $30.8 million in debts. BluePhoenix’s cash pile has been growing and its debts have been falling over the past several quarters, which is why it can make acquisitions. BluePhoenix will pay for ASNA out of its available cash.