Candescent Buys Quadrant Software as IntelliChief Spins Out

December 6, 2010 Timothy Prickett Morgan

Yet another private equity firm has taken a stake in the IBM i marketplace. Last week, Boston-based Candescent Partners bought document management company Quadrant Software from the company’s founders, Peter DePierro and Gary Langton, for an undisclosed sum. Under the deal with Candescent Partners, DePierro and Langton are selling the Quadrant Software side of the business, which includes FastFax and Formtastic, to the private equity firm while retaining control of IntelliChief, the workflow management tool created by Quadrant.

According to Langton, the IntelliChief business has been a standalone company for the past two years and neither he nor DePierro started out thinking four years ago when they started up the IntelliChief products to do paperless process management that having the products separated into different lines and then eventually companies would be necessary or even desirable. But the Quadrant FastFax and Formtastic document processing applications, which run natively on the OS/400 and i platform, tend to be sold to IT departments where a Power Systems box or its predecessor is the main machine in the data center. The IntelliChief software, which is a distributed application that runs across many different platforms (including boxes running IBM i) is sold mainly to chief information officers and other business line managers who want to automate their workflows, which often includes documents but is a larger issue. The IntelliChief products also have a large professional services component, much more so than the Quadrant Software products did.

“We learned that IntelliChief is a whole different sales cycle and focus,” explains Langton in an interview with The Four Hundred. “And as a result, we took a different approach to the market.”

There are some other key differences between the Quadrant Software and IntelliChief businesses. “The Quadrant Software portion is a relatively stable business and is extremely reliable in terms of the revenue it generates and high customer satisfaction,” Langton continues, adding that the renewal rate for maintenance services on its products is 93 percent or higher every year. But the document management business is not a fast growing one, which is in stark contrast to IntelliChief, which is projected to have 70 percent revenue growth in 2010. “IntelliChief is a very different animal.”

IntelliChief is also a much smaller business, with more than 100 customers using its products. Quadrant Software, by contrast, has more than 2,000 unique customers and more than 3,500 installations worldwide. While Langton would not give out figures, he said that the document management programs represented the vast majority of sales for the combined parts of Quadrant Software ahead of Candescent Partners’ acquisition of that part of the business and the spinning out of IntelliChief as a separate company. (IntelliChief has been a standalone company owned by Quadrant Software up until now.)

That said, IntelliChief has a key–and exclusive–partnership with ERP software giant Infor to use its workflow management tools and the Quadrant Software FastFax and Formtastic products in conjunction with its various IBM i-based ERP suites. Langton says that the Infor contract was always with IntelliChief and that it has relationships with 20 other IBM i vendors. IntelliChief is going to remain a reseller of those the FastFax and Formtastic tools from Quadrant, since they fit hand-in-glove with IntelliChief’s eponymous tools for paperless process management.

Candescent Partners didn’t do the Quadrant Software deal alone, even though it led the investment. Harbert Mezzanine Capital, Bush O’Donnell Capital Partners, Massachusetts Capital Resource Company, and Brooke Private Equity Associates also kicked in some dough. Candescent’s managing partners and founders are Stephen Jenks and Alexander McGrath, and they like to invest in companies with between $10 million and $75 million in revenues with between $2 million and $8 million in earnings before income taxes, depreciation, and amortization are added on.

Candescent Partners has tapped Stephen Woodard to be the new chief executive officer at Quadrant Software. Woodard has been at tech companies before. He was senior vice president of global operations at Venturecom/Ardence, which was sold to Citrix Systems in 2007, and more recently was president of Ultimus, a maker of business process management software that is based in Cary, North Carolina, and that has over 1,900 customers. Woodard has a bachelor of science degree in electrical engineering from Keene State College in New Hampshire, so he knows the hardware side of IT as well as the softer side. Candescent Partners was an investor in Ardence, by the way.

At the moment, says Woodard, Quadrant Software and IntelliChief have worked out an office sharing arrangement. Being privately held, neither Quadrant Software nor IntelliChief talked about how the employees split between the companies. What Woodard did want to talk about was the present and the future.

“Quadrant has been around for 20 years, and has a fantastic reputation for products and support,” said Woodard in an interview last week. “It’s going to be business as usual for Quadrant customers. The last thing we want to do is give people an inflection point and look at other platforms. We are not going to give anybody a reason to want to do that.”

Woodard said that the revenue split between the two main Quadrant Software products, FastFax and Formtastic, is roughly half and half, but over the next two years he expects Formtastic to edge out ahead. He also said that the company will be investing more in research and development and is looking to expand sales into Europe and then Asia, and is looking at the possibility of expanding from the IBM i platform outwards. One of the issues that Woodard has to tackle as he pushes Quadrant Software into other markets is foreign translation, since FastFax and Formtastic are only available in English.

Both Woodard and Langton stressed the strong partnership that will continue between the two companies. “We have a very strong, very formal partnership,” explained Langton. “I would never have done the deal without this.”

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