Wednesday, June 08, 2005

SSA's IPO comes up short

SSA Global Technology has been working hard over the past several years and looking forward to the time when it would become a public company. That point came on May 26. However, while there may have been champagne flowing in its Chicago headquarters last week, I don't think there were many smiles. The word is that SSA's investors were waiting, hoping, for the IPO market to improve, but ultimately felt that this might be as good as it gets.

To get the IPO launched, SSA had to scale back the number of shares and the price per share--to nine million shares at an estimated $11 per share, down from its original plan to offer 14.3 million shares at $13-$15 each. Trading opened on May 26 at $11.50 and closed at $10.96, disappointing anyone that was hoping for the next Google.

As a result, SSA got only $99 million in new capital from the IPO. But to raise even that amount, SSA had to eliminate a $100 million special dividend payment that was hoped for by its major investors, which include General Atlantic and Cerberus Capital Management.

The common explanation is that the market these days is not looking favorably on investors trying to cash out during an IPO, and I'm sure that's true. But I'm wondering whether, in addition, there's just a lack of investor excitement about SSA's story.

In the enterprise software market today, the only real excitement among investors is around the software on-demand model (also known as "software as a service" or SAAS), as typified in firms such as As I've written previously, software on-demand offers the possibility of breaking the cost structure of software for both buyers and sellers. Whether or not it proves to be true, it's a compelling story.

But SSA's story is that of a consolidator of traditional software vendors that operate on a software license model--a business in which it is becoming more and more difficult to make money. There are signs that SSA is doing a good job in breathing new life into some older, venerable products, such as Baan, that have well-established and long-neglected customer bases. But it doesn't seem to be enough for SSA to command a premium share price.

Related posts
Software on demand: attacking the cost structure of business systems
SSA delivers long awaited next generation version of Baan
SSA's strategy: acquire customers and technology on the cheap
SSA adds Arzoon and Marcam to its deck of cards

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