Details behind the PeopleSoft/JDE deal. The Denver Post has an interesting story on how the deal evolved over the past eight months between PeopleSoft and J.D. Edwards, including the extraordinary measures taken to ensure rumors of the deal did not leak out. At one point, a group of JDE executives were put on a plane to California without knowing why they were traveling, to be told when they got there.

Who's next in the vendor consolidation trend?

There's a lot of speculation over the past two days in the business press concerning which enterprise software vendors will be next to be acquired. Siebel is most frequently mentioned. But the one that strikes me as most intriguing is Manugistics, a Tier I supply chain management vendor. Interestingly, one of the investors in SSA GT is General Atlantic Partners, which was one of the original investors in Manugistics. If SSA were to acquire Manugistics, it would give SSA a premier brand in supply chain management, a strong installed base in consumer product manufacturing and distribution, and a foothold in the aerospace and defense industry, through Manugistics' ownership of Western Data Systems (WDS), an ERP system that is well-established among large A&D contractors.

Information Week has a good summary of the events of the past week in vendor consolidation and potential next targets.

Made2Manage going private

With all the hoopla around Oracle, JDE, and PeopleSoft last week, no one seems to notice that the Tier III ERP vendor Made2Manage agreed to be bought out by an affiliate of IT venture capital firm Battery Ventures for $30m in cash. The buyout price is 35% over the current share price, a nice pop for shareholders.

M2M is a small footprint, easy to install system, with good vertical functionality for manufacturers of fabricated metals, industrial and commercial machinery, electronics, and rubber and plastics products. It is currently compliant with the Microsoft .NET framework, and a new version rewritten using Microsoft Visual Studio .NET is slated for general availability in early 2004. According to one source inside M2M, the company has been renewing its connection with its 1,600 installed base customers and has been having some success in cross-selling additional products, such as advanced planning and scheduling, CRM, financial reporting tools, and enhanced BOM functionality for reference designators in the electronics industry.

Made2Manage has been bumping along at about $30M in revenue for the past three years, with a slight loss in the fiscal year ending March 31. With cash reserves of over $16M, the company was not in immediate trouble. So why did M2M agree to the deal? One reason might be to get out from under the harsh spotlight of the public markets, which make it difficult for vendors to work beyond the results for the next quarter. Another might be Sarbanes-Oxley, which adds additional cost of compliance for publicly held companies. But the more strategic reason might be eventually to position M2M for sale to a larger enterprise system vendor. M2M might make a good acquisition for a larger vendor that is looking to offer a Microsoft-based ERP package and not have to build it from scratch. Or, it might be a good target for a CRM or SCM vendor that is looking to move into the ERP space.

The press release is on the M2M web site.

The SAP ERP ecosystem. Dick Kuiper, commenting on my previous post, points out that SAP is also developing an ERP ecosystem around its mySAP Business suite. Dick writes, "SAP is marketing this as a component architecture, but it's really a modular ecosystem, breaking down the monolithic R/3 system into plug-and-play modules."

In the case of SSA, the large installed base for the ecosystem is being built by acquisition, and the complementary products require custom integration to each of SSA's legacy ERP systems. In the case of SAP, the installed base is a single system (with some clients on older versions, of course), clearly a more workable environment. But in either case, the goal is the same: keep customers in the ecosystem so that revenue from additional products and services can be derived from the installed base.

ERP ecosystems: a sustainable business model?

Last week I attended one of the SSA GT “Road Shows” in Irvine, CA, which SSA is hosting around the country to update its installed base users on current product directions. As I have written previously, over the past 18 months, SSA has been building a large installed base (now over 16,000 customers, in 90 countries) by acquiring other software vendors that have fallen on hard times.

Coming away from this presentation, I am convinced that SSA’s strategy is to build an "ERP Ecosystem" (my phrase, not SSA's) of complementary products that it can sell into its installed base, to keep clients on maintenance and sustain them as a source of revenue for many years. Such a strategy has strong appeal for two reasons:

1. From the vendor side, in the maturing market for ERP systems, new license sales are becoming more difficult and increasing revenue from existing customers becomes more important.



2. From the client side, although companies want new functionality, they are increasingly reluctant to undergo wholesale change-out of functioning ERP systems to get it.

These two factors lead to the concept of an ERP ecosystem, where a vendor's revenue model depends less on constantly finding new customers and more on sustaining a large installed base of existing customers with sales of complementary products and services to integrate them with client’s installed system. SSA already had an impressive list of multi-national customers of its BPCS ERP system, especially in key verticals such as pharmaceutical manufacturing. Over the past 18 months, it has been adding to this installed base through its purchase of a number of other ERP systems, such as PRMS, Infinium, KBM, ManMan, and most recently, Baan. SSA is not alone in attempting to build an ERP ecosystem around a large installed base. MAPICS appears to be adopting a similar strategy, as I described in my post on April 29.

In the Road Show, SSA outlined the common complementary products it is now offering to its large installed base. These include the following:

1. Warehouse Management (WMS): SSA is offering Warehouse BOSS, which it picked up in with its acquisition of PRMS. Interfaces were already in place for PRMS, of course, and interfaces to BPCS were just released in April. WMS is a frequently-desired complementary product, and for companies that need it, it usually carries a strong tactical ROI. Warehouse BOSS is a good mature multi-site WMS that should be well-received in the BPCS installed base.
   


2. HR/Payroll: SSA is promising integration of its Infinium HR/Payroll system to its BPCS and PRMS installed base within 60-90 days. Infinium was always considered a solid HR/Payroll vendor, especially for the IBM iSeries (formerly AS/400), and this offering increases the attractiveness of SSA for the BPCS and PRMS installed base. The Infinium offering has been updated over the past few years with a functionality for manager and employee Web-based self service.
   


3. Enterprise Performance Analytics (EPA): For data mining and business intelligence, SSA is offering pre-built integration to Cognos, a well-regarded business intelligence solution. Current EPAs are limited to financial reporting and sales analysis, two of the most-often requested, with more on the way. Integration appears limited to BPCS users of V6.1 and higher, which would put this out of reach for the large number of BPCS users on older versions.
   


4. CRM: SSA is offering "BPCS CRM," which is based on Applix. (The Applix web site, however, indicates that its iCRM product has been acquired by Platinum Equity Holdings.) SSA currently has interfaces to Applix built for BPCS, with interfaces promised to PRMS later this year.
   


5. Forecasting and Demand Management: SSA is offering interfaces to Logility from BPCS, with interfaces from PRMS later this year. SSA refers to this offering as "collaborative commerce," probably because of its support for Collaborative Planning Forecasting and Replenishment (CPFR). However, the offering is basically a high-powered demand planning tool. This is a good offering for SSA’s consumer product customers.
   


6. Web-enablement: SSA is offering a "BPCS Enable," which is basically a private label version of IBM's WebSphere Express. This platform allows older IBM 5250 character-based versions of BPCS to be deployed over a browser-client and also allows them to interoperate with newer SSA offerings for e-commerce, CRM, and business intelligence. If the uptake of this product by the installed base is good, it will serve to extend SSA maintenance revenues on these older versions of BPCS.
   


7. Knowledge Management: Although not discussed in the Road Show, SSA has just signed a letter of intent to acquire, Elevon, a vendor of knowledge management and collaborative commerce systems.

In an ERP ecosystem, complementary products such as those listed above do not need to be best-of-breed. They just need to be "good enough" for an installed base client to stay with SSA and avoid a completely new ERP system or costly custom integration with third-party products. SSA's plan to build such an ERP ecosystem will be tested over the next 12-18 months by whether the installed base begins to purchase these complementary products. If SSA is successful, watch for other vendors to adopt a similar strategy.

Vendors behaving badly. Well, PeopleSoft's CEO puts to rest any idea that Oracle's bid for PeopleSoft is anything but hostile. In a press release just now, Craig Conway refers to Oracle's offer as "atrociously bad behavior from a company with a history of atrociously bad behavior." Furthermore, my interpretation appears confirmed that Oracle is simply trying to spoil the deal between PeopleSoft and JDE. "Obviously it is a transparent attempt to disrupt the acquisition of J.D. Edwards by PeopleSoft announced earlier this week," said Conway, adding "If anyone needed any further validation of the strength of the J.D. Edwards acquisition, we heard it today from Oracle."

Oracle trying to spoil the Peoplesoft/JDE deal. Just four days after PeopleSoft offered to buy J.D. Edwards, Oracle announces this morning that it is offering to buy PeopleSoft for $5.1 billion. Although by every sign, the PeopleSoft/JDE deal is friendly--the two CEO's claim to have been talking about this for months--the Oracle bid for PeopleSoft is hostile. Furthermore, unlike PeopleSoft and JDE, whose products and markets can be viewed as complementary, Oracle and PeopleSoft are fierce competitors, going head to head in many high end deals, especially in financial applications, human resources, CRM, and e-procurement. So Oracle's offer isn't about any great desire to get a hold of PeopleSoft's products. It's about breaking up the PeopleSoft/JDE combination. Oracle's press release gives away the motivation: it clearly states that if Oracle wins, it will stop actively selling PeopleSoft products and will re-evaluate the acquisition of J.D. Edwards.

Oracle is only offering a 6% premium over PeopleSoft's current market cap, so the deal is by no means certain to be approved by PeopleSoft shareholders. But Oracle's offer throws the PeopleSoft/JDE deal into uncertainty. My prediction is that Oracle will not be successful in acquiring PeopleSoft. But even if Oracle does not win, the short-term tactical benefit in creating fear, uncertainty, and doubt about the future of BOTH PeopleSoft and JDE in the mind of potential buyers is invaluable to Oracle for sales over the next couple of quarters. With the enterprise systems market starting a modest recovery, Oracle's hostile bid is simply a tactical maneuver to strengthen its own position in sales opportunities this year.

It's no party like 1999, but still welcome news to enterprise system vendors. In another sign of a turnaround, AMR Research is projecting a 3% increase sales of enterprise systems this year, to $36.9 billion, to be followed by a 5.9% increase in 2004. The research firm sees the fastest growing segments as CRM (9% growth) and supply chain management (5.6% growth). AMR attributes the optimistic outlook to an improving economic climate, pent up demand for new systems, and increased penetration of ERP vendors in markets such as supply chain management and CRM.

The San Jose Mercury News has a summary of the report.

Another day, another enterprise software vendor merger

Yesterday, it's PeopleSoft acquiring J.D. Edwards. Today it's SSA GT acquiring Baan from Invensys, which has been rumored for almost two months. (Technically, it's Baan being sold to an investment group, comprising Cerberus Capital Management and General Atlantic Partners, which also owns SSA GT.) I've already given my perspective on this acquisition in my post on April 19. Now it's official.

There are more details in Baan's press release. But, interestingly, there's nothing yet on the SSA web site about this.

PeopleSoft to buy J.D. Edwards. The number of Tier I ERP vendors is shrinking by one, with PeopleSoft announcing this morning that it is buying J.D. Edwards. This is one of the biggest and most significant deals in the enterprise systems space in a long time. The combined company will have annual revenue of about $2.8 billion and about 13,000 employees. Both vendors cut a very broad applications footprint. Both are very strong in financial applications, while PeopleSoft has an edge in HR and CRM, and JDE has a stronger presence in manufacturing and distribution. Nevertheless, these two vendors go head to head in many deals. The press release indicates that JDE will operate as a wholly owned subsidiary of PeopleSoft, which means that existing clients will probably not see much change immediately. But it will be very interesting to see what happens when a prospect wants to look at both JDE and PeopleSoft.

Why is PeopleSoft doing this? There is already some speculation that PeopleSoft needs a stronger mid-market strategy to compete against Microsoft (with its Great Plains acquisition) and that of all the major enterprise system vendors, JDE has the strongest mid-market presence. CNET already has some analyst reaction.

The deal is expected to close by early fourth quarter 2003.