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Infor to Acquire SSA Global for $1.6 Billion Sign Up to receive Daily News Alerts in your E-mail Inbox
Posted on Monday, May 15, 2006 7:25:00 PM |
The ongoing consolidation of the enterprise software market took a major step forward today with the announcement that Infor, an Atlanta-based company that has acquired 18 software providers since its founding in 2002, will buy SSA Global Technologies, Inc., which itself has acquired a dozen companies since 2001, in a deal valued at $1.6 billion.
The deal, which Infor and SSA officials expect to close sometime in the third quarter, pending SSA shareholder and regulatory approvals, will create the enterprise application market's third-largest company behind Oracle and market leader SAP. It would also return SSA, which went public about a year ago, to the status of a privately held business under Infor.
"This is a huge move," said SSA chairman and chief executive Mike Greenough, referring to the acquisition. "There are now two huge battleships and one huge destroyer coming together."
The price of $1.6 billion, which reflects an offering of $19.50 for each outstanding SSA share, was described as a "premium" over SSA's current stock performance. Infor will finance the purchase entirely through debt. Greenough, in a conference call this morning, said the price represented a 26% improvement over SSA's recent stock price and a 77% gain over the share price at the time of the company's initial public offering last year.
The two companies said that certain shareholders representing 84% of SSA's outstanding shares have already agreed to support the deal.
The combination of Infor and SSA Global would create a software company with more than $1.5 billion in revenue (Infor's revenue is $800 million while SSA's last full-year reported revenue was $711 million), $400 million in earnings before taxes, 6,800 employees, and 37,000 customers in 100 countries. It would also create a company with scores of application software products, including well over a dozen ERP products.
Infor chairman and CEO Jim Schaper noted, however, that even though Infor will now be regarded as the number-three applications vendor in terms of raw size, the market segments it competes in are different from those of Oracle and SAP.
"Tier-one decisions are made," he said. "I don't care if I'm number one or two. What's more compelling is having 40,000 customers."
Schaper also emphasized that the acquisition of SSA will be highly complementary. Infor, he said, has sold to manufacturing and distribution companies with revenue from $20 million to $1 billion, while SSA has focused on companies $1 billion to $2 billion in size. This revenue band -- $20 million to $2 billion -- more accurately defines Infor's competitive space going forward, he said.
Although both Infor and SSA are in many of the same discrete and process manufacturing segments, Schaper also said that the addition of SSA will enable Infor to add product offerings in specific market segments and micro-verticals such as complex and project manufacturing, warehouse management, transportation and logistics, as well as provide deeper penetration in geographic markets such as China, Japan, France, and the U.K.
"In the markets that we serve, the goal is to be number one," Schaper said.
Both Infor and SSA sell to customers in automotive, high tech and electronics, food and beverage, consumer product goods, industrial equipment, life sciences, and others. Infor also sells to such distribution market segments as building materials and HVAC, while SSA is also in gaming and hospitality, retail, and third-party logistics.
(What's your view of this proposed deal? Join the conversation on The Brousell Blog!)
As he has following other acquisitions, Schaper said that Infor would continue to support SSA's products and allow customers to evolve at their own pace. "We have absolutely every intention to continue to support and enhance products that SSA has," he said. "We don't want to rip or replace." At the same time, Infor will integrate best-in-class products with broader application lines and may even merge certain code bases at some point. He said that once the acquisition of SSA closes, Infor will publish a three-year product roadmap.
SSA, meanwhile, has been pursuing its own product rationalization strategy. The two prongs of that strategy are ERP LX, which is for the company's BPICS, Prism, KBM, and Infinium products on the IBM iSeries platform, and ERP LN for companies running UNIX- and Microsoft NT-based systems, including the former Baan applications as well as ManMan and MK. There are about 40 companies in various stages of implementation with LX and more than a dozen companies now live with LN.
Schaper also described SSA's strategy for a service-oriented software architecture as "very similar" to Infor's, and drew a distinction between what Infor is doing in SOA with what SAP is doing with its NetWeaver platform.
"We're not in the infrastructure business," he said. "We're a vertically focused applications vendor. Our SOA strategy is non-proprietary, it's open, lighter, and more cost effective. We understand that it is incumbent upon us to enable our customers to integrate with other applications."
During a question-and-answer session with reporters and analysts, Schaper revealed that he was initially against the idea of acquiring SSA when it was put on the table several weeks ago. But he said his first reaction was based on what he didn't know, rather than a full understanding of the potential in a merger. "The more we looked, it was incredibly complementary and industry-changing," he said.
Analysts were quick to point out the complementary nature of the deal, but said the combined company faces a daunting task of rationalizing its multiple ERP products in a way that makes sense to global, mid-tier customers, who are also now being courted by Oracle and SAP.
Although both companies' customers aren't likely to bolt following the consummation of this deal, a competitive opening could occur for SAP and Oracle, both of which have pushed hard to establish a mid-tier presence through product line extensions (SAP All-in-One and BusinessOne) and acquisitions (Oracle's purchase of JD Edwards), until Infor discloses its product roadmap, analysts said. "They could say, 'If you're thinking of moving, why not move to us?'" said Judy Sweeney, an analyst with AMR Research.
Sweeney also raised the question of how customers will differentiate between products for the iSeries computer. "An Infor [iSeries] customer will ask, 'I thought MAPICS was the way to go... now is it LX, LN, or do I stay with MAPICS? What becomes of MAPICS?'"
Cindy Jutras, an analyst with Aberdeen Group, opined that once the acquisition of SSA is completed, Infor will seek to acquire other companies. "Infor isn't done with acquisitions," Jutras said. "They still have an acquisition pipeline." In an interview, Schaper confirmed as much. "We're not done," he said. "We will continue to build our business."
Until the roadmap is made public, it's too early to know the disposition of the combined companies' products, but Jutras believes the combined company won't be able to maintain every product and obtain the cost savings that are envisioned to justify the deal. "[It's clear] that there will be some reimplementation for customers" once the product roadmap is determined. "For instance, is Infor going to enhance ManMan in the future? If I was them, this does not make business sense," Jutras said. "Some products may get more attention than they would have if left under SSA, but it's too early to say. There's a lot of work ahead."
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