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AT&T Unit to Acquire Comergent

by Jeff Moad, MA Editorial Staff

Posted on Tuesday, November 21, 2006 4:00:00 PM       Sign Up to receive Daily News Alerts in your E-mail Inbox                               

Aiming to assemble a suite of software products that automates the entire order-to-fulfillment business process for manufacturers, Sterling Commerce yesterday said it plans to acquire e-business software vendor Comergent Technologies Inc. for $155 million in cash.

Completion of the deal is subject to a review under the Hart-Scott Rodino Antitrust Improvements Act of 1976, said Sterling CEO Sam Starr in an interview with Managing Automation. Starr said he could not predict when the acquisition will become final.

The deal continues Sterling's push into the supply chain and business-to-business e-commerce space. Originally known as a provider of EDI and virtual private networking software, Sterling was acquired in 2005 by SBC Communications (since renamed AT&T Inc. following SBC's acquisition of Ma Bell). Since then, Sterling has extended its products into the supply chain market, largely through acquisition. Last year, the company purchased supply chain software vendor Yantra, and, earlier this year, Sterling combined its products with those of Nistevo, a maker of transportation management software.

Last month, Sterling enhanced its supply chain and fulfillment offerings by adding process modeling capabilities, a new user interface, and an alert framework.

The Comergent acquisition, Starr said, is intended to augment those applications with front-end order capture and order management capabilities that previously had been missing from Sterling's offering.

"Our order fulfillment offerings were, in a way, headless. We could snap into any order management front end, but we were hearing from customers -- particularly those in the manufacturing arena -- that they wanted an end-to-end order fulfillment solution," Starr explained. "This will give us that capability."

By combining Comergent's order management with its fulfillment applications, Starr noted, Sterling will be able to help customers quickly develop the ability to take, manage, and track the progress of an order through its lifecycle.

Analysts today called the acquisition good news for customers. "It's a great combination," said Ray Wang, an analyst at Forrester Research Inc. "Comergent was very strong on the front end of the customer process, in the campaign-to-order and order capture-to-order-process end. Sterling was much stronger on aspects of the supply chain like returns management."

The cash deal represents about three times Comergent's revenues, which Forrester earlier estimated at between $40 million and $50 million.

With Comergent, Sterling picks up an estimated 150 customers. Comergent's manufacturing customer base includes Gates Corp., NEC Solutions America, Pitney Bowes, and the Toro Company.

Although the reasons for Sterling's interest in Comergent were clear, the willingness of Comergent's leaders to sell was somewhat less understandable to analysts. Comergent has publicly said it has grown revenues by 50% each of the past two years.

"I'm not sure why Comergent made the decision to sell," Wang commented. "They have been beating up on SAP and Oracle in a lot of the deals that we've been involved in. They were growing and profitable, so it wasn't an issue of management needing to sell."

Comergent marketing vice president Carolyn Layne said the privately owned company agreed to the Sterling offer in order to gain access to resources it could use to expand its operation internationally.

"This is a great opportunity for us to grow," Layne noted. "We've been growing fast, but we need to grow faster, especially internationally. We needed to jumpstart that."

Layne declined to say what other capital-generating options Comergent considered. She also declined to comment on reports that the company is majority-owned by management.

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