Going, Going, Baan

Invensys sells (most of) Baan; merger planned with SSA GT; be alert for signs of product consolidation, analysts advise

Mesa, AZ — June 4, 2003 — Invensys has agreed to sell most of Baan, its enterprise software division, to an investment group that plans to merge the solution provider with software company SSA Global Technologies in a $135 million deal that analysts say could prove beneficial for customers of both software providers.

This news comes just a day after PeopleSoft announced it was buying rival J.D. Edwards in a $1.7 billion stock swap that will create one of the world's largest enterprise applications software companies. (See related story.)

The investment group buying Baan includes Cerberus Capital Management and General Atlantic Partners (GAP). According to a press release on the deal, over the next several months the group intends to combine Baan, which offers an enterprise resource planning platform targeted primarily at discrete manufacturing companies, with SSA GT, which also provides enterprise solutions for manufacturing, among other sectors.

Baan, which is headquartered in Barneveld, Netherlands, will operate globally as a separate division of the combined entity, with dedicated sales, marketing, development, consulting and support.

The merged company should generate $600 million in combined revenues, of which $160 million would represent license fees for the companies' combined products. The new company will have more than 16,500 customers, allowing it to stake a claim to having the world's largest installed base in manufacturing.

Invensys spent $714 million to purchase Baan in May 2000, but the U.K.-based parent engineering company put Baan on the market in April as part of a broader divestiture of "non-core" assets to reduce debt and consolidate its holdings.

Baan reportedly will continue working on its next-generation platform, codenamed "Gemini," a three-year effort that is set to launch this fall in the U.S. and European markets, according to a statement from the company.

The deal does not affect Baan's process manufacturing customers using the Marcam product family, which was not included in this transaction, according to a research note from industry analysts David Alshuler and Tim Minahan, of technology consultancy Aberdeen Group.

"Invensys is presumably still shopping this asset, but given its neglect over the last eighteen months, those clients are ripe for the picking, perhaps by SAP, Aspen, or SSA (who has a process presence)," Alshuler and Minahan wrote. "These customers should be concerned — and preparing to move to another vendor with some haste."

However, Baan's other clients are likely to benefit from the transaction, according to John Bermudez, an analyst with consultancy AMR Research. "This deal is good for Baan customers because it brings the product into a company that is dedicated to the ERP business," Bermudez wrote in a research note. "GAP has a long and successful track record in enterprise applications investment, and it won't likely turn the purchase into a hardball maintenance rollup deal, in which Baan customers get higher maintenance bills with little new development."

Bermudez' thinking is that since Baan's product represents a viable upgrade for much of the SSA GT installed base, SSA GT is likely to act in the best interest of Baan customers. "Considering the $200 million that GAP has put in to this venture, AMR Research believes that SSA GT will need to follow through on a strategy to maximize the return on GAP's investment," Bermudez wrote. "Simply riding a declining maintenance revenue stream into the ground will not provide this leading venture firm with the type of return on investment it requires."

With the Baan news coming hot on the heels of PeopleSoft's acquisition of J.D. Edwards, Alshuler and Minahan posed the question of the moment, "What does all this mean for enterprise buyers and clients?" The analysts believe that the deals should result in "fundamentally healthier surviving entities," but they point out that corporate mergers are often followed by consolidation of product lines.

"[J.D. Edwards] and Baan customers need to carefully listen to their new vendor over the coming months to understand how their product line evolution will be handled and what it means for them," the analysts advise. While they don't expect the merged companies to outright drop any product lines because of the strong maintenance streams and the risk of losing customers during product line transitions, "enterprises should be alert to 'product stabilization' polices, which is vendor-speak for significant reduction in ongoing R&D for older products in favor of a new (or surviving) primary product line."
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