A series of acquisitions in the past year has rocked the System i world. Some of these acquisitions have made immediate sense — business as usual — although others are head-scratchers, pairing seemingly dissimilar organizations and solutions. A few have reworked the competitive landscape with ramifications that reach deep into the heart of System i shops.
When an acquisition occurs, it brings up the question, why? The answers range from greed to glory. The owners of private companies most certainly sell when opportunity knocks or when they're ready to try something new or simply want to cash out. Some barter because they hope the investment and backing of a larger company can open up new markets, new solutions, and a stronger, better growth path for the owner's legacy and employees. Public companies may be gobbled up in a hostile takeover — Oracle chasing down PeopleSoft comes to mind — or simply by an offer too good for the shareholders to refuse. Sometimes the leaders of public enterprises try to set up their own lucrative exit strategies, and sometimes they gear up for a buyer out of desperation because of failed markets, sagging sales, or competition that continuously kicks them in the butt.
No doubt buyers or sellers shroud the real reasons behind many acquisitions in secrecy, and the reasons fed to customers, the press, and competitors may hold only a glimmer of truth. Either way, the System i world has recently been at the center of the action when it comes to mergers and acquisitions.
RJS Software Systems Acquires Ultimate Data Systems
In September 2006, the information-management solutions company RJS bought Ultimate Data Systems, which came with 30-plus customers in the Minneapolis-St. Paul area of Minnesota near RJS headquarters. Ultimate Data Systems was an IBM hardware reseller with expertise in document imaging and management, making the small employee team a good fit for RJS. In addition to hardware services, the company brought RJS more IBM and Microsoft-certified staff members. It was a straightforward acquisition of expertise and assets, giving RJS a customer boost with the bonus ability to sell IBM hardware.
UNICOM Adds SoftLanding
Also in September 2006 and publicized in an October press release, UNICOM Systems acquired SoftLanding Systems, a System i-focused change-management solution provider. On the UNICOM web page, you'll find mainframe software products juxtaposed with photo animations of real-estate holdings such as Wingsweep and Pickfair. Determining what UNICOM actually does is difficult. It turns out that there's a group of UNICOM-branded companies primarily owned by Corry Hong. As of early August, SoftLanding's website was still active.
Help/Systems Obtains ASC
Help/Systems obtained Advanced Systems Concepts (ASC) in October 2006. Help/Systems was primarily known for its Robot Automated Operations Solution suite of systems administration tools, and ASC was touted for its data-access and analysis tool — SEQUEL — in addition to its ABSTRACT set of cross-referencing, documentation, and programming tools. Both companies had been in existence since 1982 and were solidly respected in the industry. When Help/Systems announced the acquisition, many were puzzled and unsure about the synergy. ASC's OpCenter was a systems-management suite, true, but not really the kind of solution set a successful competitor would typically feel the need to buy.
Speaking of the acquisition at the time, though, Help/Systems CEO Janet Dryer said, "The cultures are very similar, there's a great staff that works there, and the products are very well established." ASC reminded me so much of Help/Systems that I thought it would be a great match."
She declined to disclose the terms of the deal or what triggered it. A year later, ASC and its products have merged into the Help/Systems brand.
Thoma Cressey Purchases Vision Solutions and Then iTera
Thoma Cressey Equity Partners (TCEP) acquired high availability and disaster recovery solution provider Vision Solutions in September 2006. TCEP, through a variety of equity funds, wielded a couple billion dollars and believed in "buy-and-build" investing, which, TCEP said, "seeks to create value through the strategic use of acquisitions to accelerate business growth."
The company proved it. Before the ink was dry on the Vision deal, TCEP bought HA/DR solution provider iTera and promptly announced that both Vision and iTera would soon merge. The plan was to operate under the Vision name but retain the rapidly growing iTera brand for iTera's products. In short order, TCEP created a newly energized HA competitor in the System i world, one that was capable of spanning the globe with better distribution and services as well as a more versatile product set.
Thoma Cressey Buys a Chunk of Sirius
In November 2006, less than a week after TCEP announced the iTera buy, the company acquired a sizable equity interest in Sirius Computer Solutions, an IBM Premier Business Partner and IBM's largest System i reseller. In addition to making three large System i-focused investments in short order, which inspired IBM to issue a press release bragging that TCEP had put more than $100 million "in technology companies that serve users of IBM's 'all-in-one' System i business computing platform," TCEP raised some eyebrows with the Sirius venture because Sirius was a strong business partner with Lakeview Technology, a steadfast Vision and iTera HA/DR competitor. Few realized the foreshadowing in that deal.
Although the exact dollar figures weren't revealed, the president and CEO of Sirius, Harvey Najim, used $75 million, reportedly from the proceeds of TCEP's equity stake, to create a charity focused on helping children. It's hard to imagine that TCEP picked up both Vision and iTera for $25 million, so it's likely that TCEP spent more than the $100 million IBM hyped.
Rocket Software Grabs Seagull
In December 2006, Rocket Software took the first step toward acquiring Seagull Software, which was publicly traded on the Euronext stock exchange in Amsterdam. Because of the Euronext connection, Rocket needed to obtain a large number of shares to complete the deal, which didn't appear to have completely closed by early August. Rocket is a global development firm that builds enterprise infrastructure products, many of which are licensed on an OEM basis. The company wanted Seagull to help it get into service-oriented architecture (SOA), pick up new customers, and move into the web services software market.
Marlin Equity Partners Purchases Aldon
Private-equity company Marlin Equity Partners bought Aldon, a leading System i change-management solution supplier, in May 2007. "We've been the largest provider of change-management systems in the System i marketplace, and what we want to do is offer our customers more things as they move into new technology areas," explained Dan Magid, former CEO of Aldon, at the time of the acquisition. "The marketplace for traditional System i management is pretty mature. However, the marketplace for the things people are doing with their System i applications — such as building web interfaces and web applications around their System i code, constructing Windows interfaces, or putting in services that talk to their traditional System i applications — that is changing and moving forward very rapidly. We want to be able to provide our customers with solutions in that kind of arena."
Consequently, Aldon has looked into potential business-automation testing tools that help companies work through process changes that coincide with new software application rollouts, build-process tools for the open-source environment, and tools that manage non-DB2 database changes. "Our strategy is to be like an ERP system for the IT application-development and management organization," Magid noted.
In July the company opened a new Aldon office in the Middle East to take advantage of IT growth in that region.
Ricoh Takes Over IBM's Printing Division
IBM announced plans to sell its printing division earlier in the year, and in June 2007, the deal resulted in a jointly owned entity, InfoPrint Solutions Company (IPS). Ricoh owns 51 percent and intends to progressively acquire the remaining 49 percent from IBM during the next three years. IBM's printing business generated a cool $1 billion in revenue last year, and IBM is supporting the sale by providing maintenance services to IPS for one year, after which 1,000 IBM printer-maintenance specialists can leave IBM and join IPS, which has approximately 1,200 employees of its own.
Despite assurances to the contrary from analysts, some System i customers worry about being left behind. However, Ricoh's existing small-business products may be of interest to System i SMB customers, so this deal could actually expand the range of printer options available to clients.
Vision Acquires Lakeview
Thoma Cressey struck again, this time as a slightly new entity, Thoma Cressey Bravo (TCB). The private-equity company snatched Lakeview in June 2007 and promptly announced plans to merge it into Vision. Although the high-end HA solutions of Vision and Lakeview seemed to address essentially the same business problems and customers, the move was squarely intended to grab a larger portion of the market. Private-equity companies are notorious for pursuing profits, of course, but Thoma Cressey's business model appears to be solidly based on growth rather than on milking maintenance streams, booting employees, or eventually selling the empty husk of a building in a tidy real-estate transaction.
The new Vision now boasts approximately 6,000 customers and 400 employees worldwide. Vision leaders believe that the System i market is only 5 to 8 percent penetrated with robust HA/DR-related solutions. Others say it's at about 10 percent penetration, and many people, including IBM representatives, believe that 30 percent market incursion is on the horizon, especially as industry regulations continue to proliferate.
IBM Purchases DataMirror
If Vision's acquisition of Lakeview was a lightning bolt to the industry, IBM's response was an equally impressive thunderclap. Big Blue snatched Canada's DataMirror in July 2007 after an offer to acquire all outstanding DataMirror shares at a price of C$27 in cash each, which is nearly a 20 percent premium that adds up to C$170 million (or approximately $161 million U.S. bucks).
Compared with the likely cost of acquisition to Thoma Cressey for Vision-iTera-Lakeview, IBM got hosed, but then $161 million is a drop in the bucket compared with what IBM is investing in its Information on Demand initiative. Plus, DataMirror was coming off a record-breaking first quarter for 2007, in which it posted a whopping 22 percent revenue increase. It's hard to say how much IBM valued DataMirror for its System i business because the deal came out of IBM's Information Management Software unit. From a cross-platform perspective, DataMirror's solutions navigate Windows, Unix, and mainframes and include capabilities with Oracle, Microsoft, and Sybase databases.
BluePhoenix Taps ASNA
In August 2007, BluePhoenix Solutions announced that it had signed a letter of intent to buy ASNA for $9.5 million in cash at closing, but the amount paid could grow if ASNA achieves rising profit goals in 2008 and 2009. BluePhoenix provides legacy-modernization solutions, and reportedly ASNA is to remain somewhat autonomous while benefiting from BluePhoenix's investment. Details were scarce at press time because ASNA was keeping mum until the deal was finalized.
What's the Big Meaning?
Overall, it's tough to tease out any grand significance to the rash of acquisitions — except, perhaps, that sometimes it can be contagious.
Charles King, principal analyst for Pund-IT, notes, "Whenever a marketplace starts to consolidate, the people who work within the market have to look around and say, 'What happens if one of our competitors buys this? Is this a good fit for me? Would I rather bring this in-house and leverage it or let it sit and let the chips fall where they may?'"
Chris Maxcer is the news editor for System iNetwork. Penton Media, the company that publishes System iNEWS and the System iNetwork, by the way, was also acquired this year. Wasserstein & Co. and MidOcean Partners (private-equity firms) purchased Penton and then combined Penton with Prism Business Media, which Wasserstein had acquired previously, choosing to operate the new business under the Penton brand. "Aside from receiving pay stubs printed on new paper, as far as I can tell, the acquisition has resulted in business as usual for our team," Chris notes. You can reach Chris at cmaxcer@SystemiNetwork.com.