Enterprise-Apps Market Squeeze - InformationWeek

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Software // Enterprise Applications
02:13 PM

Enterprise-Apps Market Squeeze

It's becoming a buy or be-bought market, giving rise to speculation on how it will all shake out

One way or another, the recent acquisition mania will take out at least two of the top players in the enterprise-applications market. Hundreds of other vendors may buy or be bought as the software industry's consolidation continues.

The market squeeze shifted into high gear two weeks ago when PeopleSoft said it would buy J.D. Edwards for $1.7 billion, creating a company with $2.8 billion in annual revenue and slipping into the No. 2 spot behind SAP AG. The next day, Baan was picked up for $135 million by an investment group, consisting of Cerberus Capital Management LP and General Atlantic Partners LLC, that plans to merge it with SSA Global Technologies, another enterprise resource planning vendor it owns. Then, Oracle made an unsolicited bid to buy PeopleSoft--but not necessarily J.D. Edwards--for $5.1 billion.

All the activity is a sign of the times. There are too many enterprise-application vendors in a market that's maturing and being squeezed by a downtrodden economy. "Consolidation is going to happen," says John Moore, VP and general manager of enterprise services with ARC Advisory Group. "These companies are unsustainable in a market where there simply aren't that many customers."

So the question is: Who's next to be bought--or has perhaps missed an opportunity to be acquired? Speculation is rampant, but there are several companies that seem to fit one of these bills.

Not long ago, many analysts said leading supply-chain management vendors i2 Technologies Inc. and Manugistics Group Inc. were targets for acquisition because the two vendors had advanced supply-chain planning technologies that the big ERP players lacked. But now, those vendors with enough money to buy i2 or Manugistics have built the planning tools themselves or bought the technology elsewhere. "I think [their acquisition] is less likely now," says Jim Shepherd, an analyst with AMR Research.

Moreover, i2 and Manugistics are suffering financially, making their fates even less certain. Last month, i2 was removed from the Nasdaq stock exchange because the company was more than a month late in filing its 2002 annual report with the Securities and Exchange Commission, a violation of Nasdaq listing requirements. At the time, i2 said it expected to file the report in June and will then appeal Nasdaq's decision to delist the shares; as of press time, i2 hadn't filed its annual report.

The delisting came amid an SEC investigation for possible accounting improprieties. In March, i2 said Deloitte & Touche LLP will reaudit its financial statements for 2000 and 2001. At that time, i2 released what it called preliminary results for its fourth quarter, reporting a net loss of $8 million on revenue of $120 million; its third-quarter net loss was $199.1 million. A year ago, i2 reported a loss of $589.9 million for its fourth quarter.

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