Microsoft (MSFT-Nasdaq) is talking with Navision, which makes enterprise resource planning software for customers with $5 million to $250 million in annual revenue, about buying the company for at least $1.2 billion, according to The Financial Times. Navision had $181 million in revenue for the fiscal year ended July 31. Neither Microsoft nor Navision has officially commented on the discussions, which pushed Navision shares (NAVI.CO-Copenhagen) higher last week. Navision's board issued a statement saying the company is considering a "strategic transaction."
In an interview last week, John Frederiksen, president of Navision's U.S. subsidiary, said Navision and Microsoft "work very closely together" on technical matters, sales, and marketing. Nearly all Navision products run on Windows, and its resellers can sell Microsoft's SQL Server database. Frederiksen wouldn't comment on a possible Microsoft acquisition. He said the company, which has operated in the United States since 1995, hasn't achieved the growth it had hoped for here. "The big challenge is we have to become more known in the U.S. marketplace," he says.
Microsoft could help on that front. The company bought Great Plains Software last year for $1.1 billion because it considered the market for ERP software aimed at midsize companies as an opportunity for consolidation similar to the desktop-productivity software market of the 1980s. Navision's Attain and Axapta products compete with Great Plains' offerings, but Navision books more than 80% of its sales in Europe.
Microsoft can certainly afford the deal with $38.69 billion in cash and short-term investments on its balance sheet. Though it's lost money recently on equity investments made with that horde, the company is still looking for deals that would improve growth, which has slipped below what it's historically enjoyed. Microsoft's sales of enterprise software grew less than 2% during the third quarter and overall revenue increased 13%, which is less than analysts had expected.
"Maybe this [Navision acquisition] is going to help show investors that they actually have a game plan about how to restart growth at the company," says an investor at a large mutual fund. But if it buys Navision, Microsoft needs to be careful not to jeopardize partnerships with vendors such as SAP and Siebel Systems Inc., which also compete with Navision.