Baan Finds A Buyer

The squeeze is on. Further evidence of consolidation in the enterprise software industry is the news that Baan Co. has been acquired by an investment group consisting of Cerberus Capital Management LP and General Atlantic Partners LLC. Invensys plc is selling Baan for $135 million, just one day after PeopleSoft Inc. announced plans to buy J.D. Edwards & Co. for about $1.7 billion.

Baan will be combined with SSA Global Technologies, an enterprise applications vendor also owned by the investment group. Together, SSA GT and Baan will have nearly $600 million in revenue and more than 15,600 customers.

Baan President Laurens van der Tang says one of the leading drivers behind the sale is the stepped-up consolidation of the software industry and an effort to achieve critical mass. "I think the message is it's time to think about your future. I think on one end what you hear from customers is people are being very pragmatic, leveraging investments they've made in the past. And companies do want to reduce the number of IT vendors they are dealing with," he says. "We are at the starting point for a lot more consolidation than we've seen in the past."

The combined SSA GT and Baan will focus on the manufacturing sector, and will leverage each other's strengths to grow the company. "SSA has core strength in the North American market, Baan has core strength in the European market. SSA is in the [consumer-product goods] and pharmaceutical industries, Baan is strong in discrete manufacturing. And SSA has focused on [IBM's] iSeries and AS/400 platforms, while Baan uses opens systems and Windows as platforms," van der Tang says.

He adds that the combined company won't spend resources trying to move into other industries, such as banking or government. But expect to see more acquisitions of companies focused in the manufacturing space to boost market share. "We have the financial backing to go and pursue other next steps to grow this further," van der Tang says. "Any companies in this sort of category are logical targets."

In fact, SSA GT had recently bolstered its customer base and product portfolio through a series of acquisitions. In April 2002, SSA GT acquired the supply chain management, financial management and human resource management product lines of interBiz, the E-business applications division of Computer Associates. In December 2002, SSA GT acquired Infinium Software, a provider of Web-integrated enterprise business applications optimized for the IBM eServer iSeries.

In the past three years, Baan has put as much as $100 million into development of its next generation enterprise backbone, code-named Gemini, which is scheduled to debut in September. Van der Tang says the investment group has committed to ongoing support of the platform. He says the deal is good for Baan customers because it'll mean more resources to pour into product development. "This gives us a significant additional channel that will increase the customer base and helps to justify an increase in the investments in development," he says.

In an AMR Research note released today, AMR analysts said the deal makes good sense for Baan, which had been buried inside Invensys. "This deal is good for Baan customers because it brings the product into a company that is dedicated to the ERP business," the note stated.

John Moore, VP and general manager of enterprise services at ARC Advisory Group, agrees, despite the fact that the $135 million price tag is a lot less than the $700 million Invensys paid for Baan back in May 2000. Baan went on the block back in April, when Invensys decided to sell off more than half its businesses to assuage its mounting debt. "They're getting sold for 50 cents on the dollar," says Moore. "But Invensys did not understand enterprise software. This will be better for Baan."

Baan will operate globally as the Baan division of the combined entity with dedicated sales, marketing, development, consulting, and support staffs. The acquisition is expected to close within six weeks.