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Baan takeover is prelude to creation of software giant. (In Other News...).

Two US investment companies have paid $135m for Baan Company NV as a key element in their strategy to create of one the world's largest enterprise application vendors.

Baan is to be integrated into mid-market application vendor SSA Global Technologies Inc, the vehicle chosen by investment houses Cererus Capital Management LP and General Atlantic Partners LLC to fulfill their ambitions to own a major software giant.

The addition of Baan will turn Chicago, Illinois-based SSA into the fourth largest ERP vendor with almost $600m in revenue and an installed base of 16,500 customers that it claims will be the world's largest in the manufacturing sector. The merger of Baan with SSA is hardly a surprise--Computergram tipped the move more than a month ago when Invensys Plc put Baan up for sale. What is new is the extent of the ambitions of the investment houses behind SSA to play a leading role in consolidation of the software sector.

Coming a day after the announcement that PeopleSoft is to take over JD Edwards, Baan president Laurens van der Tang said that further consolidation of the sector is inevitable, and the merged group wants to play a "leadership role" in that consolidation and be among the top three within two years.

Van der Tang indicated that there is a roadmap in place for further acquisitions. While there is no doubt that SSA has the financial muscle to scoop up many of the struggling companies in the market, a huge question mark will hang over its as yet unproven ability to turn round struggling companies. Certainly, its ambition to replace either SAP, Oracle or PeopleSoft/JD Edwards among the top three vendors appears ludicrous in the absence of any details about its strategy.

Baan is a case in point. Van der Tang pointed to substantial complementary factors in the two organizations which he insisted would be profitable from day one. SSA has a strong North American customer base while Baan's strength is in Europe. SSA's customer base tends to be in process manufacturing sector and Baan is favored by discrete manufacturing. Baan's software in deployed on Unix and Windows platforms and SSA favors the IBM AS/400-iSeries platforms.

Yet van der Tang said that SSA could capitalize on Baan's technological strength and sell its applications into a larger customer base. SSA has based its expansion on a flurry of acquisitions of smaller ERP vendors and is not known for its technological prowess. However, there is a huge mis-match of cultures, which is not a good omen for a successful merger.

Though Baan undoubtedly placed greater emphasis on R&D than SSA, and has great hopes over the launch of its Gemini enterprise backbone later this year, the company's technological focus has had little impact where it counts - on the company's figures.

Baan was one of the success stories of the 1990s, and benefited from the PR skills of the then CEO and founder Jan Baan, who was once referred to as "the Bill Gates of Europe". But like many technology companies of that era, it lacked basic management skills and once market growth flagged, it was found wanting. While Baan's revenue reached $735m in 1998, it has been on a downward slope since and fell 22.3% to $265m in the year to March 31, producing an operating loss of $32m. The collapse in the company's value is best illustrated by the fact that Invensys was happy to sell it for $135m, having paid $714.7m in 2000.

Baan's level of productivity, measured by sales per employees, is barely half the level of its competitors, and its first efforts to put this right will come in the next few weeks with the announcement of substantial job losses.
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Publication:MarketWatch: CRM
Date:Jun 24, 2003
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