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M&A Impact: Hummingbird Probes Vertical Markets.

After establishing what has proved to be a $100m-a-year cash cow selling PC connectivity products, Hummingbird Communications started on a dramatic transformation, laying claim to query and reporting tools company Andyne Computing in a $60m stock-based purchase completed in January 1998 that gained it a foothold in a much larger and faster-growing market than its own. This week it moved deeper into business intelligence territory and accelerated its reformation into a new breed 'enterprise knowledge portal' provider with three purchases in almost as many days.

The company started off with a stock transaction worth $155m to buy PC Docs, the document management company, then coughed up $20.4m in cash for LeoLogic, a supplier of extraction and data loading software, followed by a further $1m to buy exclusive rights to Financial Frameworks from Context Inc.

Together all this may provide a growth engine for Hummingbird, which will keep it motoring well into the next century as its connectivity-based revenues start to tail. But this series of acquisitions also acknowledges three major thrusts currently driving the dynamics of the business intelligence market.

First, there's an increasing need within organizations of all types and sizes to access information not just from core corporate relational databases but also from unstructured information sources. It's estimated that 70% of all business information is buried somewhere in documents such as spreadsheets or emails. There is a need for solutions that provide for easy access and analysis on the desktop for every kind of corporate information, whether it be structured data held in databases, data warehouses and data marts or all the unstructured data resident in word processing documents, web pages or electronic messaging systems.

Andyne brought Hummingbird expertise in delivering business intelligence using structured data, while PC Docs promises know- how for extracting and delivering documents and knowledge from all kinds of unstructured data. As a result, "the combined company will be the first to deliver a comprehensive view of all relevant business information from all data sources through a single Enterprise Knowledge Portal at the user's desk," the company claims.

Second, there's a growing realization that market differentiation will soon stem from a supplier's ability to deliver analytic applications tailored to suit the peculiarities of use in a specific vertical (or even horizontal) sectors. "Vertical applications are the future," Barry Litwin, Executive Vice President, Research and Development at Hummingbird told us, referring to the purchase of Financial Frameworks, a software product used in Wall Street circles. It's used solely to build risk management data marts and numbers Chase Bank, Citibank, JP Morgan and NationsBank among its blue chip user base. Litwin also points to the importance of vertical marketing in the PCDocs business. Most of the growth of PCDocs is occurring in specific verticals. Last quarter it says it signed up over 60 new law firms.

And then there is the emergence of platforms for analytical applications. Hummingbird thinks it now has the tools to start progressing with its own offering. Hummingbird, like other vendors in the market place, segments users according to the sophistication of the interface they require. It identifies a continuum of user needs from simple access to static reports, through interactive reports, to OLAP, on to ad-hoc query, and then to content creation and report administration.

Against this scheme, Hummingbird effectively has two query tools, BI/Analyze (formerly Andyne's PaBLO), which it has positioned as an OLAP tool, and BI/Query (formerly Andyne's GQL), sitting alongside BI/Broker its OLAP server. With LeoLogic's Genio the company now also has an engine to schedule extraction, cleansing and loading of relational databases. And it potentially has an aggregator in the form of Fulcrum for populating OLAP databases on a scheduled basis (PC Docs i tself has only recently swallowed the search engine firm of Fulcrum Technologies Inc.).

Tie these together and Hummingbird thinks it can produce a portal to provide personalized access mechanisms to business intelligence. 'This Enterprise Knowledge Portal will combine the document control and analysis capabilities of PCDoc's document and knowledge management systems with the structured data analysis of Hummingbird's Business Intelligence suite into a new category of data and document mining applications,' it claims.

Genio is intended to provide organizations with consistent, accurate data for central access and administration, for use by data marts, data warehouses and OLAP environments. The company was formed three years ago by former executives of SGS Thomson SA and Andersen Consulting after they had developed a system that could consolidate disparate financial data sources from all the business units that resulted from Thomson's mergers and acquisitions. Its market penetration is slight so far, being used only at France Telecom and by the French operation of Smith Kline Beecham Plc.

PCDocs, on the other hand, has a huge installed base of some 700,000 document management seats and is still clocking up sales. Financially, the document company looks fairly solid, posting reasonably strong results over the past couple of quarters, despite having to fend off at least a couple of hostile takeovers. It shrugged off the attentions of Open Text Corp which launched a $110m all-share offer last December, and then rejected an unsolicited bid from Solution 6 Holdings Ltd, the Australian accounting and legal software supplier. By February, PC Docs had reported promising second-quarter results which showed revenues up 52% on the previous year at $45m.

Almost every vendor in the document management field has been left standing by Documentum, however. A robust technical architecture and strong web support has helped Documentum race ahead. In response, through 1997 PC Docs diversified. It partnered with Optika, Kofax, Staffware and the like to flesh out its portfolio with third-party features. It produced the Docs Enterprise Suite as a unified imaging, document management, routing and workflow suite. It redesigned its system to suit thin client, pushing the onus for document management onto a re- engineered Fusion Server and making the thing wholly more scaleable.

And it bought Fulcrum, the ailing search engine cum knowledge management supplier. It is this that is the star attraction for Hummingbird. "The most interesting aspect of PCDocs is to be found in Fulcrum," Litwin confirmed. "It's going to provide us with search engine features, a categorization engine and a summarization engine. Document management just sits neatly underneath that level of functionality."

"PCDocs is a company that would never survive as it was on its own. But don't think for one moment we plan to abandon the document market," Litwin continued. "We intend to invest and acquire. We're look into enhancing the workflow function for instance, which will probably call for further product purchases."

Hummingbird said the acquisitions will make it one of the top 50 software companies in the world, with combined revenues of $240m, over 1,500 employees and some 2.5 million users.

This article is part of ComputerWire's M&A Impact information service. Some articles from the service are being provided to Computergram subscribers for a trial period only.
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Publication:Computergram International
Geographic Code:1USA
Date:Mar 15, 1999
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