<b>Technology News:</b> Extensity to acquire Systems Union in £236m cash deal. By John Stokdyk

There's a new accounting software consolidator on the scene, ready to take on the likes of Microsoft, Sage and HgCapital.

At the Systems Union AGM in Farnborough today, chief executive officer Paul Coleman will advise shareholders that a £236.3m cash offer from Extensity represents an opportunity for them to "realise enhanced capital value".

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Comments

the living dead

David Carter | | Permalink

John, Dennis. Yes I'm saying that a product is alive while its original development team are still there. Once they've gone it becomes one of the living dead - obviously it still works and can go on generating maintenance revenue for the next 10 or 20 years, but development will be piecemeal from now on. This is what will happen to Peoplesoft and J D Edwards.

My observation is that most development teams lose enthusiam once the suits take over. They drift away to find something which is more fun. (In the case of Pegasus, the SU suits seem have largely left them alone).

Never buy from a publicly owned company. Any time these hedge funds, city slickers, deal-makers can put the company "in play" and your package into the living dead.

John Stokdyk's picture

Interesting...

John Stokdyk | | Permalink

A useful insight, Dennis. I give Paul Coleman a lot of credit for sorting out the shambles of Systems Union post-2001, but had not appreciated how quickly he might run out of room for cost-cutting - as you suggest. Still, he has managed to find a way out that's worth more than 2x the 2005 turnover, so you can't argue too bitterly about his claim to maximise shareholder value.

Where this leaves SunSystems and Pegasus users is less certain. While the online expenses management wing of Extensity has an interesting (niche) product and technology set, and Comshare/Geac gives the group a foot in the fast-growing BI market, there seems to be a lot of legacy code lying around within the Geac stable. Will Extensity adopt a Sage-like strategy and sustain the separate product families as they are, or will the need to drive down costs trigger some product rationalisations?

I also find it interesting that the big pockets behind IRIS - HgCapital - are now willing to take on Sage in Europe. Within a very short space of time, some of the UK's top accounting companies have become pawns in a global game of "Risk" being played by the likes of Microsoft, Oracle, Sage, HgCapital and now Extensity.

The thought has struck me whether this welter of consolidation is the sign of a more profound change taking place within the industry. Have companies that reaped their fortunes from the client/server and desktop software market become financially vulnerable as the underpinnings of their business models start to crumble?

I'm surprised you haven't raised this possibility yet, Dennis - but would be interested to hear your musings, and from anyone else who thinks these recent announcements are as significant as I do.

John Stokdyk
Technology editor
AccountingWEB.co.uk

dahowlett's picture

Consolidation.

dahowlett | | Permalink

An excellent point. Consolidation has been going on now for 10-11 years. Remember when D&B was the 800ib gorilla before SAP took baby steps in the US market?

I'm not sure there is a game of 'Risk' in play here though I take your point.

The most important thing in this context is that SU etc being acquired doesn't seem to be stifling innovation or looser business combinations that deliver value.

So for instamce, the new breed of on-demand players are a disruptive force in the marketplace. I have suggested that Skype will do Winweb's marketing for them - that's already happening.

But let's not forget that acquired companies have a long tail of maintenance revenue - how often do we change accounting systems? If you accept the disruptive argument as a decent theory then I wonder the extent to which acquirors may need to look at earnings quality.

I am seeing evidence of switching, not because of the acquisition but in spite of it. Especially in the professional firms who advise SMBs.

To the wider issue of choice, this can be argued many ways - less brings clarity, less risk, more choice provides interest in alternatives. Either way, it gives us plenty to consider.

jacp400's picture

Pegasus

jacp400 | | Permalink

I'm curious. What benefit do you think Pegasus gained/lost from being part of the Systems Union Group? Ive worked for a couple of Pegasus resellers and we have been a Pegasus reseller ourselves but aside from slightly more development around XRL (their version of Vision) I didnt really see any change.

In that respect does it matter if an author is independent or part of a group?

John Clough
BDO Stoy Hayward

dahowlett's picture

This debate may well have moved on

dahowlett | | Permalink

Following John's comment and my response, I see the Business Online is speculating whether Sage can fremain independent.

I am now thinking that maybe John is correct and that a series of larger combinatinos is now inevitable. Sage/MSFT as a prelude to hiving MBS out and then acquiring SAP? An interesting idea and one I'm exploring.

jacp400's picture

Independence

jacp400 | | Permalink

Hi David

Are you therefore saying that when bought a software vendor at best can be left to get on and do their own thing, or at worst can be interfered with to the detriment of the company and the clients?

Does that mean the downsides of dealing with a previously independent author under new ownership are greater than the benefits?

I ask the question because I perceived no difference to Pegasus under SU ownership, and I may be mistaken but I'm sure I saw an article/posting from JS asking how truly independent authors could survive, against mighty consolidators?

Maybe the answer is they can, and very well?

John Clough
BDO Stoy Hayward LLP

dahowlett's picture

Here's some analysis you won't find elsewhere

dahowlett | | Permalink

SUG's productivity was 50% or less the market competition. On paper it looked impressive as a unit with a great geogrphical reach. But Coleman had nowhere else to go without running some pretty serious risks.

I predicted that when Coleman ran out of cost cutting and couldn't grow the license revenue that he would go. I said that about 3 years ago.

dahowlett's picture

VCs?

dahowlett | | Permalink

David - on what basis are you making these sweeping statements? I"m at an event where VCs are anything but a 'menace.' Many are not in for the flip - if anything the investment mavens are looking for longer term investments.

BTW - the question around PSFT and JDEC is moot - they've been acquired. More important is how their customers are responding to the acquisition - the answer is largely OK - they're using the transition as an opportunity to negotiate fresh support contracts at favourable terms. Among other things.

do the owners understand software?

David Carter | | Permalink

John,
Both Pegasus and Systems Union are in the financial software business. They know each other well and Pegasus has been allowed to go pretty much its own way, so it hasn't suffered any damage from being part of a group.

But what about some other groupings where the owners don't know software? Look at the recent Iris debacle on these pages recently. How much damage is Exchequer Enterprise suffering from being part of Iris?

Or how will Peoplesoft and J D Edwards fare in the US after being taken over by Oracle?

It seems to me that Wall Street, the City, all these venture capitalists are a menace. They want quick profits, they don't understand software. They are doing an enormous amount of damage to the industry and it's going to get worse.