The purchase will help Cognos to shore-up its standing in the corporate performance management software market against rivals like Oracle/Hyperion Solutions, Business Objects, and SAP by adding sophisticated financial analytics software.
Ottawa, Canada-based Cognos gets its hands on Applix’s flagship TM1 product, an in-memory multidimensional (OLAP) server that is well suited for the rigors of complex financial analytics and is a favorite among finance departments because of its Excel-based interface.
Cognos is offering $17.87 per share for Westborough, Massachusetts-based Applix, representing a 24% premium on Tuesday’s closing price of $14.37. A small portion of Applix’s ownership is held by its management.
Cognos CEO Rob Ashe called the acquisition a terrific strategic fit for Cognos saying it will give the company a new in-memory, read-write OLAP analytics architecture capability for its other CPM products – Cognos Planning and Cognos Controller.
After initially selling business intelligence tools, Cognos took a bold step six years ago to move into the financial CPM market to push its technology up the value chain. CPM refers to the alignment of corporate strategy with operations using analytically-driven metrics.
Ashe now regards financial performance management as a fundamental and foundational part of Cognos product strategy and said the decision to buy, rather than build, the type of software that Applix provides was driven by 15 years of tried and tested technology.
For us to build this capability would take years and years and years, he said. If you’re going to manage performance you have to provide analytic applications aimed at finance.
Ashe also said he has seen an increased demand among Cognos’ own customer base to support TM1. Applix decided three years ago to drop their legacy CRM business and focus on financial analytics and performance management, which is right in our wheel-house.
TM1 stands out from other OLAP products in the market by virtue of its in-memory architecture, strong read-write and lightning-quick updating capabilities. That makes TM1 applicable to a variety of forward-looking analytic functions, including forward-looking planning whereby users can write back to the analytic database within the context of forecasting performance or developing what-if scenarios.
Other OLAP servers, including Cognos’ PowerPlay, in contract focus on classic BI — raw distribution of historical analytic information for quick drill-down and reporting — with no updating capabilities.
Ashe said that TM1 would provide Cognos’ CPM users with finance self-service capabilities such as business rules management and entry into new areas like profitability analysis and planning optimization.
The combined suite will be branded as Financial Performance Management (FPM), which Ashe claims will provide complete coverage of all finance activity that aligns performance to strategy and operations. The TM1 in-memory OLAP will become the center of that FPM solution and also strengthen our mid-market offerings as well, he said.
Ashe said it was too early to talk about specific integration plans. But he added that the initial effort to integrate TM1 with Cognos 8 BI platform was modest and should run smoothly. That’s because TM1 is developed as an open services-based OLAP engine with published and documented APIs and an MDX interface.
We should be able to demonstrate that in the quarter after we close the acquisition, Ashe said.
Looking further ahead, Ashe said Cognos will continue to evolve TM1 functionality over a number of releases and also tighten up metadata integration, and possibly introduce a master data management capability across all of Cognos CPM products.
Ashe also said there was a modest product overlap to manage with TM1 customer base with Cognos’ Planning platform and PowerPlay OLAP implementations primarily at mid-market firms. There are millions of PowerPlay cubes out there and competition has usually been on the edge of different financial planning environments, he said.
Ashe explained that while TM1 was focused on centralized, departmental planning, driven by complex and forward-looking financial analytics, Cognos’ Planning software concerned itself with distributed, decentralized planning with thousands of remote users feeding into a centralized plan.
But the overlap is more than overshadowed by complementary nature of the two products, which each serves its own purpose. Hence, TM1 shouldn’t be viewed as a direct replacement [for PowerPlay], he said.
Cognos, however, did not comment on the future of non-Excel, dashboard-like front-end technology it acquired from Dutch firm Temtec in June 2006.
Cognos has acquired several companies in past years, including most recently operational BI vendor Celequest at the start of this year. If the Applix deal goes through as expected, it will be one of its largest to date.
Ashe also hinted that the company’s appetite for more companies has not yet been satiated.
Founded in 1983, Applix grew its revenue 45% to $61.2m in the last 12 months and has amassed over 3,000 customers.
David Mahoney, CEO of Applix, said that 60% of business comes from new accounts while its Temtec acquisition pulled in 300 customers and $7m in revenue.
We recognize that we’re still a relatively small player in the market and would have had to make significant investments in products and services to maintain our growth trajectory, Mahoney said. This acquisition is an excellent outcome for shareholders, customers and partners. It will ensure that the TM1 legacy will be carried forward as part of a much bigger company.
Applix, which has its headquarters in Westborough, Massachusetts, employs 200 employees — some of them are ex-Cognos staffers.
Cognos was once the bellwether of growth for the BI sector, but sales execution problems and a failure to seal enough large deals have rocked the normally solid company over the past year or so. The company reports its second quarter results on September 28.
But some financial analysts were lukewarm on the amount of money the company shelled out for Applix, whose sales represent a meager 6% of Cognos’ revenue.
BMO Capital Markets downgraded Cognos from outperform to market perform saying that the five times revenue sticker price causes us to pause and reflect on the risks of integration and productivity.
Meanwhile, Blackmont Capital called it an expensive acquisition for what appears to be an upgrade to its existing PowerPlay and analytics offerings.
Scotia Capital was cautious over the deal pointing to Cognos’ poor track record in fully integrating past acquisitions like Adaytum and Frango. We would become more constructive on Cognos’ stock if the firm articulates a far more aggressive integration plan backed up by early customer wins, demonstrating that it will be able to leverage TM1 globally, the company said in an investor note.
Cognos chief BI rival gave the deal an equally lukewarm reception. Trevor Walker, vice president of product marketing at San Jose, California-based Business Objects, called the acquisition strange and a little bit of catch-up.
TM1 was known for Planning, but wait a sec, doesn’t Cognos have that? If anything this is really a technology acquisition to replace an ageing product in its BI suite, namely PowerPlay.
Cognos now has to figure out how to integrate TM1 and if it wants to rip out its aging OLAP product.
Our EPM offers a much richer set of capabilities through our own acquisitions SRC Software, Cartesis, and ALG Software. Plus the integration into XI offers broader data management capabilities like data integration, data quality and data federation.
Walker said that Business Objects is considering whether to expand its existing safe harbor program, which aims to migrate Hyperion Solutions customers to Business Objects’ platform, to Applix TM1 clients as well.
Meanwhile, Burlington, Massachusetts-based data warehousing firm Kalido, which partners with both Business Objects and Cognos, pointed to more important data management issues downstream that need to be addressed in order to do high-performance financial analytics. The fact remains that most BI vendors continue to struggle to get the data to the front end, leaving users with inconsistent, stale or worse, invalid data on which to base their business decisions, said Kalido CEO Bill Hewitt.
Cognos, of course, relies heavily on partners to provide that underlying data integration layer; though it does own an ETL tool called DecisionStream that it acquired back in 1999 from UK-based Relational Matters. But that product does not feature much, if at all, in Cognos’ marketing these days.
Cognos expects the deal, which is subject to the usual regulatory approvals and closing conditions, to close in the fourth quarter of 2007. It expects the acquisition to be dilutive, on a GAAP basis, on earnings per share in fiscal years 2008 and 2009.
Our View
Applix is the last of the early OLAP stalwarts to be acquired. It used to compete head-to-head with Arbor Software, which was snapped up by the then Hyperion in 1998. Cognos now gets its hands on a highly differentiated, and arguably specialized, OLAP technology that is extremely popular in finance departments today. That should help the company in its quest for leadership in the financial CPM space, a market that in which it has staked an early claim.
CPM competitors will no doubt argue that the acquisition is just a catch-up move by Cognos that is designed to counter the financial prowess of rival performance management rivals like Oracle (now owns Hyperion Solutions), Business Objects (has SRC, Cartesis, and ALG) and SAP (recently bought OutlookSoft). All three acquisitions competed to some degree against both Cognos and Applix in financial CPM software deals.
But Cognos will have to make sure it does a quicker and better job of integrating its TM1 assets than it has done with Adaytum and Frango. It might also see this as an opportunity to do some general housekeeping of its Cognos 8 BI platform and perhaps replace its aging PowerPlay OLAP engine with that of TM1 in order to tap into complex, read-write analytic capabilities that enable a new breed of forward-looking business planning.
