After shares in Arbor Software Corp dropped 30% in response to its proposed merger with Hyperion Software Corp, John Dillon, Arbor’s chairman and CEO, is bracing himself for an extended road show to try to persuade his shareholders of merits of the deal. I haven’t forgotten that my job is to create shareholder value, he told analysts, and I can tell you that my wife isn’t particularly happy with me either, he said, referring to his own substantial holding in Arbor. But Dillon believes passionately in this deal which, he says, will create an unchallenged leader in the analytical applications market, a software market which he thinks will grow to be as dominant as the Enterprise Resource Planning sector is today. Analytical applications is the generic name for software applications filling the gap between spread sheets and databases. Typical tasks include sales and profitability analysis, or forecasting and budgeting, using data from an existing database or ERP package. But while Hyperion deals predominantly in the front end, packaged applications for this market, Arbor sells the OLAP engine which sits behind such applications, empowering them to deal with substantially more complex problems and often requiring custom built applications at the front end. Dillon feels that the adverse market reaction stems from a lack of understanding between the two groups of shareholders, and on hearing him explain how the two companies will work together, the arguments are persuasive. While Hyperion’s sales haven’t matched the 80% growth rates achieved by Arbor, most of Hyperion’s problems can be traced to a misguided foray into the world of financial software, putting it in direct competition with firms like PeopleSoft Inc, and doomed to failure. Revenue from its analytical applications is building much faster, says Dillon, and combined, he anticipates growth, not insignificantly north of 37% a figure calculated from the weighted average of the two firms current rates of growth. Dillon’s biggest problem now will be to convince his disgruntled shareholders that this is achievable before they vote the deal down.
