From M&A Impact, a sister publication.
Previously, Borland International Inc had rock-solid desktop tools but lacked middleware to scale to multi-tier client-server, while Open Environment Corp, OEC, had well functioning middleware, proven by multiple high-end sites of 1000+ users, but poor visual development tools. The acquisition of OEC by Borland offers both companies what they lack, with little product overlap – the opportunity for Borland to scale and for OEC to become accessible and popularized. Borland has renewed its commitment to support both Microsoft Corp and open standards across the board. This has been of vital interest to existing OEC customers, who feared that products such as Entera would become locked into Borland
By Kevin White
tools. However, such a lock-in would be counter-productive for Borland, who needs to distinguish itself from Microsoft. In practice, Borland’s open standards commitment has already been acted out: both Microsoft’s DCOM and the CORBA Internet Inter-ORB Protocol (IIOP) are supported wherever possible. One exception to Borland’s platform-independent strategy is its recently-announced MIDAS multi-tier applications services suite. However, although MIDAS is limited to Windows NT environments, the product is still consistent with Borland’s enterprise-grade positioning. MIDAS also permits a migration to Entera, should heavy-weight security and access to Unix be required. Here, Borland seems to have stolen a march on Microsoft. OEC’s Entera 3.2 is something of a hybrid product, incorporating features of Remote Procedure Call (RPC), Message-Oriented Middleware (MOM), and distributed object functionality. The result is a capable and flexible product: Entera has been successfully applied in a number of very large- scale transaction systems. In one sense, Entera is now fitted out with a professional set of front-end tools and compilers, and Borland has furnished itself with an immediate solution to the problems of developers needing to scale programs to multi-tier client-server developments. Entera gives it a proven though far from commercially successful middleware – at the last count it had 300 customers; but the middleware vendor has been hampered by ineffective management and poor marketing.
Making matters worse
After several profitable quarters, the company experienced a $4m loss in March 1996, and its then chief executive resigned. Since then the market for enterprise client-server tools has got no easier. And to make matters worse for Borland, the company is taking up a position where it will only find itself squeezed from all sides – at the low end by new versions of PowerBuilder with added proprietary ORB, and the latest Visual Modeler-enhanced version of Visual Basic specially scoped for three-tier client- server development; while over at the other end of the market there is the high profile Forte Software Inc, Dynasty Technologies Inc and Nat Systems Inc to contend with. Borland’s number two David InterSimone accepts that its purchase of OEC gave users and prospective Entera customers a cause to pause, but he is adamant it is no more than a temporary setback. Borland will announce a strategic plan for its future next month at its annual conference in Nashville, Tennessee. It will not be the first time that Borland has outlined itself a strategy: back in February 1996 the company had set its sights on Golden Gate, a much-needed strategic bridgehead from which it could push its desktop toolset lines into the high-margin world of scalable corporate client-server, intranets and Web-enabled application development. It had been successful in client-server with Delphi and C++ Builder products, had polished its IntraBuilder product for building dynamic Web forms and applications that work over the Web, and was about to take the wraps off JBuilder, one of the first RAD products for Java. The future looked good. It already had deals with value-added resellers, agreements with systems integration houses and ties with OLAP vendors, but it st
ill was not getting involved in enterprise computing where sales are made on a product’s scalability, with all the resultant issues of application partitioning, security and load balancing. Enter Entera. Here OEC’s middleware becomes a fundamental strut of Golden Gate. By acquiring OEC, Borland feels it can guarantee tight coupling between its development toolsets using field- tested middleware. For Borland Entera will fulfill two key roles. Firstly, as a stand-alone intelligent middleware product capable of generating open, scalable, secure, manageable software infrastructures, on top of which both Borland and non-Borland products can be deployed. In addition, Entera is seen as an enabling technology within Delphi, C++ Builder, JBuilder and IntraBuilder, endowing these product lines with the Entera benefits of open connectivity, scalability, security, and manageability. Entera version 4.0 is planned for release by the end of calendar 1997. Borland will continue to maintain Entera as an open, standalone product, and as a strategic technology that becomes integrated in other Borland product lines. OEC was losing money. Borland itself, even more. When the company reported its results on April 29th, they were as bad as Wall Street expected, and then some (CI No 3,151). The tumble in Borland’s stock value has left the $6 share price consisting of one third cash. But cash is unlikely to be a major feature of the share price for long. Unfortunately, Borland is going to need the majority of its liquid reserves over the next few months. The extra bad news is that the OEC acquisition is also not generating cash.
Produced cash deficit
OEC filed its last quarterly return for the period to September 30th 1996, subsequent to which it became a subsidiary of Borland. In that last three month period the company produced a cash deficit from operating activities of $8.5m with a closing balance sheet cash figure of just $4.7m. In short, without the Borland deal, it is highly likely that OEC would have been unable to continue trading. To cut costs in its new OEC division, Borland downsized the company’s Boston operations and relocated key technical personnel to its headquarters in Scott’s Valley, California. Of 24 Entera developers only nine made the move west. So where does that leave the group picture? The official line in the latest tenth quarter filing is as follows, ‘The company believes that its existing cash balances and funds expected to be provided by operations will be sufficient to finance its working capital requirements at least through the next twelve months.’ At December 31st, the group had $74m of available cash and short term investments which should comfortably cover the 12 month outlook. But beyond that, it desperately needs to start bringing in the cash. The board, however, is predicting further losses, at least in the short term. In February, Borland laid off approximately 300 of its 1,000 staff, a move which the newly appointed chief executive Delbert Yocum said would save $30m a year. Borland expensed nearly $4m on professional fees in the acquisition of OEC, but the full costs of integration are not yet known. Prior to all this, OEC attributed the huge fall in its software license revenues to the impending Borland deal. Customers were apparently waiting to see what effect the deal would have on products before committing themselves. It will be interesting to see whether Borland can salvage any revenue from this supposed back log of demand.