Although the deal is subject to shareholder approval, both boards of directors have recommended acceptance of the proposal and it is expected to close by before the end of the year and be accretive to earnings in the first year after it closes.
The combined entity will be known as Lawson Software. Lawson’s stockholders will own approximately 56.75% of the company, leaving Intentia’s stockholders with approximately 43.25%. The closing price of the transaction offers a 36% premium to Intentia shareholders.
The combined revenues of the firm will be around $770m. Lawson reported revenue of $364m last year but has struggled with license revenue. Intentia posted sales of $406m (2,983m Swedish Krona), but has not generated a full year-profit since 1998.
Lawson is also seeking a listing of Swedish Depositary Receipts for its common stock on the Stockholm exchange.
The merged company will focus on selling core enterprise resource planning, performance management, supply chain and asset management applications to medium-to-large sized businesses.
Significantly the deal will strengthen Lawson’s presence in the mid-market enterprise resource planning (ERP) market. The companies, in a joint statement, said they would be the biggest maker of business process automation software for this segment.
Despite shrinking spending on new business software packages, industry pundits expect the mid-market segment to be a rich source of opportunity that is growing much faster than high-end ERP implementations, which is a more or less a saturated, maintenance and migration-led market right now.
The announcement of the deal came immediately after long serving Lawson president and CEO Jay Coughlan said he would be stepping down. St Paul, Minnesota-based Lawson acted swiftly to appoint an outsider as his successor.
Harry Debes will join Lawson from San Francisco-based business software maker SPL Worldgroup, where he is currently CEO. Debes also held stints at Geac Computer and JD Edwards (now part of Oracle). Coughlan will officially hand over the reins to Debes on June 15.
Meanwhile Bertrand Sciard, president and CEO of Intentia, will become COO and take responsibility for global field operations.
Their offerings are largely complementary. Lawson products focus on financial, human resources, procurement, and retailing, while Intentia products focus on manufacturing, distribution, and maintenance applications, and there is little overlap in products, customers, or industry focus.
Nor is there a geographic overlap as Lawson is strong in the US while Intentia’s strength lies in Europe and Asia-Pac. The combined company is expected to derive approximately 45% of its revenues from North America, 45% from Europe, and 10% from the Asia-Pacific region. The downside of this is that it is difficult to see where the entity can reduce operational costs.
The company has not released any specifics about product integration as company chairman Richard Lawson went to great pains to emphasize the merger was not your typical software consolidation.
This is a combination of equal companies that has tremendous growth potential in the enterprise software market, he said in a statement. He also pointed to Intentia’s strengths in Europe and Asia-Pacific as being very complementary to Lawson’s deep penetration of the US market.
The combined company will have 3,500 workers and a joint base of around 4,000 customers in 40 countries. Lawson said the merger would have a positive impact on employee opportunities, alluding to no major lay-offs.
Nevertheless, his comments didn’t stop shares of Lawson tumbling as much as 14% on Nasdaq yesterday immediately following the announcements yesterday. Intentia investors on the other hand welcomed the news; hardly surprising given the company’s poor profitability record. Shares were up 12% in Stockholm.
The move is the latest in a long line of mergers and acquisitions in the ERP area, which over the last few years has seen Epicor and Scala combine, SSA Global act as a consolidator for several mid-market business applications vendors including Baan, Microsoft swoop in on Great Plains and Navision, plus the dramatic takeover of PeopleSoft by Oracle and PeopleSoft’s prior acquisition of JD Edwards.
The Lawson-Intentia merger leaves IFS in Europe and QAD in the US as the leading independent mid-market ERP vendors, but this latest bout of M&A activity, combined with their respective financial positions, suggests that their independent days could be numbered.
As far as Lawson and Intentia are concerned, they were also struggling financially despite Lawson carving a solid niche by catering for services industries while Intentia was hunkering down under CEO Bertrand Sciard and was refocusing on four target industries of distribution, fashion, asset and maintenance, and food and beverage.
Intentia’s aim of reaching profitability by the fourth quarter 2004 did not play out however, and the company has not been profitable since 1998. Another ambition was to grow by acquisition, particularly in the US.
Richard Lawson and Romesh Wadhwani will serve as co-chairmen of the new company. Lawson co-founded Lawson in 1975, while Wadhwani is also chairman and CEO of Symphony Technology Group, one of Intentia’s major stakeholders.
The new board of directors of the combined company will consist of three directors from Lawson and three from Intentia, plus two new directors yet to be selected, and Debes. Intentia president and CEO Bertrand Sciard will become COO of the combined company with responsibility for all global field operations.
Combining two struggling companies is not an automatic recipe for success, and could destabilize the new entity during the integration process as uncertainty could lead to a drop in license sales. However, as both company’s license revenues have been poor and they have also been hit by the uncertainty caused by the Oracle/PeopleSoft situation, they may not have anything left to lose.
Lawson was identified as an Oracle target at one point, although based on current standing, Intentia is by far the weaker partner.
Based on Lawson and Intentia’s revenues and combined customer base, the new company will be sizable and that might be enough to drive confidence and increase license sales, especially as Intentia has severely rationalized the organization to try to size it to the market opportunity. It needs more than merged operations to thrive though, so details of its strategic plan will be keenly awaited.
