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September 1, 2005

Pitney Bowes buys second data quality vendor

There was more consolidation in the data quality software market as postal automation giant Pitney Bowes Inc declared its intent to buy Firstlogic Inc for around $50.3m. The price is a bargain compared to the $321m it forked out for another data quality vendor, Group 1 Software Inc, last summer.

By CBR Staff Writer

The deal is expected to close in the third quarter of 2005 and is subject to the usual regulatory approvals. Upon completion Firstlogic will be absorbed into Pitney Bowes’ Document Messaging Technologies (DMT) division.

The companies are hardly strangers. Pitney Bowes already owns 10% of Lacrosse, Wisconsin-based Firstlogic. The $50.3m Pitney Bowes is forking out effectively buys the remaining shares of the company.

Firstlogic’s data quality suite is also slanted heavily towards streamlining mailing and postal operations and customer communications, which clearly attracted interest from Pitney Bowes. Pitney Bowes’ mailroom hardware already links to Firtlogic’s directory lookup and presorting technology for address assignment and postage discounting.

Privately-held Firstlogic was founded in 1984. The company develops a broad suite of data quality tools branded as Information Quality 8 Suite and which is backed up by a strategic consulting services called IQ Assurance Services.

While positioning itself as a maker of generic data quality tools for data warehousing and e-business applications, Firstlogic’s Postalsoft suite offers a strong set of commercial postal and mailroom functionality like address correction and encoding, international addressing, merge/purge, presorting and list management functionality.

The company has around 400 employees and generated revenue of $55m in 2004. Firstlogic has traditionally been strong in North America and has relied mainly on a network of partnerships with systems integrators, ISVs and resellers to extend its international reach.

Firstlogic is being bought by a much larger solutions company. With over 85 years experience in mailing technology, Pitney Bowes has grown into a $5.3bn concern with over 35,000 employees worldwide and boasting over 2m companies using its products. The company has grown up primarily as a maker of postage meters and other mailroom and shipping devices.

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Its product line of MLOCR (multiline optical character reader) sorters processes large volumes of inbound and outbound mailing content. However the company has been steadily moving focusing its attention on software – specifically integrated mail and document management systems. The acquisition of Group 1 last summer helped Pitney Bowes enter the $4bn customer communication management market. Firstlogic further extends Pitney Bowes’ software portfolio and substantially widens its global distribution network.

Both Pitney Bowes and Firstlogic were suitably cagey about detailing plans for corporate integration. The exact structure of the merged organization has not been worked out as yet, a Pitney Bowes spokesperson told Computerwire yesterday. He did however confirm that Firstlogic would be absorbed into Pitney Bowes’ DMT division.

Nor did they comment about product integration plans, saying that this would happen in the fourth quarter after the deal was closed and could take up to 18 months to complete.

In a prepared statement, Pitney Bowes CEO Michael Critelli said the inclusion of Firstlogic will help the company to support key areas of its growth strategy, namely mailstream expansion, global penetration and cross-selling.

The acquisition will also impact partnerships both sides of the fence. Firstlogic is already a preferred data quality partner for several business intelligence and data integration vendors. Last month the company extended a long standing OEM partnership with Informatica Corp – both companies have 160 joint customers now.

It was widely expected that Informatica would make a predatory move for Firstlogic. Instead the company has expanded its data quality partnerships to include a six-year relation ship with Harte-Hanks Trillium Software Inc. While this relationship might remain intact, the writing seems to be on the wall for Firstlogic’s numerous partnerships with numerous other portal automation vendors including ID Mail systems, Kern, NPI, Opex, RAF Technology, SmartMail and Tritek.

Of course Pitney Bowes will now face the task of having to pick through overlaps between the Group 1 and Firstlogic product lines. Some degree of product rationalization looks inevitable since both companies used to compete head-to-head as independent vendors. Amy Meyer, director of strategic marketing at Firstlogic, however talked up the complementary capabilities of the two product sets, pointing to Group 1’s strong geo-spatial; and document composition capabilities. Firstlogic is will nicely supplement Pitney Bowes’ customer communication management business.

Consolidation in the market is being driven by broader platform plays from the vendors who are now recognizing that data quality spans several software technologies – data cleansing, matching, standardization and enrichment – that users have traditionally implemented as point tools. Data integration vendor Ascential Software (now part of IBM Corp) got the ball rolling by acquiring Vality Technology Inc. Trillium Software (part of Harte Hanks Inc) bought data profiling vendor Avellino Technologies Ltd. Evoke Software Inc, a data profiling vendors has been bought twice: by Conversion Sciences International Inc (CSI) and more recently by Irish firm Similarity Systems Ltd.

Consolidation also demonstrates how data quality is becoming part of bigger enterprise application software markets, not just basic name and address cleansing, with independent tools vendors now being folded into larger companies like Pitney Bowes and Harte-Hanks. Acquisitions like these both validate the need and crystallizes the importance of data quality processes in bigger solutions, Wrazen said.

Data quality rivals like Trillium see Pitney Bowes’ swoop as removing another competitor. When Pitney Bowes bought Group 1 we hardly saw them as a serious pure-play competitor in the field, said Ed Wrazen, vice president of international marketing at Trillium. We suspect the same thing will happen to Firstlogic.

But Firstlogic’s Meyer doesn’t necessarily agree. We still anticipate being a player in data quality, she said. Our acquisition is based on Pitney Bowes’ recognition of the importance of data quality tools. They see it as being important to their overall growth strategy and expanding their software business further.

In July this year Pitney Bowes reported second quarter profits up 3% which it credited to recent acquisitions. Revenue for the quarter rose 13% to $1.36bn.

Pitney Bowes dipped 21 cents to $43.04 on the NYSE following the announcement. But it later regained the loss to finish par for the day at $43.25.

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