FSN: Systems Union “too small” to compete globally

Systems Union “too small” to compete globally

8th May 2006
Last week's long awaited offer from Golden Gate to acquire the Systems Union Group symbolises everything that is happening in the rapidly developing mid-market space for ERP and financials software. Playing on the global stage, now more than ever, requires financial muscle on a grand scale if software houses are to compete effectively with the likes of Microsoft, Oracle and SAP. Gary Simon, FSN's managing editor, takes a detailed look at the background to the transaction and talks to Paul Coleman, Systems Union's CEO about the future.

The sale of Systems Union Group (SUG) had been on the cards for a number of months. It was only a matter of time before one of the super-vendors or an increasing number of interested venture capital houses snapped up one of the best known brands in the British software scene. With a track record spanning more than two decades SUG has been well regarded as a provider of strong financial applications and in more recent years has expanded its portfolio by acquisition. Brands such as MIS, Pegasus, Foundation Systems and Vision are all a part of the group.

When Paul Coleman,CEO, Systems Union Group, took the helm around six years ago Systems Union was suffering from the fallout of the dot com boom and lacking direction. “We were virtually bust,” admits Coleman. Since that time, the group has turned around its performance and for the last three years in particular has demonstrated a fresh strategic direction, increased growth and profitability. It's operations now span 20 countries, 50,000 customer sites and it has over 500 partners around the world.

Given that backcloth the key question is why has SUG sold out and what does the transaction (if it proceeds to completion) mean for its re-seller network, customers and the future of the brand.

For Coleman, the reason comes down to a lack of critical mass. He told FSN, “Put quite simply, as a $200m business in the current global environment we are too small to compete effectively. We do not have the financial wherewithal to expand into the US . The balance sheet wouldn't take it and I do not want to make the wrong move. In my view you have to be a $500m company to play on the global stage.”

“We have come from financial disaster through to financial strength but we want to get to the next stage without taking on significant levels of debt. We are a global company but compared to the likes of JD Edwards, (now a part of Oracle), Microsoft and SAP in the mid-market we are too small. We have global solutions – I would give our products nine out of ten. But when it comes to global reach we are only score seven out of ten because of our lack of presence in the US and the Eastern block. In terms of scale though, I would give us five out of ten,” he remarked.

Naturally, Coleman believes that SUG is in good hands with Golden Gate , the acquisitive venture capital organisation that acquired GEAC earlier this year. As part of that acquisition, Geac's core financial and corporate performance management applications were transferred into a newly formed Golden Gate Capital funded company, named “Extensity” that targets the integrated financial applications software market, including the high-growth Business Intelligence (BI) and Corporate Performance Management segments. It is this business unit that will take over the operations of SUG. Ken Walters is the CEO of Extensity and Paul Coleman told FSN that he would not be staying in the newly merged group after the transaction is completed. According to Coleman, it remains to be seen whether the newly enlarged operating unit will be called Extensity, SUG or something else but he remains confident that the product name, SunSystems will survive the acquisition.

Jeremy Roche, CEO of competitor CODA, whose CODA Financials Product competes with Systems Union at the higher end of the mid-market and whose Dream product competes at the lower mid-market expressed concerns about the future for Systems Union's customers, staff and resellers. Acknowledging that operational details around the transaction are yet to be announced, Roche told FSN, “Inevitably, this kind of transaction must cause uncertainty in the market. One can't help noticing that Golden Gate has several overlapping products, some of which are very old. It remains to be seen whether SunSystems is developed or kept in care and maintenance mode.”

Coleman on the other hand believes that SUG's expansion and continued development is assured under Golden Gate 's stewardship. “You only have to look at how they have transformed Infor in the space of a few years into a formidable force in ERP. I believe that Extensity will give us traction in the US and significant financial resources for expansion. I believe Golden Gate will become a $1 billion company in quick order. There are a lot of synergies and we have created significant value for shareholders.”

Brian Hartlen, VP marketing at Extensity and formerly head of marketing at GEAC has seen the operation from both sides and has been impressed with Extensity's energy and commitment to customers. He told FSN, “I'm impressed with the time to action. Golden Gate said we would do more acquisitions and that has already happened, so the Extensity brand is building. At a personal level I've been pleased with the commitment to customers. Ken Walters, our CEO has been around many customer sites and there is a real focus on customer satisfaction – it's not just a financial transaction. The products are being developed but the Extensity culture is that we are not going to force customers to change to new products if they are happy with what they have got. We intend to support them as long as it is commercially sensible to do so.”

Resellers are also affected but Ian Caswell, Managing Director of Sapphire Systems, Systems Union's number one global partner, is upbeat. He told FSN, “Our biggest fear as a reseller was that SUG would be taken over by someone who just wanted to transfer the user base to another software product or had a direct sales model. It is clear that Golden Gate is neither of those things. In fact, on balance we are quite happy. They are an acquisitive group but we are playing in a global market and we want to be associated with a global brand. I understand that one of the reasons that Golden Gate bought SUG was because of the established sales channel around the world and so clearly they are supportive of this model which is good news for us. The other products in the Golden Gate portfolio do not compete and in fact we have integrated SunAccounts to Infor manufacturing on a couple of occasions. It looks as though there could be more development resource for SUG products and as part of a larger group there should be more stability. My only concern is that Paul Coleman, who has done a very good job appears to be leaving,” he said.

What the transaction says about the broader mid-market is also important. National vendors that claim to be international but do not really operate internationally are vulnerable to takeover. “Consolidation has been a feature of the enterprise ERP market and now the same thing is happening in the mid-market,” says CODA's Roche.

However, with dwindling numbers of marriage partners left, the timing of SUG's deal looks particularly good. “If I was a customer or reseller, I wouldn't be worried by this transaction, but if I was a competitor I would,” concludes Coleman.

Related FSN articles

Why a unified ledger still makes sense
Filling the mid-market performance management gap
Systems Union enters Gartner's Magic Quadrant for CPM Suites for the first time

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