Analysts: Merger is Mixed Blessing for Baan Users

SAN FRANCISCO (05/31/2000) - Today's news that ailing ERP (enterprise resource planning) software vendor Baan Co. NV is finally to be acquired will definitely come as a relief to users of the company's applications. However, analysts today cautioned that it's not a case for champagne all round since they expect Baan's white knight, Invensys PLC, to spin off some Baan operations the U.K. manufacturing company perceives to be non-core.

Being acquired by Invensys effectively will return Baan to its roots as a vendor of manufacturing software, so users of the vendor's discrete manufacturing applications are sitting pretty, according to analysts.

"Invensys has a very strong manufacturing focus," said Dennis Byron, director, enterprise application research at International Data Corp., based in Framingham, Massachusetts, in a phone interview today. "Invensys is a very, very good company and will not leave customers shorthanded." It's much better for Baan and its users that the vendor was acquired by a company with manufacturing expertise than by a more predatory firm only interested in milking Baan's revenue stream, he added.

However, Baan's won't be the only manufacturing software at Invensys -- the engineering firm last year acquired U.S. ERP vendor Marcam Solutions Inc. and in 1998 purchased manufacturing software specialist Wonderware Corp. "It's quite a technology mishmash, it's an area that needs integration, and to pull it together will be quite a challenge," Byron said.

One way Baan may be able to assist in that integration is with its middleware, which Byron dubbed the company's "hidden jewel."

If users are happy with Baan's core applications, they should stay put, analysts advised, since ERP software once deployed will typically run from between 3 to 7 years.

Bruce Bond, group vice president for enterprise and supply chain management at Gartner Group Inc., based in Stamford, Connecticut, believes that users of Baan's process manufacturing applications should probably start looking for a migration strategy. Any customers at a very early stage of implementing the ERP vendor's software or having trouble with deployment should also investigate if they can move away from Baan applications, he added.

Customers who have bought into Baan's take on future technology developments -- for example, the vendor's work on XML (extensible markup language) -- should take it as read that the vendor is not likely to continue to develop that strategy, Bond said.

Baan first fully appeared on U.S. users' radar screens when aerospace company Boeing Co. announced a US$20 million software licensing deal with the Dutch ERP vendor for its manufacturing and chain management applications in August 1994.

The fact that Boeing invested in Baan, very much the third player in the ERP market, trailing behind rivals SAP AG and Oracle Corp., created plenty of interest in the firm.

Gartner's Bond predicts that Invensys will try to maintain Boeing as a customer.

Analysts agreed that for Invensys to buy Baan is one of the best possible scenarios for the troubled ERP vendor.

Bond traced back Baan's financial troubles to the second quarter of 1997 when the vendor announced that it had overstated its fiscal results. "People grew skittish about Baan and they were not able to convince the market that the company was OK," he said.

Of late, Baan's continued survival as an independent entity has been cast into doubt. This year opened with the departure of the company's chief executive officer, quickly followed by the exit of its chief financial officer. Last month, Baan reported its seventh consecutive loss-making quarter when the vendor released financial results for the first quarter of fiscal 2000. [See "Baan Posts Widening Loss, Shrinking Revenue for Q1," April 20.]Fears of the impact of the year 2000 (Y2K) computer problem pushing down the sales of applications meant that most of the major ERP players had a tough 1999, but Baan appeared unable to recover momentum once 2000 began, according to Bond. "The (ERP) market is horrible, business is slow," he said. Users are currently debating whether to invest more or at all in ERP or in e-business software, he added. For a company like Baan "already on shaky ground," the timing of a drop-off in ERP sales completely exacerbated its financial situation, Bond said.

Bond expects that Baan's new owner will sell off all or part of the ERP vendor's CRM (customer relationship management) business and its Caps Logistics SCM (supply chain management) operation. Baan developed its CRM business through its acquisition of Aurum Software Inc. in May 1997 and purchased Caps Logistics Inc. in September 1998. He positioned Baan's plans to form a new subsidiary focused on the Net CRM market announced in March as a last ditch stand to try to generate badly needed cash. "The subsidiary didn't generate the interest Baan had hoped," Bond said. [See "Baan to Form Dedicated E-CRM Company," March 29.]Earlier this year, Baan began divesting itself of non-core businesses with the sell-off in March of its Coda financials software unit for $49.3 million in cash to U.K. company Science Systems PLC, substantially less than the $83 million Baan paid for U.K.-based Coda Group PLC in May 1998.

Baan, with dual headquarters in Barneveld, the Netherlands, and Reston, Virginia, can be reached at +31-342-42-8888 or at +1-703-234-6000, or on the Internet at http://www.baan.com/. Invensys, based in London, can be reached at +44-207-834-3848 or on the Internet at http://www.invensys.com/.

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