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Analysis: Intentia buy raises Lawson profile in midmarket

Analysis: Intentia buy raises Lawson profile in midmarket

Lawson Software Inc.'s deal to acquire Swedish software developer Intentia International AB may give Lawson the bulk it needs to credibly compete in the midmarket ERP (enterprise resource planning) software space -- but successfully turning two struggling companies into one healthier company will be a tricky task, analysts warned.

Lawson Software Inc.'s deal to acquire Swedish software developer Intentia International AB may give Lawson the bulk it needs to credibly compete in the midmarket ERP (enterprise resource planning) software space -- but successfully turning two struggling companies into one healthier company will be a tricky task, analysts warned. Lawson's all-stock deal, valued at US$480 million, did not come as a surprise, given the enterprise software market's consolidation trend. As sales cycles grow longer and growth slows, many among the industry's profusion of applications vendors are looking to buy or be bought. St. Paul, Minnesota-based Lawson has reported losses in two of its last five years; Intentia posted losses in all five. Meanwhile, Lawson's revenue plunged from $152 million in 2001 to barely more than half that in 2003.

"At its current size, Lawson wasn't long for this world," said Joshua Greenbaum, the principal of Enterprise Applications Consulting Inc. in Berkeley, California. "It needed to bulk up its customer base or be acquired."

Financial analyst Tad Piper of Piper Jaffray Co. called the deal "more a merger of equals than an acquisition," and in many ways the companies are complementary. Intentia draws more than 80 percent of its revenue from Europe, while Lawson relies just as heavily on the North American market. Both companies focus on midmarket ERP customers, and both are building their technology stacks around IBM's WebSphere middleware.

The challenge that the expanded company faces is increasing its presence in a tightly competitive market also coveted by bigger vendors with deeper resources. ERP titans SAP AG and Oracle Corp. are both competitors, as is rising challenger Microsoft Corp., which bought Great Plains and Navision several years ago to jumpstart its back-office applications business.

The Intentia acquisitions is expected to close by the end of this year. Forrester Research Inc. estimates that at that time Lawson will be the number-four vendor in the ERP market, behind SAP, Oracle and Sage Software Inc., which dominates in the low-end of the SMB (small and medium-size business) market. Lawson and Intentia focus on the larger end of the midmarket, generally defined as companies with annual revenue up to $1 billion.

Analysts generally praised the combination but warned that it may be years before users reap benefits. "We believe the execution hurdles are steep, with the need to integrate the companies, retrain the respective sales forces, and continue the aggressive financial restructuring," Piper wrote in a research note. AMR Research's analysts cited financial stability and streamlining the combined company's product portfolio as looming challenges for Lawson.

On the plus side, pundits expect customers to gain from the fierce fight for the midmarket. Lawson unveiled a new vision last month for an SOA (service oriented architecture)-enabled platform codenamed "Project Landmark," a sign that it's committed to keeping its technology modern and following the applications-industry trend toward business process-based infrastructures. IDC analyst Evan Quinn applauded that alliance as a smart way for Lawson to both expand its sales reach through IBM's vast channel and address "long-term viability questions" about its future.

Other ERP vendors are also positioning for battle. After several years without major updates of its popular SalesLogix and ACT products, Sage refreshed both last year and began developing a more integrated vision for its portfolio. Another midmarket vendor that built its portfolio by acquisition, SSA Global Technologies Inc., went public last week, raising $99 million to help fuel its expansion plans.

"The battle for the midmarket is now being joined by some much stronger companies," said Enterprise Applications Consulting's Greenbaum. "Lawson's move makes the race a lot more interesting." -- IDG News Service

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