Infor’s Owners Gobble Up Geac for $1 Billion

The equity group behind Infor yesterday announced a $1-billion plan to acquire Geac, a provider of ERP software for numerous platforms, including the iSeries. Golden Gate Capital, the private equity firm that has funded about a dozen Infor acquisitions over the last several years, plans to split Geac up into three components, with System21 and other ERP products going to Infor, and Geac’s industry specific and financial applications becoming two units of a newly created company.

Geac, you will remember, was on the leading edge of the wave of consolidation in the 1990s, when it acquired about 100 software companies of various stripes. Former Geac executive Michael Greenough cherry picked other former Geac executives, including Shelley Isenberg, Warren Fletcher, and Marvyn Turk, to form the core management team at SSA Global that would acquire itself back onto the list of top five ERP companies by revenue (click here for more on the Geac-SSA connection). But the tables have turned and now Geac has become a victim of what Geac CEO Charles Jones yesterday called “the most important trend in our industry.”

Without the means to once again become the acquirer, Geac opened the door to 25 suitors and eventually accepted its fate in the form of an offer for $1 billion in cash from Golden Gate Capital, which Jones says “was the best bid.” The deal calls for Golden Gate, which owns 75 percent of Infor, to pay Geac shareholders $11.10 per share, or $13.11 in Canadian dollars according to Bank of Canada exchange rates on Friday, which translates into a 27 percent premium over Geac’s stock price. Geac is headquartered in Markham, Ontario, a suburb of Toronto, and is listed on both the Nasdaq National Market and the Toronto Stock Exchange, where its stock prices were predictably up Monday.

That Infor (or Infor Global Solutions, or Golden Gate Capital–they are virtually interchangeable, as far as the chain of checks and command are concerned) would seek to buy Geac was a no-brainer. Geac has thousands of customers in various industries, including the manufacturing and distribution industry, the area of the market that Infor is concentrating on today, as well as strong mainframe-based businesses in healthcare and governments. Infor has a stated desire to expand through acquisition, and had obtained itself a tidy little stable of respected OS/400-based ERP programs, including MAPICS, BRAIN, Daly.commerce, and Lilly Software Associates. Nine-thousand of Infor’s total worldwide installed are iSeries customers, Tom Lynch, Infor’s chief technology officer and senior vice president of corporate marketing, said in an interview this summer. With this acquisition, Infor will be driving $300 million in OS/400 software sales a year, making Infor one of the dominant OS/400 ERP houses, along with SSA Global.

The acquisition of Geac and its System21 product will strengthen Infor’s hold on ERP for midmarket manufacturers and distributors. System21, which Geac acquired from British software house JBA Software in 1999, had about 1,600 users in 2003, a number which has dropped to 1,500 now. These companies operate mostly in the food and beverage, apparel and textiles, and consumer goods industries–all industries solidly in the cross-hairs of Infor. In April 2003, Geac unveiled a much needed refresh of System21 called Aurora that included a new RPG-IV code base, support for XML, a new thin-client interface, and integration with IBM WebSphere. In recent quarters, Geac said sales of Aurora upgrades were doing well, and helped the company’s profitability.

Infor will continue to develop and enhance System21, which fits “beautifully” into Infor’s “assembler” strategy, says Ken Walters, chief operating officer for Infor. “It will be integrated very similar as applications in the past. [Executive Vice President] Robin Pederson, who runs business operations for Infor, will go out with the same message respective with supporting the current product set, as well as looking at ways going forward,” Walters says.

While specifics regarding the integration of System21 into Infor’s existing product set have not yet been laid out, Walters assured that the product will be well supported, and highlighted a potential opportunity to cross-sell System21 customers other Infor products. This is the approach Infor has taken with the MAPICS product, which lacked good logistics capabilities. Infor’s solution to this is connecting and selling the warehouse management from Lilly Software Associates to users of Infor XE, as the MAPICS product is now known (see “Infor Taking an ‘Assembler’ Approach to ERP Acquisitions”). The potential to sell existing Infor customers Geac products is not as great, Walters says.

System21 isn’t the only ERP product Infor will be obtaining. Other products going to the Atlanta-based ERP conglomerate include Runtime, an OS/400-based ERP and product lifecycle management application for the clothing and apparel business; RatioPlan, a supply chain application targeting small- to medium-size German companies; Streamline, a Windows-based ERP product for small companies in the books, furniture, and made-to-order industries; and Management Data, a services offering targeting companies in the Czech Republic. These products combined brought Geac about $100 million of its $450 million in annual revenues, with System21 accounting for the bulk of that $100 million, Walters says.

The rest of Geac’s products, which accounted for about $350 million in annual revenues, will be combined into a new company, which will be split into two units. The first unit will be composed of Geac’s financial management applications, including Enterprise Server, SmartStream, Anael, Extensity, and Comshare. The second unit will focus on industry specific verticals, and includes the CSD, Libraries, Local Government, Public Safety, and Restaurants products. Gold Gate Capital says the new company comprised of these independent units will be formally named before the deal closes, which is expected to occur by mid-January.

Regulatory and shareholder approval of the acquisition is required before the transaction can go through, but nobody is expecting much of a problem here since Crescendo Partners, a shareholder dissenter, gained a seat on the Geac board and blessed the buyout. Selling the company’s assets to Gold Gate Capital provides an “outstanding opportunity” for shareholders, Geac CEO Jones says. “At the annual meeting, we noted the most important trend in our industry is consolidation. This economic paradigm cannot be ignored,” Jones says. “Success in the software industry today derives from the strength of size and scale–the scale to invest in new products, in marketing and in a global sales force.”