Investor Group Buys Baan

Baan to be combined with SSA to become fourth largest enterprise software maker.

An investor group led by Cerberus Capital Management L.P. and General Atlantic Partners LLC today announced that it is buying enterprise software developer Baan from Invensys PLC for $135 million.

The group, which represents $14 billion in investment capital, plans to combine Baan with another ERP (enterprise resource planning) software maker, SSA Global Technologies. That company will represent $600 million in annual revenue, making it the fourth-largest enterprise software maker.

The deal comes a day after PeopleSoft Inc. announced it was buying J.D. Edwards and Co. to form the second-largest ERP software developer. However, unlike the expanded PeopleSoft, which will provide a suite of products that address a broad range of vertical markets as well as horizontal functions like human resources automation, the combined Baan and SSA will focus strictly on delivering software to manufacturers.

Some 80 percent of the 16,500 customers in the combined Baan and SSA customer base are manufacturing companies, according to Baan President Laurens van der Tang. He said this will be the largest installed base of manufacturing customers.

"The logic behind this is we fully expect there will be consolidation in [the enterprise software] industry over the next couple years," van der Tang said in a conference call. "Our goal is to become one of the top 3 [ERP vendors] over the next couple years."

van der Tang said that Baan and SSA, while both addressing the manufacturing automation customer, have complementary strengths. Baan has a stronger footprint in Europe and with discrete manufacturers, while SSA has a bigger presence in North America and with process manufacturers, he said. In addition, Baan has a history of development in open systems and Windows; SSA has a strength in software that runs on IBMs iSeries servers (formerly known as AS/400).

Sometime after the sale of Baan closes, which is expected in six weeks, Baan and SSA will operate as separate operating units within a single company under a single CEO. Both will retain their own names and own sales, consulting and development arms. No decisions have been made on who the top management will be, van der Tang said.

van der Tang was vague about how the two companies software road maps would be integrated, but indicated that both would depend heavily on Gemini, the code name for the next-generation ERP backbone software that Baan will roll out in October. Baans OpenWorldX integration software will also be critical in connecting Baan and SSA applications, he said.

Cerberus and General Atlantic picked up Baan at a steep discount. London-based Invensys purchased Baan in 2000 for $800 million. The investors plan to pour more money into ERP, with future acquisitions likely, van der Tang said. He would not say specifically where those acquisitions would come from, but when asked if i2 Technologies Inc. or Manugistics Group would make good acquisitions, he responded, "Companies in those categories are logical targets."

Ian Campbell, an IT industry analyst and CEO at Nucleus Research, said the Baan/SSA combination should have a much smaller effect on the market than Mondays PeopleSoft/J.D. Edwards announcement.

"It looks like an infusion of cash and opportunity to reinvigorate [Baan] but not necessarily something that will cause a big tremor in the industry," said Campbell, in Wellesley, Mass. "Id wait and see what the management changes are.

"If I were a Baan customer, Id feel good about this," he added.