CDC Corp is taking the first of a series of steps aimed at splitting off its enterprise software division and running it as an independent company, to be named CDC Software.
he initial move is the formation of a new board of directors that will be separate from the CDC board and will be tasked with growing the business and preparing for the transition to a standalone company.
Peter Yip, vice chairman of the board for CDC, will serve as executive chairman of the CDC Software board. John Clough, a board member and chairman of the executive committee for CDC, will serve as vice chairman.
The roles and responsibilities of the CDC Software management team have also been altered to align with the goal.
CDC has two major lines of largely unconnected businesses: mobile operations and enterprise application software. CDC Software, the enterprise applications division, was formed through multiple acquisitions in the ERP, SCM and CRM markets, including ERP vendor Ross Systems and CRM player Pivotal. It offered to combine with Onyx Corp, via a complicated stock swap based deal, at the start of the year, but was rebuffed.
CDC Software believes that separation from its parent company is key to its long term success. Its aim is to double in size over the next two years, through organic growth and acquisitions in CRM, process manufacturing, and value-add business services. It wants to achieve a $500m annual run rate.
CDC Software has been compared to SSA Global because like SSA Global is has an acquisition-based growth strategy. However, where SSA has assimilated its multiple acquisitions, articulated its integration and growth strategy and seen growth in revenue and profitability, CDC Software has failed to capitalize on its acquisitions, has not taken steps to integrate its disparate applications nor has it revealed its long term product and strategic direction. It has however undergone internal restructuring and major senior management changes over the last year.
Its bid to buy Onyx at the start of 2006 was driven more by a desire to increase its valuation, which it considers to be too low, without the expense of undergoing an IPO, than by software or business strategy synergies. Although there is a case for splitting off the company because the two CDC Corp divisions serve vastly different markets, the plan appears to be primarily driven by financial imperatives.