Once acquisition talks with Base Ten broke down at the end of last month, flailing application development supplier Select Software found itself on the ropes. Deloitte & Touche pulled the final punch when it was appointed administrator of the sale of company assets. Select had to finally concede defeat, enter receivership, and abandon any plans […]
Once acquisition talks with Base Ten broke down at the end of last month, flailing application development supplier Select Software found itself on the ropes. Deloitte & Touche pulled the final punch when it was appointed administrator of the sale of company assets. Select had to finally concede defeat, enter receivership, and abandon any plans to sell the company whole to provide shareholders with some return on company stock.
Instead, the much diminished management team was forced to sell the assets for an undisclosed sum to Princeton Softech, the data management subsidiary of consulting company, Computer Horizon. Select acquired cash to pay a mounting army of creditors. However, the amount raised from the sales of assets will not be enough to fully pay-off its creditors. And investors who still hold stock have been left with shares that are almost worthless.
The pressure to sell up had been mounting for months and had reached a head in the third quarter of last year when Select’s liabilities began to seriously exceed its assets. A highly unrealistic budget forecast devised by the long departed management team of CEO, Stuart Frost, CFO, Jerry Davidson and president, Ed Holt, had played the biggest role in the company’s demise. The team had wrongly presumed that the company would continue growing at its pre-IPO clip of 80%. Select had spent accordingly causing it to burn through the $27m it raised from the 1996 IPO and rapidly descend into insolvency in the space of little more than a year.
A class action lawsuit that forced the company to restate its year-end results two years ago sounded the final death knell. Rather than realizing $28m in revenues for 1997, Select was instructed to slice $3m from annual sales bringing revenues down to $25m. Shareholders complained that they had been misled. The class action lawsuit still drags on. Select was granted a summary dismissal in March 1999 but stockholders appealed against that decision. An appeal hearing will take place this week.
Princeton Software, a profitable and growing operation with estimated revenues of between $20 and $30m for 1998, may provide a ray of hope for Select customers at least since the company plans to continue developing the acquired software portfolio. Princeton had been pursuing Select since the beginning of the year. We first started talking to the company about six months ago and we carried out a great deal of due diligence in March when Select announced exclusive merger negotiations with Base Ten. But we wanted to buy the assets and didn’t want to inherit the shareholder class action suit or debt, says Steve Gerrard, VP of strategic planning at Princeton Softech.
Having held out during negotiations, Princeton came away from the negotiating table with all the meat of intellectual property rights, software licenses, employees, OEM contracts and customers and none of the bones from the Select carcass. Select’s Component Factory, a suite of component based application development tools, will form the cornerstone of Princeton’s component-based development strategy. This acquisition is our first strategic move into this market, says Gerrard.
So why does Princeton think it can succeed with component based design (CBD) when so many companies – Cayenne, Aonix, Synon and TI Software amongst them – have failed and been rescued by acquisition? Application development is now coming into its own. Software development budgets are no longer focused on Y2K fixes or ERP installation and implementation projects. CBD projects also pre-suppose a certain maturity in middleware that hasn’t been reached until recently, argues Gerrard, Select also took an academic purist approach. We will focus on business needs and applications, he says.
The areas in which Princeton will target Component Factory are the current darlings of enterprise software – e-commerce and customer relationship management. Once it has trained its own sales force in CBD software, it will start cross-selling Component Factory into the 2,000 Fortune 200 companies it currently has on its account list as a suite to build web-based applications. And there are already willing takers, according to Gerrard, who points to a medical supplies customer that currently wants to build an application to enable its sales people to dial- in to its corporate web site to access inventory information and complete a sales order remotely.
There is also a potential for pull through sales, according to the company. Many remote web-based applications require database synchronization software and data management/movement software in order to be completely effective. And this is Princeton’s primary area of expertise. The company intends to integrate Select’s offerings with its eData web management tools, application development environment, data movement and migration, and application testing offerings.
However, the initial sales opportunity will come from bundling Princeton’s data movement software with the Select SE data model and Data Reverser for PeopleSoft and Lawson that is designed to enable companies to breakdown and reverse engineer ERP applications, when customization is required. This strategy, after all, was one that Princeton had been eyeing ever since it approached Select with the proposal of carrying out some joint marketing activity some six months ago. That said, Princeton Softech does not expect to see more than $20m in sales within the first 12 months of ownership, even though Select’s 1998 revenues approached $24m, according to Gerrard.
The company has also tried to ward off any threats that potential competitors such as Popkin Software have tried to exert on the Select customer base. Popkin is offering a number of cut price upgrades to its own System Architect 2001 modeling tool including free replacement product, acceptance of Select support contracts as Popkin support contracts when switching to System Architect 2001 and conversion routines for the most popular Select products, in the belief that Princeton will abandon users of the older Select data modeling tools. Popkin has made an opportunistic play without doing any research. There isn’t widespread dissatisfaction amongst the customer base and we will fully support all the customers we have including those using Data Modeling tools with structured SSDM add-ons, says Gerrard.