Microsoft confirms Navision acquisition
Ticket to Europe
Microsoft Corp has confirmed its intention to acquire Danish mid-market business applications vendor Navision a/s. Navision will join the Microsoft Business Solutions division, which is already home to Microsoft's previous acquisition in the business applications area, Great Plains.
The move will create a global business applications team of over 36,000 that will sell to the small to mid-market sector, consisting of businesses with annual revenue of between $1m and $800m. Navision's corporate headquarters in Vadbaek, Denmark will be the center of development operations for Microsoft Business Solutions in EMEA, and will become the largest product development center outside the US.
The acquisition is a stock and cash purchase, based on an offer to shareholders of DKK 300 ($37.1) per share, and the total transaction value is estimated at approximately DKK 10.8bn ($1.3bn). Shareholders can elect to be paid in shares or cash. The offer represents a 37% premium on Navision's quoted share price before news of a strategic deal was revealed on April 30.
There are no foreseeable hitches in the acquisition as Navision's board of directors has unanimously recommended that shareholders accept the deal. Navision is majority owned by its five founders who own 56.5% of the company, and it is reported that shareholders representing 60.5% have already agreed to accept the offer. The proposition is also unlikely to rouse the interest of the competition authorities. Navision is the fifth largest business planning software vendor in Europe with sales in 2001 of $181m and about 3% of the European ERP market. Navision shares surged 11% in opening trading following the announcement.
Microsoft's burning desire to gain a hold in the business applications market and push the Microsoft .NET platform are the dual forces behind the acquisition but there is more to it than that. Despite its acquisition of Great Plains, Microsoft has still not made much of an impact on the business applications market, and it has received criticism that the product is not well suited to the European market.
"Microsoft hasn't achieved what it set out to achieve with Great Plains," said David Turner, international marketing manager at financial applications house, the Coda Group. "They talked about global reach but a year on they don't seem to have achieved much. It is an admission of failure that they had to look for something in Europe." Certainly Microsoft has not increased its penetration of the European business application market - 85% of Great Plains revenue still comes from North America, while 86% of Navision revenue comes from Europe.
Microsoft has also been taken to task over its .NET initiative on the grounds that it is not clearly defined but said it is looking to Navision to help build the platform. Doug Burgum senior VP and head of the Microsoft Business Solution division said: "By combining our talents and expertise and guided by a shared vision for partner and customer satisfaction, we will speed up our ability to deliver on the promise of the Microsoft .NET value proposition on a global scale. Business Solutions will be a catalyst and proof point for the value of the .NET platform just as Office was to the Windows desktop."
Clearly the deal is an important one for Microsoft. Not only does it get ownership of an established European-based business software offering and its attendant installed base - Navision has sold over 130,000 solution sales - it also gets access to an extensive network of European partnerships.
One of the prerequisites of selling to the mid-market is the ability to reach deep into the business community via highly localized representatives who understand the business conditions and the nature of the business on a micro level. As no vendor can afford to support such an extensive network directly, partners are a critical factor in successfully selling to the SME sector. Navision, with its 2,400 Navision Solution Centers selling and supporting its products in 94 plus counties, has a proven network.
It also has expertise in selling business applications to the SME sector in contrast to the Microsoft network of partners who can sell commodity products to the mass market on a one size fits all basis but has no expertise in positioning business software for individual companies requirements.
For Navision the move is solid but less spectacularly beneficial. Having already gone through one merger - Navision was formed as the result of a merger between Navision Software and Damgaard - partly as a result of poor performance experienced by European ERP vendors in general, this comes as another upheaval. Even though Navision has been faring well, Microsoft will provide a safety buffer for its products and customers and help further its reach within Europe.
In an effort to broaden its business, Navision had planned to sell its software in the US, but this may have to be curtailed. Microsoft largely plans to maintain the current geographic separation represented by Great Plains and Navision, with Great Plains being the primary vehicle for the US and Navision continuing to serve the European market.
As for customers there is uncertainty ahead. For the moment Navision will continue to develop and market its software, just as Great Plains has done with its product line since its own acquisition but Microsoft has indicated that both teams will work together to develop next generation .NET software.
Graham Steinsberg, CEO of Coda Group, a company that has only recently emerged from the trauma of being acquired, said: "If Microsoft's last big enterprise acquisition - that of Great Plains last year - is anything to go by, then Navision customers could be in for a prolonged period of uncertainty. And as we've already seen this year - with HP's seemingly never-ending attempt to buy Compaq, long drawn out acquisitions only serve to create a vacuum that other vendors are happy to fill."
However, research house AMR Research said that the move makes sense, particularly because of Navision's European distribution channel and the way it operates whereby its product set provides a kernel to which partners add local industry-focused functionality to satisfy the diverse needs of the SME market. This results in a channel that is well versed in business processes and because Navision is Microsoft-centric, Microsoft's own technology. AMR said this makes an enticing combination for Microsoft which is desperate to add business people to its technology led ranks.
On a competitor front, the vendor most severely effected by the merger will be UK-based mid market specialist Sage whose shares dropped on news of the deal. However, SAP AG, which recently acquired mid market player TopManage specifically to target the mid-market will also be affected. Although other vendors such as Oracle Corp and PeopleSoft Inc have also made the mid-market a priority they are in less direct competition as they are aiming at the top end of the sector.
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