Like a hungry guest at the Thanksgiving table, AT&T's (NYSE: T) Sterling Commerce software division has been gorging itself with acquisitions. Last September, it paid $300 million to purchase USinternetworking, and it's now shelled out $155 million to buy Comergent Technologies. Gobbling up Comergent should help Sterling provide a much better product offering for its supply chain solutions, which help companies manage their suppliers, partners, and resellers.
Sterling Commerce offers sophisticated software that allows companies to manage the tricky feat of sharing data while avoiding the inherent pitfalls in security and integration. Pfizer (NYSE: PFE) uses the software to link up more than 2,500 business partners, allowing for the automation of its order and product fulfillment.
Sterling Commerce's software has many of the same features as Comergent's. However, given its dot-com background, Comergent also has a variety of powerful Web-based applications. Seagate (NYSE: STX) uses its software to allow its 200 distributors and 15,000 resellers to log on to myseagate.com, where users can easily view product descriptions and availability, place orders, and track shipments.
The site has fostered a 60% reduction in Seagate's cost-per-order metrics, and helped the company find cross-selling opportunities by giving it an overview into the workings of its supply chain.
While Sterling has a strong foundation in back-end processing, Comergent has a much more effective front end. Because its software is easier to use, it's more readily adopted by customers, and provides them with greater value
What about the price tag for this deal? Its fairness is too tough to call, since Comergent was privately held. Over the years, it did raise at least $71 million in venture capital, and it boasts marquee customers such as Goodrich (NYSE: GR), Toro (NYSE: TTC), Best Buy, and J.C. Penney. Sterling's massive base of more than 30,000 customers offers many cross-sale opportunities to firms using Comergent's technology.
For a company the size of AT&T, with its $125 billion market cap, this deal is fairly small. But it may be part of a bigger strategy to eventually spin off Sterling Commerce as an IPO, or perhaps sell it to a major player like Oracle (Nasdaq: ORCL) or IBM (NYSE: IBM). Given the action in both the IPO and M&A markets for software, AT&T's timing certainly looks good.
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Fool contributor Tom Taulli does not own shares mentioned in this article. He is currently ranked 94th out of 13,861 players in Motley Fool CAPS.
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