SSA Global (NASDAQ:SSAG) knows M&A. Over the past few years, the company has gone the merger and acquisition route by snapping up a myriad of companies like Infinium, Ironside, Baan, EXE, and Epiphany.
Yesterday, SSA announced its biggest deal yet -- that is, the company is selling out to Infor in a cash deal for about $1.4 billion, or $19.50 per share. It was only in May 2005 that SSA went public with an offering price of $11, and the current stock price is $19.08.
SSA is a leading provider of enterprise software applications, helping with such things as customer management, enterprise resource management (ERP), and supply chain management. The company targets mid-market customers, which are defined in terms of revenues of $100 million to $1 billion. As for Infor, it has a similar profile; in fact, it is also the result of a variety of acquisitions.
The combination will result in $1.6 billion in annual revenues, which will make the new company No. 3 in the enterprise software space. The two top players, of course, are Oracle (NASDAQ:ORCL) and SAP (NYSE:SAP).
Because Info is a private company (although backed by private equity firms), this deal results in SSA going private. This is a smart move. An acquisition of this size is very complex -- involving integration of different cultures and product lines. Customers often get skittish and revenues may flatten somewhat. Obviously, this is a scenario Wall Street does not like to see.
Interested about the impact this might have on the major players in the industry, I chatted yesterday with Zach Nelson, the CEO and cofounder of NetSuite, an ERP software provider. "Every ecosystem needs a bottom feeder," he told me. "The big players like Oracle and SAP should not be scared."
That is, the core strategy of SSA and Infor has been to buy slow-growth companies or even those that are struggling. Obviously, these companies have low valuations. Yet they also have loyal customer bases and useful technologies. The hope is that by combining these companies there may ultimately be more value in the whole than the scattered parts. And, so far, given the valuation of SSA since its IPO, the strategy has worked.
The problem facing SSA/Infor now is, with the enterprise software industry maturing, getting new customers means taking away market share from competitors. However, having a customer leave Oracle or SAP would be a costly and time-consuming process. And, given that SSA/Infor has a hodgepodge product line, what are the real benefits?
Actually, the distraction of the SSA merger is probably good news for Oracle and SAP. Integrating two companies of the size of SSA/Infor can easily take a year. Then again, the real play may be to bulk up and eventually sell out to Oracle or SAP anyway.
Fool contributor Tom Taulli does not own shares mentioned in this article.
