Business software market ripe for consolidation

Many Swiss firms selling software to run small businesses are ripe for acquisition Keystone Archive

British payroll and accounting software firm Sage Group has made its fifth acquisition in the Swiss market, buying enterprise resource planning software firm Simultan for SFr23.4 million.

Sage’s acquisition activity in the Swiss market began in 1999 with the purchase of Softinc, better known as Sesam, for about SFr28 million.

Other acquisitions include: HRManagement of Rothenburg in 2004; St Gallen-based Winware in 2003; Lausanne-based Softplus in 2001; Pyramid Software of Langenthal in 2000. They all target the small and medium-sized enterprise (SME) market

The Sage M&A activity takes place amid a wider consolidation in the enterprise software, or business software, market in Switzerland, as foreign-owned firms make strategic buys here.

Recent examples include the purchase of enterprise content management software firm Obtree Technologies, bought for €5 million in 2003 by Germany’s IXOS Software.

Another German firm, Bechtle, bought several units of enterprise software and IT consulting firm Pragmatica Holding for an undisclosed amount last year.

Consolidation to continue

Commenting on the M&A activity in the Swiss business software market segment, Claudio Hintermann, CEO of St Gallen-based Abacus Research, said the consolidation would continue as firms snapped up competitors to secure market share.

“It might even speed up. There may be numerous software firms targeting SMEs in the Swiss market, however they are characterised as small and very small companies,” said Hintermann.

“Moreover, they have not been keeping up with the adoption of newer software technologies.”

It is a state of affairs that makes young business software start-ups optimistic.

“With all this cleaning up of competition in the market, it might just leave some space for new, innovative players to emerge,” commented Christopher E Burkhard, who is CEO and co-founder of three-year-old Adarvo, which has developed a web-based business collaboration software package.

Burkhard was also the founder of Softinc.

Simultan buy

Since 1991, Sage, Britain’s largest publicly traded software firm, has acquired about 20 companies in the United States and Europe.

Its annual sales are now well over SFr1.5 billion, growing worldwide at 29 per cent last year.

Sage says it bought 25-year-old Simultan to access its customers: firms larger than those that it typically serves.

Simultan employs around 120 people and had trailing year sales of SFr20 million, with a profit for the same period of SFr1.1 million, according to Mario Caviglia of Sage’s Swiss subsidiary, Sage Sesam.

“This acquisition brings us into a new market, adding mid-sized firms to our market reach,” said Caviglia in a telephone interview, adding that it also brings the firm into direct competition with Redmond-based Microsoft.

“The takeover of Simultan is a further attempt by Sage to get a foothold in the mid-sized enterprise market, despite Sage Sesam claiming for years that its Sage Office Line is optimally designed for the requirements of small and mid-sized businesses,” Hintermann told swissinfo.

“Whether the firm will now be successful in that market segment remains to be seen.”

Growth rate

Sage’s Swiss business has been growing at a rate of about ten per cent a year.

But Caviglia said it was hard to forecast that such a growth rate would continue into the future, explaining that outside drivers typically enable such a growth rate.

He was referring to platform changes, such as the move from MS-DOS to Windows, and external events, such as the year 2000 switchover and the entry of the euro, as drivers of customer demand for new software.

A new Microsoft operating system, codenamed “Longhorn” might affect sales positively, suggested Caviglia.

Simultan’s reason for accepting the offer would appear to be the need to reassure customers about its viability.

Major changes

In the past few years Simultan has gone through some major changes, shrinking in size from its peak in 1999 when it was considered to be Switzerland’s largest independent software firm, itself the result of a merger.

It then went through a restructuring process that resulted in at least two divisions being spun out into independent firms.

The firms said in a joint statement that the new combination would ensure Swiss software purchasers’ support of Simultan’s software.

Despite the string of acquisitions, Sage still has some competition in the Swiss market.

Along with emerging firms such as Winterthur-based Buspro and Zug-based Q3 Software, its main rival is St Gallen-based Abacus Holding, founded in 1985, with sales estimated at between SFr20 and SFr30 million.

Abacus’s Hintermann said his firm was not an acquisition target.

“We do not feel any necessity to lean on a bigger partner, as we are very well positioned in the market.”

by Valerie Thompson