Article in Aussie trade magazine:
Reprinted with permission from Image & Data Manager March/April 1999.
Copyright is reserved by KIS Publications. This article shall not be published outside the Yahoo! and Silicon Investor chat fora without express written approval from KIS Publications. For feedback, mailto:monty@knapp.com.au or call +61 2 9318 2644.
NO SOLUTION
After a year of merger negotiation, Solution 6's “opportunistic” takeover proposal leaves PC Docs bitter but not bowed
By Paul Montgomery
The IT industry has seen many attempts at takeovers and mergers over the past year, but the proposal in February by Australian accounting software vendor Solution 6 to acquire Canadian knowledge management developer PC Docs has had more twists and turns than most.
At first glance, there seemed to be little common ground between the two, beyond a subsidiary of PC Docs called CMS/Data which competed with Solution 6 in the legal industry. Yet Solution 6 announced on February 1 that it wanted to exchange 4.35 of its shares for each of PC Docs', valuing the latter at over $150 million. The terms of the proposal included Solution 6 CEO Chris Tyler being crowned as head of the new company, with PC Docs CEO Rubin Osten demoted to consultant.
Several aspects of the deal were unusual. First, although it was Solution 6 making the play, if it went through then PC Docs shareholders would end up owning 75 percent of the $250 million company. It was also revealed that the two companies had been in talks for a year about a merger, but PC Docs had terminated discussions at the end of January, only a few days before Solution 6's unsolicited proposal.
PC Docs, which had just finished with a similar proposal by fellow Canadian KM vendor Open Text (see November/
December 1998 issue), duly rejected the proposal. Mr Tyler said his company was “withdrawing our proposal whilst we consider our response”.
Darren Adams, GM of PC Docs/Fulcrum Australia, said there were three reasons it rejected the merger.
“First was the financial performance of Solution 6. Second was their product, and what we thought technically about their new technology. Third, Solution 6 is so far away from our corporate offices,” he said.
Now that the shouting is over, ordinary observers and shareholders could be forgiven for wondering why the deal was proposed in the first place. Then answer is not document management, or knowledge management, but workflow. Richard McLean, GM for global sales and marketing at Solution 6, said that Solution 6's software for lawyers and other professionals increasingly includes what PC Docs is doing in the field of practice management. The company is also moving to include more complex applications in its brief, like resource allocation and relationship management.
“Solution 6 and PC Docs are both large suppliers of practice management software to the professions. There is enormous overlap in that respect,” Mr McLean said. “It wouldn't be fair to say that Solution 6 is a mainstream knowledge management supplier, but more and more we are getting into workflow management.”
marriage in heaven?
One of its offerings in this area is Orbit, which is pitched as workflow for chartered accountants. CMS Open, the flagship product of PC Docs' subsidiary CMS/Data, is a direct competitor for this product. In Australia, Horwath Computing Services had been reselling CMS Open for three years, with clients like lawyer firm Freehill Hollingdale & Page, Mr Adams said. The two vendors had not butted heads much in the market, because while PC Docs is strong in North America, Solution 6's major wins have come in Europe and Africa.
“We would be strengthening each other in parts of the world where the other was stronger,” said Mr McLean. “It really is a marriage in heaven from the shareholders' perspective.”
Shareholders in PC Docs have not had an easy time of it lately. The price of the stock has fallen from a high of US$20 two years ago to well below US$3, and only recovered to near US$5 after the Open Text bid.
Michael Watkins, a retail investor from Vancouver who participates in online discussion about the stock on the financial Web site Silicon Investor, told Image & Data Manager that he blamed the slump on four factors: poor profit performance, financial analysts and institutional buyers shunning the stock, a lack of ability to “tell its stories”, and the “revolving door” of executive management.
“Last year I talked to a couple of buy side analysts in Toronto and the sense of trust just is not there. Can they regain confidence? Yes, I believe so, but it's a long term process based on deliverables and attitude shift,” Mr Watkins said.
Mr Adams agreed with these arguments, but said that the company was making efforts to change, starting from the top with the appointment of Ben Swirsky as chairman.
“It's a fair criticism that the company has been doing well, but it hasn't been able to tell the world about it,” he said.
Part of the solution to this was a reorganisation of the company's development and sales arms. PC Docs' development efforts have been separated into three divisions, dealing with document management, knowledge management and workflow-enabled records management respectively. The company is focusing on selling to four vertical markets: finance, professional services, government and manufacturing.
“I think many of the changes have been good ones, but the upheaval doesn't look good from the outside or inside,” said Mr Watkins.
The final word comes from the stock market of course, where the goodwill from PC Docs' recent user conference, PowerSummit, pushed trading volumes to near-record levels, although the price has not moved noticeably. Mr Adams said the conference attracted 1800 users and 60 partners.
“We're in pretty good shape,” he said. “Sometimes it does make sense to buy your competition, other times it doesn't.”
Perspectives
Richard McLean, Solution 6
“It's not our style to fight in the press. We were disappointed that they didn't wish to pursue our proposal.”
Darren Adams, PC Docs
“If you've already got the market, or are on your way, why would you pay for somebody else's market?”
Stocks: Rollercoaster rides
PC Docs Group International fell constantly from last June to October, completing a slump from over US$20 two years ago to less than US$3. December's bid by Open Text pushed the stock up to the premium price, but the Solution 6 proposal barely affected it in international markets. The latest movement is a dramatic increase in trading volume after PC Docs' user conference in Florida.
Solution 6 Holdings has recovered from the bad press for the Access One divestment to OzEmail, and has gained steadily since the turn of the year. First an injection of capital, then a big European contract helped the stock double in the space of a month, then the announcement of the PC Docs proposal sent it into the stratosphere. News of PC Docs' rejection has not dampened enthusiasm.
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