On June 2, Lawson Software and Intentia International agreed to merge their two firms and, in the process, become one of the largest providers of business solutions to users of IBM servers. The merger will give the two vendors increased scale and viability in the rapidly consolidating market for enterprise applications. It could also have a significant effect on relations between the merged firms and other application vendors.
Under the agreement, Lawson will offer 81 million new shares of its stock to Intentia shareholders in a transaction that is expected to be worth $480 million. While Lawson is buying Intentia in a financial sense, the merger will be a combination of equals. The chairmen of Lawson and Intentia--Richard Lawson and Romesh Wadhwani, respectively--will act as co-chairmen of the combined firms. In addition, the new board of directors will include equal numbers of members from the Lawson and Intentia boards. The merged firm, which will carry the Lawson name, is hiring a new CEO who is an outsider to both vendors. The executive, Harry Debes, has held senior executive positions at Geac, J.D. Edwards, and SPL Worldgroup.
According to the two firms, the merger should have little to no impact on customers because the vendors largely operate in different regional markets and industries. Most of Lawson's customers are North American firms in the healthcare, retail, government, education, and financial services industries. By contrast, Intentia's customers are mainly European firms in the manufacturing, wholesale distribution, apparel, and food industries. Despite these differences, both vendors have longstanding relationships with IBM eServer customers in general and iSeries customers in particular. In addition, both vendors have committed to standardizing their applications on IBM's WebSphere middleware and DB2 database management system.
Due to the lack of overlap in their products and markets, the two firms will continue to market and support all of their existing applications. They will also maintain their current development and support staffs at their present locations. In line with these decisions, the new firm will base its North American operations in St. Paul, Minnesota (Lawson's existing headquarters) and its international operations in Stockholm, Sweden (Intentia's current digs). As a result, customers will find themselves dealing with the same employees under the same support agreements as they did before the merger.
While much will remain the same about the combined firms, their merger will allow them to pursue new objectives. For instance, both firms will cross-sell their products in each other's regional markets. Intentia will have the opportunity it has sought for years to sell its manufacturing and distribution solutions to North American companies, while Lawson will gain a hearing among public sector organizations and financial services firms in Europe. In addition, the merged firms will integrate their applications via a service-oriented architecture (SOA) that is based on IBM middleware. Lawson already laid down the blueprint for this SOA last month when it unveiled its plans for Project Landmark, its Java-based future application suite. While the new application suite will become a common destination for both Lawson and Intentia users, there will be no forced march to Project Landmark. Instead, the merged firms will enhance their current applications for at least five years as they integrate their functions into the next-generation Java code base. Since this code base will run on IBM middleware that many Lawson and Intentia customers already use, upgrades to Landmark should be relatively easy.
The Birth of a New Vendor Tier?
The merger of Lawson and Intentia will create a company that has more than 3,500 employees, 4,000 customers, and revenues in the $700 to $800 million range. With that kind of size, the new firm will receive increased attention from several IT vendors. One of those vendors will be IBM, which will benefit from having a firm of this size actively promoting its software. At a time when Oracle and SAP are pointing their customers away from IBM middleware, the Lawson-Intentia combination gives Big Blue a stronger advocate for its products.
By the same token, the merger will raise eyebrows at Oracle and SAP. This will especially be the case at Oracle, as Lawson launched an offering back in January to help Oracle's J.D. Edwards customers migrate to its applications. While Lawson represents a minor threat to Oracle, its merger with Intentia makes it more appealing to J.D. Edwards users. This is because Intentia's applications cater to the same manufacturing and distribution industries that make up the majority of the J.D. Edwards customer base.
The merger will also make headlines at another iSeries vendor with similar offerings: SSA Global. With its large iSeries customer base, its commitment to IBM middleware, and revenues of $683 million over the last 12 months, SSA has long been a rival of Lawson and Intentia. Now that these two firms are one, the competition between the vendors could intensify.
What is interesting about this competition, however, is that Lawson and SSA are charter members of an emerging second tier of enterprise application vendors. This tier does not have the marketing clout of the "Big Three" application providers: SAP, Oracle, and Microsoft. Unlike smaller third tier vendors, however, second tier vendors have the resources to field comprehensive suites of applications for multiple industries. These suites will include SOAs just like those of their Big Three counterparts but will rely on middleware from other firms--especially IBM--to underpin their SOAs.
While Lawson and SSA are the best examples of second tier vendors, other firms could join them through mergers and acquisitions. In these days of accelerating software industry consolidation, we may only be months away from the creation of another second tier vendor. While such vendors will never overthrow Oracle and SAP in the large enterprise market or Microsoft in the small business space, they could retain a significant percentage of the world's medium-size companies. That would create new challenges and opportunities for the hundreds of IT vendors that are seeking their own slices of the lucrative middle market.
Lee Kroon is a Senior Industry Analyst for Andrews Consulting Group, a firm that helps mid-sized companies manage business transformation through technology. You can reach him at