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Enterprise Software’s Sensible Acquisitions

Matrix One, the PLM player goes. With this acquisition, Dassault adds PLM capabilities to address the needs of its highly lucrative clients in the high-tech, consumer products, and medical devices sectors.

The 20% premium appears well justified given the good fit and MatrixOne’s customer base. A value-to-sales multiple of 2.3 is not a bad deal for the acquiring company. MatrixOne has a good vertical penetration and has a wide customer base. MatrixOne and its customers would be relieved as it was taking losses almost every year. With Dassault’s strong relationship with IBM, the acquisition can be well-leveraged.

BEA’s acquisition of Fuego is an interesting one. Feugo’s BPM capabilities and its vertical strengths are a neat fit for BEA. BEA definitely needed the BPM layer and it now has it; all major players have added capabilities in this space by acquisition – IBM, Microsoft, and TIBCO in the recent past. Given the fact that BEA is seen as the leader in SOA, and the recognition that their existing toolsets do not command as much credibility for process management capabilities (this is an integral requirement for restructuring infrastructure/applications in the SOA world), and the price at which the buyout has happened, all these make the acquisition look overall lika good package.

These are sensible acquisitions, definitely value accretive in the medium to long term and these are not meant to buy customers or kill competition and are clearly aimed at enhancing abilities to service customers better, unlike the other big acquisitions, mostly aimed at either pre-empting competition or for mere expansion of marketshare.

I clearly see at least 35-40 small players (< $200 million annual revenue) waiting in the wings. Also note the fact that BPM, SOA space – all are high growth areas and to an extent PLM space are high visibility areas – and have seen some recent acquisitions happening. I clearly see more scope for acquisitions in the supply chain, logistics, retail, EAI, business rules, BPM, content management, portals, and SOA space to take place in the near future.

It is getting increasingly harder for small companies to win a share of business in the enterprise space. The software companies that have a huge untapped source of credit that they could use to fund future growth and the software companies will steadily increase their use of debt to fund growth as the industry continues to mature.

This could keep fanning the flames of innovation in enterprise software. The crisis in the enterprise software market is there for all to see.

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