Shopping Spree

A spate of acquisitions and deals has shaken up the midrange accounting software market.


In the midrange accounting software market, 1999 was the Year of the Deal. Two of the oldest and best-known vendors, Peachtree and RealWorld, were acquired by Sage and Great Plains, respectively. Great Plains also struck up a partnership with front-office software company Siebel Systems, while Sage announced just after year's end that it would buy Best Software, a leading provider of human- resources and payroll software. Project- accounting software vendor Design Data Systems (DDS) was acquired in November by ASA International Ltd.; in return, DDS is acquiring a new name, Khameleon. Accpac International backed off from plans for an initial public offering, while Damgaard, a relative newcomer to the U.S. market, pulled off a successful IPO in October.

The year just past was also the Year of the Internet, as midrange vendors raced to adjust their software to the demands of the new Web- based economy. The Internet also enabled some vendors, including a few high-end outfits, to woo the middle market with rented software, via application service providers (ASPs). One midrange company, SBT Accounting Systems, recently made all of its accounting products available via the Web, establishing an ASP model in its value-added reseller (VAR) channel.

And last year, like the year before it, was also the Year of Microsoft, as every vendor listed in this buyer's guide now offers a Windows NT­based product, and all but two support the Microsoft SQL Server database. Finally, 1999 also marked the end of non-Y2K- compliant systems, as every software vendor wanting to stay in business was obliged to rid its wares of the dreaded Millennium Bug.

Reeling In Realworld: Great Plains

One vendor, RealWorld Corp., had some difficulty breaking out of its legacy past. "RealWorld's been around forever," said president Kurt A. Mueffelmann in November. "We've had two challenges before us this year: to make our [DOS-based] Classic product, with 250,000 users, Y2K compliant-- and we did that--and to take the feature sets from the Classic product line and incorporate them into the [Windows-based] Expertise product line."

Unfortunately, things didn't work out as hoped. Of the 250,000 historical RealWorld installations, fewer than 20,000 upgraded to a Y2K-compliant RealWorld product, indicating that almost all of the company's users had moved on to other systems. This past January, RealWorld threw in the towel, allowing itself to be acquired by Great Plains Software Inc.

"This is a great acquisition for Great Plains," declares Laurie McCabe, analyst with Boston-based Summit Strategies, "because it gives them thousands of new customers and hundreds of new resellers in the midmarket, where they have their sweet spot. Great Plains is the company to beat in the midmarket."

Great Plains is also tough to beat in terms of Internet functionality, which includes an E- commerce application and, developed in partnership with Siebel, a customer relationship management (CRM) module. The Siebel partnership has shot Great Plains ahead of Epicor in terms of Web development, according to Jeff Martin, a partner in the Boston office of Deloitte & Touche LLP.

"Great Plains and Epicor are relatively equivalent when it comes to pure financials," says Martin. "If you need a Web-enabled system, then Great Plains is ahead, since Epicor is about 12 months behind in getting its suite fully Web-enabled." But this difference may not matter to many users, he adds: "You may want Web-enabled order entry and inventory, but do you really need a fully Web-enabled general ledger? Do you really need to have someone enter a journal entry over the Web?"

Meanwhile, Epicor is still ahead in manufacturing software, according to Martin. "Epicor has acquired [manufacturing- software firms] DataWorks and FocusSoft Inc., so they might be the way to go if you need to do manufacturing, since Great Plains doesn't have the built-in heavy manufacturing stuff."

Have A Peachtree: Sage

Also inheriting a collection of new clients was Sage Group Plc, which acquired Peachtree Software Inc. in February 1999. (Bigger fish often swallow smaller fish in the midmarket; Peachtree, for instance, bought Mica IV vendor Micro Associates Inc. in 1997.) "Our strategy with Peachtree is to acquire the leading retail brand for companies starting out at $1 million to $2 million in revenue," says David Butler, president and chief operating officer of Sage's American division. "As people outgrow Peachtree, we offer a number of products for the midmarket that they can move up to."

U.K.-based Sage was practically unknown in the United States until 1998. That's when it acquired accounting vendor State of the Art Inc., and along with it the DOS/Windows product MAS 90, with tens of thousands of users, and the Windows/SQL Server­based Acuity product. Now Sage provides a growth path for the growing company, from Peachtree to MAS 90 to Acuity.

"We have over 2 million customers worldwide for our products," brags Butler. "We're one of the 100 largest companies in the U.K. We're the market leader for accounting software for small to midsized businesses in several European countries."

Incidentally, even a large company shouldn't overlook the possibility of using a shrink- wrapped accounting product, such as Peachtree or Intuit Inc.'s QuickBooks, advises Deloitte & Touche's Martin. "Some companies have 50 or 60 nonoperating entities, and they often use Epicor to do accounting," he explains. "But why spend $10,000 for software? If an entity has $1 million to $2 million in [annual] revenue and has fewer than 100 transactions per month, then Peachtree or QuickBooks is a convenient way to keep control over assets and liabilities and print out balance sheets and income statements."

Back Office To Front Office: Epicor

Platinum Software Corp. changed its name to Epicor Software Corp. in May 1999, following its merger with manufacturing software vendor DataWorks Corp. in late 1998. The new name suggests "both a central foundation that gives strength, direction, and purpose to the whole, as well as a feeling of something dramatic and groundbreaking," says chairman and CEO L. George Klaus.

Among other products, the merger brought the company three manufacturing solutions: Vantage, Avanté, and Vista. This marked a substantial change in business for Epicor, which formerly had emphasized financial software. "That merger brought us a lot of manufacturing expertise, an area that Platinum Software was just beginning with," says Scott Morrison, Epicor's director of product marketing.

But Epicor has front-office applications that demand attention, too. "Epicor has a lot of products in its portfolio and has deployed limited resources to develop Avanté," says Charles Eschinger, an analyst at Stamford, Connecticut-based Gartner Group Inc. "ERA Financials and Clientele [Epicor's CRM software] account for the largest chunk of its product revenue. With CRM being one of the hottest markets today, Epicor believes it can get the most bang for the buck getting its Clientele and ERA Financials stories straight."

As for Avanté, Eschinger calls it "a good solid product, but with an aging technology base. Epicor hasn't done much with it. Users should expect only maintenance upgrades going forward."

Sheldon Needle, president of CTS, a consultancy in Rockville, Maryland, agrees with Eschinger's assessment. "They acquired DataWorks's products because they were trying to buy their way into the manufacturing arena, but my sense is that it's been a lot to swallow," he says. "According to some of my sources, DataWorks is old software now, not up to date. It's hard to see exactly what it brings to the table, since Epicor's strength has always been in their financial systems."

As CFO went to press, Epicor announced sweeping name changes for its products. The company's flagship software suite is now called e by Epicor. Its six applications include Epicor eFrontOffice (with Clientele) and Epicor eBackOffice (with ERA Financials).

Better Integration: Macola

Epicor and Great Plains, formerly financials- only vendors, are now full-fledged ERP vendors, thanks to acquisitions of manufacturing software. This development enables them to encroach on the territory of Macola Software, which has had manufacturing software for midsized businesses for years.

But president and CEO Bruce Hollinger claims Macola isn't worried. "We rarely have a problem, since [Great Plains and Epicor] are usually priced a lot higher than we are," he says. He notes that while those vendors had to acquire their manufacturing software, Macola's was developed along with the financials, so its products "are much better integrated."

These days, however, it seems no one is immune to the hassle of making products with different legacies interoperate. Shortly after Hollinger made his remarks, Macola announced it would start partnering with SalesLogix Corp. and sell the latter's sales-force automation software along with its own accounting software. This move will advance Macola's Internet strategy, but it will undoubtedly raise a number of integration issues.

One Code Base For All: Solomon

Unlike other major vendors, Solomon Software Inc. has always resisted the temptation to acquire what it would consider a hodgepodge of legacy systems. It has had one code base for its entire range of products; LAN and client/server systems have shared the same user interface.

But now, Solomon's single-code-base strategy has forced the company to abandon development of its LAN-based products, although it will continue to provide support for existing customers. Its mainstream full-featured product is called the Premier Edition, a client/server system using Microsoft SQL Server as a database. For small businesses, Solomon provides the low-priced Select Edition, which is limited to 10 users.

By sticking to its single-code-base strategy, Solomon has been able to focus on new development, according to CEO and president Mike Rupe.

"Two years ago, we had 20 modules available," says Rupe. "Today, we have about 55 modules. A very important part of our strategy is that all of these products are based on our tool set, so they have the tightest integration with one another." The strategy will also apply to CRM and human-resources modules, which Solomon is planning to acquire.

Straight To The Source: Accountmate

AccountMate Software Corp. has been focusing on making it easier to modify and customize its low-cost system, Visual AccountMate. The vendor continues to provide the source code with its products, for users (or resellers) that don't mind doing some programming. The source code language is Microsoft's Visual FoxPro, a modern version of the 1980s language dBase, in which SBT was originally written.

Now, AccountMate has introduced a new set of development tools. The tools are designed to help ensure that user modifications will still work whenever the user installs a new or upgraded version of the software.

Strategic Shift: SBT Accounting Systems

Another vendor that provides its Visual FoxPro­ based source code is SBT, whose midrange product is called Pro Series. (Its client/server product, Executive Series, is aimed at higher-end customers.) Lately, the vendor has been developing E-commerce capabilities to leverage its manufacturing and distribution functionality.

"SBT was an early adopter of Internet capabilities, and they were the first to have a truly integrated E-commerce capability," says Charles Chewning, president of Solutions, a consultancy in Richmond, Virginia. "But they hadn't done much with it until recently."

On February 1, SBT announced a major shift in its strategy. According to public relations manager Brian Austin, all of SBT's accounting systems are being made available on the Web, via ASP. "The ASP provider will be the local reseller," says Austin. "Legacy users are the biggest winners here. They immediately get access to the most current version [of the software]." A single VAR would have the ability to host dozens of companies on its servers, says Austin. Of course, it will take some time for SBT to switch its resellers to the ASP model.

No Deal: Accpac

Accpac filed a registration statement for an IPO with the Securities and Exchange Commission in 1998, but a corporate strategy change at Computer Associates International Inc. caused the parent company to abandon plans to spin off Accpac.

"The IPO market was hot at the time we filed, but then dried up," says Craig Downing, vice president of product marketing. The silver lining, he adds, is that Accpac can speed up development of new features by remaining part of Computer Associates and taking advantage of any new technology that CA develops.

Downing believes there's a market opportunity for Accpac's low-cost LAN-based system, which the vendor is continuing to develop, in addition to the more leading edge but more expensive client/server version of its software. "I'm not saying we're not committed to capturing a big chunk of the SQL Server market, but we're also addressing the need for a less expensive version for smaller clients," says Downing.

Danish Solutions: Damgaard And Navision

Both Damgaard and Navision Software started in Denmark and came to the United States after developing a presence in Europe. As a result, both offer products with strong international features.

In 1994, IBM Corp. acquired 50 percent of Damgaard's development company, expecting to market Damgaard's Axapta product aggressively in the United States. IBM launched Axapta here in March 1998, but Damgaard wanted to move even more aggressively than IBM did, so it bought back IBM's 50 percent share. In October 1999, Damgaard A/S, the parent company, went public. "The offering was a big success," reports Peter Wagner, CEO of the U.S. subsidiary. "It was oversubscribed 16 times. The price went from 280 to 320 Danish kroner, and has since gone up another 20 percent."

Damgaard has a flexible, relatively low-cost system for the middle market. But in the United States, "they're still in an initial mode, getting into the market and developing a channel," says Chewning of Solutions. "Axapta should be a very interesting product when it becomes more established."

Meanwhile, Navision had an earlier start in this country and is doing better, according to Chewning. Part of its strategy is to require its resellers, which it calls "solution centers," to perform many modifications for each new customer. "If you're going to be a solution center for Navision, you have to know the source code," says Chewning. "They're very adamant about that. I recently asked them why they didn't add certain features to their product, and they said that that's part of the job of the solution center. It's an interesting example of managing the channel. They leave everything to the channel, and have very little overhead in [their U.S. headquarters]."

Inventory and distribution: Southware And Syspro

Chewning also points out that Navision shares an advanced inventory-control feature with two other midrange products: Sage's Acuity and SouthWare Innovations Inc.'s Excellence series.

Most inventory-control systems have fixed reorder points--say, when there are fewer than 15 items left in stock. "This causes a problem if you have tens of thousands of items in inventory, and there's some seasonality to them," explains Chewning. "If you have a fixed reorder point, then you'll have too few items when the selling season begins, and too many when it ends." But SouthWare, Navision, and Sage "have a model that tracks fluctuations and seasonality in the sales history," says Chewning, "and changes the reorder point accordingly."

Another company that focuses on manufacturing and distribution is 22-year-old Syspro Impact Software Inc. "It's a good solution," says Needle of Syspro's Impact Encore system. "They're in a space to themselves because of their pricing--you get a lot of software, in terms of features and functionality, for the money."

Project Managers: Design Data Systems And Deltek

Design Data Systems (DDS) and Deltek are often considered similar systems because they both focus on project management. But in fact, they target different niches, with a little overlap.

"Our philosophy is that if you can't be number one or number two in a market space, you don't belong in it," says Peter Falina, vice president of sales for DDS. He describes his company's market space precisely: "We target companies that need strong project accounting, as well as the ability to do distribution of products--specifically, nonstock, drop- shipped, serial-numbered items." This can include almost any company selling complex products that have to be installed and maintained.

For these companies, DDS's system, SQL*Time, provides the ability to track and account for renewable recurring revenue, as in a maintenance and support contract, says Falina. The software has a contracts module that handles billing, renewal notices, and revenue recognition.

(As mentioned above, DDS was recently acquired by ASA International; both the vendor and its software were renamed Khameleon in February, as CFO was going to press.)

Meanwhile, Deltek Systems Inc. emphasizes its project-management capability for specific markets. "Our focus is on architectural firms, government contractors, and professional- services firms of various types," says marketing director Bernie Buelow.

"Deltek's project-management software is very sophisticated," affirms Chewning. However, Deltek and DDS are no longer the only vendors with robust project accounting systems, he adds; Solomon Software now has a competitive system, too.

Clean And Modifiable: Open Systems

Like RealWorld, Open Systems Inc. has a rich legacy-systems past, with hundreds of thousands of DOS-based installations in the 1980s. But it is not known how many of those customers still run Open Systems software. The vendor's lateness in developing Traverse, its Windows-based product, has hurt Open Systems in the past, according to Chewning.

"The Traverse product line is quite nice, very clean, and easily modifiable," he says. "However, they were very late to market and lost a lot of momentum as a result." And, like RealWorld, "probably fewer people than they hoped have upgraded to Traverse, probably because there's no inherent advantage in functionality over [their legacy DOS-based product]."


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