Can Invensys resurrect Baan?

Given its recent troubled history, it was inevitable that Dutch enterprise resource planning (ERP) software vendor Baan would be acquired.

Speculation about the company's future has been rife in recent months after a string of poor results. Its suitor declared its hand last week. UK engineering conglomerate Invensys made an agreed offer of £474m for Baan and has promised to turn the vendor's fortunes around within a year.

Invensys intends to become a leader in the "supply and development of integrated business application software" - which sounds like ERP or customer relationship management (CRM) software by another name - so the Baan purchase seems to be an important step along this road.

Invensys already owns US firms Foxboro, which supplies process control systems and ERP software, and Wonderware, supplier of industrial automation software. They were acquired in 1990 and 1998 respectively.

The company also owns ERP software vendor Marcam. Its newly formed software and systems division has a current turnover of $2bn. The unit will be managed by Bruce Henderson, chief executive of the intelligent automation division at Invensys, with Laurens van de Tang, who heads the research and development (R&D) wing at Baan.

Henderson's brief is an indication that Invensys is committed to a strong R&D programme and to Baan's full suite of products. The Baan name will remain and the ERP software vendor will retain its headquarters in the Netherlands.

To reverse Baan's fortunes in such a short space of time, Invensys plans to implement a rigorous restructuring and cost-management programme, cutting costs by $60m to $120m a quarter by the end of this year. More than 1000 jobs will be lost worldwide.

The channel view
The takeover has been greeted with cautious optimism by the Baan indirect channel. Paul Crowe, sales manager at Cotec, said: "We are still digesting the news, but it's a good move for Baan. It has a very strong product and we have always known it would be bought."

Baan resellers had nothing but praise for the company's UK management in recent months. "Baan has been very good throughout the recent troubles. It has kept us in constant touch with developments, but things were just getting to the stage where customers were becoming worried and asking questions. Baan needed some money in the pot," said Crowe.

"The product is strong. The price paid certainly makes it a good buy for Invensys. As far as we are concerned, it is a grey cloud that has been lifted," he added.

Peter Gordon, managing director at reseller Advanced Planning Systems, echoed this view. "It's early days really, but a welcome development," he said. "We have found that we haven't really been affected by the troubles at Baan, and it hasn't yet begun to trouble our customer base.

"We always thought the technology was here to stay, and so did the people that we dealt with at Baan. Our chain of command has always been solid. Whether Invensys is the right partner remains to be seen, but provided our support from the company continues as it has, then we're confident about the future."

Too much, too young?
While the IT industry and Baan's investors may find this a happy outcome, analysts and the City take a somewhat different view. Invensys, which was formed from the merger of BTR and Siebe 18 months ago, saw its share price slide initially by more than 10 per cent. It seems that analysts believe it may be too soon for Invensys to be doing deals, as it still has to undergo further restructuring and job cuts itself.

There is also a feeling that Invensys may have bitten off more than it can chew. Baan is in quite a mess. Analyst firm Gartner said companies considering Baan for ERP, CRM or supply chain management should put their evaluation on hold for the time being, and any businesses in the early stage of implementation should halve their projects.

"Overall, when considering Baan, service users should prepare to be as self-sufficient as possible," said Gartner.

Analyst Richard Holway said: "We think this deal does make sense. Baan was unlikely to survive much longer at current speed. For Invensys, turning a woefully mismanaged Baan into profit within a year will be no mean feat."

Investors and customers "will need to see a credible plan before we become 'believers'. The problem will be to convince the market that a corporate such as Invensys can also run a successful global software and services business?" he added.

But Invensys remains bullish about Baan's prospects. Announcing the deal last week, chief executive Allen Yurko said there would be an acceleration in the ERP and CRM markets. "Baan's strengths are similar to ours - it has a strong brand loyalty," he said.

The Baan storm

• The vendor's problems started in 1996 when it decided to take on SAP in the enterprise resource planning (ERP) market by acquiring the companies and technologies it needed.
• In 1997 and 1998, Baan bought Aurum, Coda and Cap Logistics. After investing $80m in Coda, the vendor eventually sold it in April this year to Science Systems for $49m.
• By summer 1998, industry analysts had complained so loudly that the brothers who had founded Baan were forced out. The ERP giant had to write off $250m to deal with this.
• By this year, Baan had posted seven consecutive loss-making quarters and seen four chief executives come and go in two years. It incurred losses of £180m last year.