Arbor?s reverse takeover of Hyperion Software was greeted with trepidation on the markets as both companies' share prices crashed following the news.
But Arbor is attempting to counter fears by claiming that the market for analytical applications could be as big as the enterprise resource planning (ERP) package space within a few years.
Hyperion?s shares plummeted 23 per cent to $31.375 after the announcement, while Arbor?s were slashed 30 per cent to $33.875 at the close of play on Tuesday. Analysts were disappointed that IBM had not bought Arbor as has long been expected, although the move is still not being ruled out into the long term.
Others were unhappy about the risks involved in merger and were confused by the deal, which is expected to result in a lower combined growth rate than the single entities.
?Arbor investors were in the stock for high growth at a reasonable price. Hyperion investors were in for medium growth at a ?value? price. The merger creates a blending of growth and valuation, which causes confusion, especially since there?s not a single sell-side analyst that covers both,? one investor explained.
But John Dillon, Arbor?s chairman and chief executive, was upbeat about the move. ?The market has not been widely supportive of this. But, we didn?t just go crazy, go nuts or loose our mind. We see analytical applications as a substantial market that could be as big as the ERP market and no-one is addressing it,? he said.
He claimed the firm was now the market leader in this space, which IDC expects to grow 35 per cent year on year to exceed $2.6 billion by 2001, and there was no rival to dispute it.
?A number of companies said they want a single strategic supplier for these applications, that they wanted to buy a car, not a car kit and we lost some bids because of it. This provides us with an opportunity to cross-sell. The merger gives us an opportunity to sell more product and make bigger deals because the bag of groceries is bigger and we can generate pull-through sales to existing customers,? Dillon explained.
He added that the first step would be to integrate Arbor?s Essbase online analytical processing (Olap) engine with Hyperion?s financial applications and to migrate existing users of the TM1 Olap engine, which acts as the back end to some of Hyperion?s packages, over to the offering.
Deeper integration of both companies entire product set would follow over time, but the combined firm, Hyperion Solutions, also intended to move into new application areas, either by acquisition in vertical markets or via internal development. Areas of interest included banking profitability and retail planning, but sales and marketing software was ?the next bowling pin?, according to Dillon, and was potentially as lucrative as finance.
No major redundancies are expected as a result of the move, however, although there might be ?displacement? for ?a couple? of sales staff in the US where the two organisations are roughly the same in size. Hyperion is far larger in Europe, so minimum disruption is anticipated there.
But, Dillon admitted that Hyperion Solution?s growth rate would be slower than Arbor?s 80 per cent run rate. ?The combined growth rate will be faster than the 37 per cent First Call consensus [of analysts]. It will grow north of that, but not significantly north of that,? he explained.
Hyperion has been growing at 30 per cent in recent years, but Dillon said its new products such as the Pillar budgeting application were growing at 170 per cent year on year, a fact that was ?masked by the slow growth in [Hyperion?s flagship] consolidation software, which have not yet pushed the total growth rate up.?
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