- Responsiveness : the new administration scored points right away by reaching out to me and offering conversation to discuss my concerns, and this by a lead director. As a symbolic action, it speaks to a change that is welcome.
- Caveat: as the acquisition has not yet been finalized, Vista Equity Partners has to be careful of what it says. Most of what follows is a description of how the firm has approached the acquisition of other companies within its portfolio.
- Questions answered : One specific concern that I had raised was a substantial decrease in year over year expenditures by MicroEdge on product development activities. The answer was that this was mostly attributable to the write-off of several unsuccessful development projects.
- Insights about Vista Equity Partners: (all quotes from http://www.vistaequitypartners.com).
- They are in the business of acquiring and managing software companies that serve vertical markets. In their words: companies that "research and develop a proprietary software solution" (sound familiar?).
- The companies listed as investments demonstrate this vertical market strategy:
Accero, Inc.
- Payroll processing/ HR ADERANT Holdings, Inc.
- Law firms and professional services BigMachines, Inc.
- Front-end selling for customers and channel partners. Brainware, Inc.
- Data capture and search & retrieval P2 Energy Solutions, Inc.
- For the upstream oil and gas industry. The Reynolds and Reynolds Company
- Automotive retailing. Sirsi Corporation
- Library industry. Sunquest Information Systems, Inc.
- Laboratory, radiology and pharmacy Surgical Information Systems, LLC
- Surgery management Ventyx, Inc.
- Service Delivery Mgmt in Utilities & Communications Zywave, Inc.
- Employee benefits and property & casualty insurance - The premise is that such companies have a great deal in common in both positive and negative aspects.
- Negative: It is not uncommon to find companies that have lost touch with their core client base; lost focus in product development; either become obsessed with sales (chasing features) or fixated on a technology (what is cool); and in short failed to effectively manage the product.
- Vista understands the negatives and through dedicated management and capital intend on making each company successful.
- Positive: the attractiveness of the sector (and the reason that Vista is in the business) is due to the fact that these companies share a combination of the following:
- Existing or potential recurring revenue
- Mission critical, “sticky” solutions
- Experienced management team
- Favorable customer characteristics
- Defensible competitive position
- Favorable market dynamics
- Strong customer value proposition
- Potential for high margins
- Long Term Orientation: It is worth noting that vertical markets present an opportunity for a longer term perspective within a technology sector that is typically chasing fads and trying to re-invent itself every 18 months. A majority of the above "positive" factors are but aspects of this long term perspective.
- This is good news for the foundation marketplace.
- This is not to say that Vista Equity Partners does not exit markets, but rather that its management philosophy leans to the longer term. Indeed, it has sold companies to the likes of Bain Capital, Mellon Financial and Business Objects.
- Negative: It is not uncommon to find companies that have lost touch with their core client base; lost focus in product development; either become obsessed with sales (chasing features) or fixated on a technology (what is cool); and in short failed to effectively manage the product.
- Subject Matter Expertise: Another positive factor that stands out is the recognition of "experienced management team" as an asset. Since the negative factors include dropping the ball on product management, this experience translates as an in depth subject matter expertise regarding the vertical market.
- The companies listed as investments demonstrate this vertical market strategy:
- The value added that Vista Equity Partners claims to bring to these companies makes sense:
- As expected, they point to strategic analysis, financial planning and budgeting strengths, and to bringing in additional management talent.
- But in their "value added" they also include building an awareness of the market through industry research and the establishment of partnerships and alliances.
- These goals directly address the insular nature of traditional legacy vendors.
- Lastly, they are big on operational best practices, of using experience in one company to model practices for other companies.
- Technology: one common denominator among vertical market companies is the status of their technology. While on the one hand it is often outdated, the business rules for the vertical market are deeply embedded in the code. This makes wholesale replacement expensive, and runs risks of reduced functionality and introduces development risk and error. There is no simple solution to this situation, but experience in working with it is advantageous.
- Customer Focus: Vista will be faced with two conflicting goals as it assumes responsibility for MicroEdge.
- On the one hand it will wish to re-establish relationships with its clients as a key aspect of the value of the company.
- On the other hand it will wish to regain control over the product and of new product development. This implies taking the time to assess the product and market, make plans, develop and launch new features, and most importantly, not making promises it cannot deliver.
- This means that at the same time as they are trying to re-establish a degree of trust, they will also be very circumspect in what they say. In the past silence and lack of substance have been interpreted by the field as neglect and even arrogance.
- An early indicator of the new owner's character will be their success in managing this dilemma. If their response to this author's posting is any guide, they get it and plan to address it straight on.
- They are in the business of acquiring and managing software companies that serve vertical markets. In their words: companies that "research and develop a proprietary software solution" (sound familiar?).
What questions remain for you?
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