Buyer Beware

The most maddening thing about Oracle’s on-again-off-again hostile takeover of PeopleSoft was the way it just kept going on, like a bad TV miniseries during sweeps week. “”It’s unnerving for customers,”” says Paul Hamerman, vice-president of Forrester Research in Boston. “”There (was) a lot of uncertainty


The Oracle/PeopleSoft saga ran for more than a year before the deal was consummated last December. Merger-mania first gripped the enterprise applications market in the spring of 2003. SSA Global Technologies swallowed Baan and PeopleSoft absorbed JD Edwards while fending off Oracle’s unwanted advances. Customers were left wondering how viable their multimillion dollar ERP investments were in the long run. A JD Edward users who has just become used to dealing with PeopleSoft could be excused for crying out, “”Oh, no, not again!””

Nevertheless, as nerve-wracking as enterprise users might find them, mergers are a fact of life and, what’s more, they can be managed. According to John Matelski, deputy CIO of the City of Orlando, Fla., and executive vice-president of Quest, the erstwhile JD Edwards user group, the first step is to understand what the perils of mergers can be.

“”The primary concerns revolve around the life cycle of product lines, support, maintenance and user group collaboration,”” Matelski says. “”With any merger, companies have to review all of their product lines, make determinations as to what intellectual property transfers should and will occur, and determine how long particular product lines will be supported and/or gradually eliminated. Possible elimination of product lines is what causes the most grief and expense to customers, and thus is of utmost concern.””

Another issue is the quality and continuity of support. Given the complexity and costs involved in the deployment of enterprise applications, no one wants to go throw the baby out with the bathwater and go through the implementation process all over again.

“”Typically companies will tout that efficiencies and enhancements to service and support will occur through mergers and acquisitions,”” Mateski says. “”Unfortunately, many times, as the newly merged company moves forward, as right-sizing and cost savings measures are implemented, good people are lost in the transition, and it takes time for support to get realigned to customer requirements.””

Whether or not your software investment has long-term post-merger viability is very much dependent on why your vendor was acquired in the first place. “”The reasons why a software company is acquired can vary,”” Hamerman says. “”Sometimes, it’s about acquiring technology, and sometimes it’s about acquiring customers, not technology.””

If it’s technology the company is after, customers can usually look forward to a fairly smooth road and continued support. PeopleSoft acquired JD Edwards last year primarily in an effort to expand its portfolio with its acquisition’s technology, though the added customer base was a big bonus. According to Mateski, the transition to the new vendor was relatively painless.

PeopleSoft helped the process along by being unusually candid about the future of the JD Edwards products, providing roadmaps and schedules. Andy Aicklen, PeopleSoft Canada’s vice-president and managing director, was quick to point out that, since technology acquisition was the merger’s whole raison d’être, it followed that his company was committed to supporting it for the near future. “”We made it clear that we were going to continue these products and support them,”” he said in an interview last year. “”It was important to kill the uncertainty as soon as possible.””

However, things look a little different this time around. According to Hamerman, Oracle’s move on PeopleSoft isn’t about technology. “”Oracle wants the customers,”” he says. “”They want a big customer base and they want to be able to up-sell. In a situation like that, customers have to understand that the acquired company’s products will be supported for a limited time.””

Mateski expects that, whatever might happen to PeopleSoft’s product lines, in the short term, users would certainly be migrated to the Oracle database. In the medium term, this could allow Oracle to create the organizational efficiencies it might need to continue supporting PeopleSoft products.

(Oracle spokespeople refused to comment.)

Indeed, even if the acquired company’s technology isn’t a goal of the merger, maintaining that technology, at least for a while, can make good business sense. “”They’d be insane not to,”” says Daniel Duffy, president of Midrange Systems in Markham, Ont., a one-time JD Edwards and current PeopleSoft integrator. “”The maintenance revenue stream is huge. There’s money to be made with those customers, with those products. So things aren’t exactly going to change overnight. It takes a long time to sell ERP and a long time to implement.””

Duffy isn’t too worried. He notes that “”PeopleSoft (had) a phenomenal year in Canada,”” including sales of new licenses. He expects the company’s software to be in use for years to come, merger or no merger.

According to Hamerman, continued support, even for years, is rarely an issue in merger situations. Moreover, even when the vendor ultimately decides to cut the old product lines loose, there are always other options.

“”In the case of PeopleSoft, there has been a third-party market growing up around its products for a number of years,”” he says. “”So customers would be able to benefit from third-party maintenance. There wouldn’t be much in the way of enhancements, but you have to expect that.””

The bottom line is that, even if your enterprise applications vendor is swallowed by a bigger fish tomorrow, corporate ERP investments should remain viable for the foreseeable future. However, Mateski, who’s been through the whole drama before, says that that doesn’t mean that users should just sit back and take it. Technology mergers can be tricky, and it behooves users to be as clued-in to the process as possible.

“”I would say that it is important to get involved with your current vendor and be as tuned-in to things as is possible,”” Mateski says. “”Also, take advantage of user group activities, and ensure that you are networked with other enterprises in your industry and geography. There is power in numbers, and having a large, unified voice to take to the new vendor is essential to protect your investment.””

Above all, the potential merger fallout has to be factored into enterprise IT procurement. It might not, for example, be the best time to rush into a system upgrade until the dust settles. But then again, it might be. As Aicklen said, “”if you ever want your company to be more efficient, get someone to try to make a hostile takeover.”” If anything, PeopleSoft courted new users even more competitively after Oracle began its takeover campaign, he said.

What is important, according to Mateski, is to “”be educated, and be confident that whatever decision you make, there is a path for continuity of operations in the event that an acquisition or merger occurs.””

Would you recommend this article?


Thanks for taking the time to let us know what you think of this article!
We'd love to hear your opinion about this or any other story you read in our publication.

Jim Love, Chief Content Officer, IT World Canada

Featured Download

Previous article
Next article

Related Tech News

Get ITBusiness Delivered

Our experienced team of journalists brings you engaging content targeted to IT professionals and line-of-business executives delivered directly to your inbox.