Information Age: News, analysis & insight for IT & business leaders

The survival instinct finally kicked in at Lawson Software in early 2005 when its Stockholm-based rival Intentia called Richard Lawson and the board of the business applications software company with an acquisition proposal. The Lawson team had flirted with Intentia on several occasions, only to walk away from negotiations. But within weeks of Intentia's approach, Lawson had turned the tables and presented a counter bid. And for good reason: Lawson, once a star of the mid-range computer software market, was running on empty.

For four consecutive quarters, new sales had slowed to a trickle. The mid-market was confused, said senior management: PeopleSoft's acquisition of JD Edwards and Oracle's moves on PeopleSoft had muddied the waters; SAP, Oracle and Microsoft's appearance in the mid-market was delaying purchases; and even spend on Sarbanes-Oxley compliance was diverting budget away from enterprise resource planning (ERP).

And although they knew the 30-year old company might be able to sustain itself for years to come on the maintenance, support and consulting fees from its historical customer base, they were also aware that without new sales the company would most likely end up as carrion, picked over by the likes of Oracle, which had already publicly stated Lawson was on its acquisitions shortlist.

The financial statements sheets at Lawson did not make pretty reading. In the quarter ending 28 February 2005, the company sold only $13.9 million worth of new software licences, half the amount of the year-earlier period and equivalent to just 17% of total revenues. In fact, licence sales had declined to the point where the company was actually spending more on R&D than it was banking in licence fees.

Revenues overall were down 10% in that February quarter but had been falling for years. Perhaps most embarrassing of all, Lawson had repeatedly failed to execute any kind of international expansion. Indeed only 6% of total revenues came from outside the US in fiscal 2004.

The board's conclusion: Lawson was too small for the fast-consolidating world of ERP and was spending too much on R&D for its size; its customer focus on five vertical markets was too narrow; and it lacked the international reach needed to take on the high-end ERP companies, such as SAP and Oracle, as they moved down market.

The company's broad action plan swung into life in early June with its move to acquire Intentia for $480 million in shares. But the revival strategy has continued in recent months while that takeover works towards its late 2005 culmination under the leadership of newly appointed CEO, Harry Debes.

Debes, a veteran of the mid-market applications business who has held senior positions at JD Edwards and Geac, has said to analysts he will cut spending on R&D and reverse his predecessor's decision to scale back on direct sales staff.

"In the case of licence revenue we need to do a much better job. We need more feet on the street, we need more leads, we need a higher conversion rate. Intentia gives us a greater market into which we can sell our products. There is lots of revenue out there, we just need to go and get it and be more aggressive about that. Having got costs in control, my mission here now is to drive the top line," he says.

Certainly some observers think a shake up was overdue. Lawson "needed shock therapy to wake up", says David Rudow, an analyst for Minneapolis-based Piper Jaffray. Rates of R&D spend in recent years of 19% and above were now unsustainable, he says in a research report, predicting management will cut R&D expenses to about 15% of revenue, partly through the use of offshore facilities.

How that will impact the combined product sets of Intentia and Lawson is still unclear. By early September, neither company had detailed which of their products would be causalities of the merger. But, positively for users, the product sets have a lot in common, having both gravitated towards Java-based, service-oriented architectures.

The synergy goes much further. The 'merger' will give both companies the two things that have always eluded them: an international footprint and critical mass.

Post-acquisition, Lawson will be the number four vendor in ERP with revenues of around $750 million, 3,500 employees and 4,000 customers. While Lawson's presence outside of North America is currently negligible, Intentia has over 80% of its business in Europe and just 4% in the US. At the same time, there is very little overlap in market focus. Intentia targets the fashion/apparel, food and beverage, and wholesale distribution sectors; Lawson the healthcare, retail, financial services, government and education markets.

That synergy was not lost on Intentia's largest shareholders. Despite its Swedish origins, for the past 20 months, Intentia has been under the control of US investors, principally the Silicon Valley software holding company, Symphony Technology. Symphony's CEO Romesh Wadhwani heads the Intentia board and will jointly chair the new company alongside Richard Lawson.

Notwithstanding their contrasting international footprints, the two companies are of comparable size. Intentia's revenues for the year to 31 December 2004 were down 4% to SEK2.98 billion ($405.7m) while Lawson's revenues for the 12 months to 31 May 2005 declined by 8% to $335.2 million.

But the two are at key stages in their product cycles. Lawson is creating a new platform for its product line around a service-oriented architecture and IBM's WebSphere environment. 'Project Landmark', which was led by Richard Lawson, promises "a new standards-based business applications platform designed to leapfrog the software industry by dramatically increasing overall application quality". Meanwhile, around 200 of Intentia's clients have already implemented the new Java-based release of Intentia's Movex product (recently renamed Intentia Application Suite).

The merger of the two companies cannot come too quickly for Lawson. In its latest quarter ending 31 May 2005, its overall revenue slumped by 13% to $86.8 million while licence revenue plunged by 36% to $17.4 million.

That underscores the need for much greater momentum and global presence if it is to successfully take on rivals in the fragmented mid-market applications segment - Microsoft, SSA, Sage, Agresso, Geac, IFS and the like - while beating off the downward push from the large ERP vendors, principally Oracle and SAP.

The question is: Did its wake up call come in time or just a little too late?