Not many software companies go through Chapter 11 bankruptcy protection and come out unscathed. Fewer still thrive and prosper if and when they do emerge: customers melt away and suppliers are reluctant to extend credit.
Not so Peregrine Systems. “I think the re-organisation can fairly be characterised as the most successful chapter 11 bankruptcy organisation in history,” says Peregrine’s newly installed CEO John Mutch.
That no doubt overplays the achievements of former CEO Gary Greenfield, who steered the company through administration, and it would certainly be strongly contested by SSA Global Technologies CEO Mike Greenough.
But Peregrine, whose existence was in doubt just a year ago, can now look forward to a brighter future, even if some of its former executives, responsible for an accounting fraud totalling $509 million, can only look forward to a period in the federal slammer.
Peregrine’s survival, says Mutch, can be attributed to the strong support of systems giant IBM, with whom the discredited former CEO Steve Gardner cut a partnership deal, just weeks before the accounting scandal broke.
“With IBM, the ‘risk mitigation assurance’ relationship enabled customers to feel confident that they could still buy Peregrine products,” says Mutch.
That, combined with the difficulty of ripping out and replacing the company’s software, helped keep customers loyal – and ensured the rejection of an offer to sell the company to Hewlett-Packard.
Even so, Peregrine’s revenue run rate has dropped significantly.
In the year to the end of March 2003, the company achieved revenues of $212 million and, in the current fiscal year, this will drop to a forecast $165 million, with operating income of about $50 million, says Mutch.
However, staff numbers have also dropped to just 15% of their pre-administration numbers, from 4,000 to 620.
Perhaps Peregrine’s biggest challenge is also one of its own making. Mutch will have his hands full competing against with Remedy, the help-desk software vendor that Peregrine acquired for $1.1 billion in June 2001 and disgorged last year to BMC Software – for less than a third of that sum to provide working capital for Peregrine’s chapter 11 period.
Both companies compete in the emerging ‘service management’ space, which AMR Research analyst Dennis Gaughan believes is starting to hot up.
“The time they spent together means that they know each other better than most competitors can, which means the dirt will be flying. This is actually good for customers, who can now pit them against one another for optimal pricing and maintenance terms,” says Gaughan.