With the announcement yesterday that enterprise software maker PeopleSoft will acquire J.D. Edwards in a stock deal worth $1.7 billion, the companies are on the stump to sell the virtues of the deal to customers and investors. With the market for enterprise software traumatized by slow sales and customer dissatisfaction, the two companies hope to create a fruitful union that is greater than the sum of the parts.
Overall, the merger allows PeopleSoft to buy its way into the mid-market, manufacturing enterprise solution space, and enables J.D. Edwards to come under the umbrella of a larger entity as SAP, Oracle and others move into its space. That's a reasonable strategy, and an acknowledgement that each company would have a hazardous and more uncertain battle in trying to move up market (J.D. Edwards) or down market (PeopleSoft).
The merger brings their largely complementary markets and products together, but shaping them into an integrated set of services is not a sure thing. In the meantime, competitors like SAP, Oracle and even Microsoft at the low end of the market spectrum will be looking to respond to the challenge that the PeopleSoft/J.D. Edwards union presents to their businesses, especially in serving smaller enterprises. The result of that deliberation among the behemoths will be more market consolidation and forays into developing product targeting the growing mid-sized company market segment.
A future target for PeopleSoft or others trying to crack the mid-sized CRM market could be the smaller players like Onyx, SalesLogix, and Pivotal. At the same time, every enterprise software company has been put on notice by the more demanding customers to deliver real ROI, not just shelfware or partial solutions. Acquiring more products or market segment coverage could backfire if the products fail to reduce complexity and costs longer term.
As with every acquisition or merger, the difficult part will be in blending the cultures and developing a product roadmap that gives customers confidence in the outcome. So far, PeopleSoft (the acquirer) isn't prepared to discuss any specifics about the roadmap, which may not be a good sign. However, PeopleSoft and J.D. Edwards customers should expect a call before the end of the year from the officially merged company as the cross-selling effort gets underway. If the cross selling doesn't result in much sell-through, the purported value of the merger would deflate.
Following the announcement of the definitive agreement, I spoke with Nanci Caldwell, PeopleSoft executive vice president and chief marketing officer, and Les Wyatt, J.D. Edward senior vice president and chief marketing officer.
ZDNet: What are the key synergies that drove the decisions to merge the companies?
Wyatt: There are three big areas. First, the merger certainly gives us global scale by creating the second largest enterprise software company. The second area is in the markets we serve. PeopleSoft is in the large enterprise with human capital management and CRM. J.D. Edwards is in the mid-market, in hard manufacturing and distribution. And, if you look at where we are in terms of market segments and product mix, there isn't much overlap.
Caldwell: We get not only global scale and markets, but also industry synergies. PeopleSoft is recognized in service areas, such as financial, communications, and healthcare. J.D. Edwards is recognized in manufacturing, distribution, real estate, construction and asset intensive areas, so we have complementary coverage in our footprint.
ZDNet: How would you characterize the merger from a competitive standpoint? Do you expect to see more market consolidation?
Wyatt: It was not done to take on any specific competitors, just to target markets aggressively.
Caldwell: We do see consolidation in the industry. PeopleSoft and J.D. Edwards together have an incredible opportunity in the mid-market, which is a growing space. J.D. Edwards has 25 years of experience and PeopleSoft 15 years; with J.D. Edwards' incredible technology in the mid-market, we will be unmatched.
ZDNet: Surely, in your merger discussions, you considered how to compete with SAP, Microsoft and others who are going after the mid-market.
Caldwell: We see SAP and Oracle in mid-market space, and Microsoft at the very low end.
Wyatt: We see Microsoft in the less than $100 million-sized companies, and in markets where deep functionality isn't a driver for the decisions. We encounter [Microsoft] a small percent of the time. We see Intentia in Europe. Our view is that the best way to compete is to provide better solutions and value to customers, and that is what merger is about. If you look at the product capabilities within the J.D. Edwards products set, many can be sold into PeopleSoft's existing footprint, so it's a great cross-sell opportunity.
ZDNet: Given the cross-selling opportunities, what is the roadmap for integration the product sets?
Caldwell: We are not announcing any product roadmaps, since we just announced the transaction. In the next several months we will develop them. We clearly see some great opportunities up front for cross selling and see great opportunities to bring expertise across both companies.
ZDNet: Are you expecting to announce any layoffs?
Caldwell: We have not announced any plans for consolidation or layoffs. Both companies have a great track record of managing business and getting operationally efficient. We expect the transaction to be accretive to PeopleSoft in 2004, and feel it is a very doable plan.
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