System iNetwork

October 6, 2008

So Audax Buys Another i Company--Big Deal or Not So Much?

So the private equity muscle behind Help/Systems, the Audax Group, has acquired yet another IBM i vendor--Bytware--and like its recent PowerTech acquisition, the company would apparently rather keep the whole thing behind closed doors. Although the Audax Group has issued limited press releases in the past, it hasn't with Bytware or PowerTech. On the Audax website, Help/Systems is listed as a company that's ripe for what Audax calls "strategic add-ons." Help/Systems is apparently the company Audax is using to coalesce its midrange play.

"I think the interesting thing here, and this is on a case-by-case basis, when you have one IT company purchasing another IT company it's usually done from both a strategic and tactical standpoint," says Charles King, principal analyst for Pund-IT. He notes that the best acquisitions typically help a company increase its own sales as well as its hardware or software portfolio.

In this case, the biggest extra piece that enters the portfolio might be StandGuard Anti-Virus from Bytware.

PowerTech and Bytware are private enterprises, as is Help/Systems and the company Help/Systems previously snagged, ASC. These companies aren't public, so there's no one on Wall Street they need to report to--other than private investors of the Audax Group.

"Different Critter?"

"If you have private equity companies going out and buying companies [as opposed to one solution provider buying another], that's a different critter," King says, often because it raises questions about who is going to be running the company after the acquisition takes place.

I think there's an assumption and that an industry shift going on here. The assumption is that most people simply believe that independent solution providers are either public companies or that they are owned by someone real--a man or woman who started the company, or handed it down to a son or daughter, or sold it to another company with a leader in the industry. In reality, though, lots of companies are owned by private equities--groups of smart people who see opportunities in markets to buy, sell, add, split, and make a return on investment. I'm of the belief that these sorts of folks are somewhat removed from the pride that goes into building a solution, selling it, supporting it, and seeing it get put to use by businesses around the world.

Is the lack of pride a problem? Might the cool hand of a third party do a better job of assessing risk and opportunity? How many solution providers have invested in new solutions based on false hope, pride, and desperation . . . only to fail miserably? I'm not convinced that private equity is any better or worse than any other ownership model, and in fact, it may give a company the broader backing it might need to survive rough waters.

Penton Media, the publisher of System iNEWS magazine and this website, is owned by a private equity, too. In fact, Penton Media, Inc., has changed hands a number of times, and the private equity muscle behind the magazines has acquired and added other publications to the mix. Just for the record, Penton Media is owned by MidOcean Partners and U.S. Equity Partners II, an investment fund sponsored by Wasserstein & Co., LP, and its co-investors. The information is easily found online on PentonMedia.com as well as on SystemiNetwork.com--though it is a bit harder to find the links on SystemiNetwork.com to Penton Media.

So who am I to get all excited about companies' owners changing hands if for all intents and purposes the companies will remain as independent operating units? Does anyone really care?

In a very real sense, the fact that the Audax Group bought Bytware is a non-story. Consider this: PowerTech was previously owned by a private equity . . . who knew? Did it matter to the solution and service? Didn't seem to. What about Vision Solutions? Private equity company Thoma Cressey Bravo owns Vision and brokered the deals that led to the acquisition of iTera and Lakeview Technology. Is the System i industry any worse off with a consolidated power player--Vision--instead of three solution providers trading punches and customer contracts? In fact, a larger, more stable company may be better for customers than when one of three might bite the dust entirely.

"For all the talk about innovation, what most businesses are looking for is stability and reliability--they want to know that that vendor and its products will be around for the long haul," King notes, pointing out that a lot of companies got stung by the dot-com bust.

Still, There's One Point that Bugs Me

If you believe that competition brings innovation, then the Bytware, PowerTech, Help/Systems trifecta means you've got "competing" security solutions all owned by the same company, which means there isn't any real competition between those three companies. You can't fake competition.

However, that's a small issue. If there's enough demand, competition will rise from the industry. Happens all the time.

Plus, private equities can often push businesses to do a better job of producing, selling, and maintaining their products. New ownership can be the catalyst to get things done.

Still, these are just minor points.

If a company has a sizable investment in technology, acquisitions can take on new meaning. "You've got to ask yourself, 'Is this product that I'm highly dependent on going to get the support and investment it had in the past?' You can assume that in the short term, the products will continue performing as advertised. But what about two, three, or four years down the road?" King says, adding, "It's very important for the companies interested in making these acquisitions to keep the customers in the informational loop the same way they do with major institutional investors."

The bottom line for me is that these companies are selling solutions to other enterprises that in turn bet their businesses on these solutions. In this case, the lines of ownership should be clear and easily found. Vision clearly says it's privately held by Thoma Cressey Bravo. With the others, I cannot easily find a trace of ownership on their respective sites . . . why is that?

I can't think of a good reason to not make the information clear. Can you?

More important these days, I'm wondering if anyone--customers, prospective customers, or non-customers--even still cares?

Posted by cmaxcer at October 6, 2008 11:20 AM