Saxo & dti just acquired by investment company. both have press releases on their websites.’ It was the first and only text message to reach my mobile phone in two weeks of sailing off the British Columbia coast. Welcome back to reality.
In the 1990s Saxotech, still led by founder Werner Elhauge, had been a client of my company, JJCS. We worked on bringing Saxotech to the US market. JJCS’s own Jo Ann Froelich was for many years chief operating officer of DTI before heading to Atex North America and Eidos North America, so our ties to the companies are significant.
My second thought after “Wow”, was about wading through the obfuscating press releases designed to put a vanilla face on an event which I am sure will lead to much blood letting within those corporate walls.
Newscycle Solutions, the new entity, is the property of Vista Equity Partners, a private equity firm founded by past members of what many Americans see as ‘the new evil empire’, Goldman Sachs.
And sure enough on each organisation’s website are the obligatory blancmange statements from the former heads of the pre-merger companies, extolling synergy and progress for their customers. The same quotes could be applied to any merger of any two companies anywhere in the world. It can seem just like the comment track for any DVD we rent: Everyone had a wonderful time making the film, everyone on the film is a genius and this is the greatest film ever made!
What might Vista Partners might do with their acquisition? Some clues are in a short article (Vitera revamps, hires after big layoff, on bizjournals.com) which describes how the former Saga Healthcare business had last year started hiring again, after the “house cleaning” which followed when it was bought by Vista.
History tells us to expect slashing of costs and gutting of personnel – which generally includes anything that does not immediately add to the bottom line, usually R&D and support – in these cases then ‘flip and run’.
(For an example in our industry, the Netherland’s Mediasystemen, was a victim of a programme by its parent company Triple-P which starved the company of R&D money, but gave us from those ashes, Woodwing .)
But in a contrast to what is often a well-known two-year programme, having shed about a quarter of its staff, Vitera replaced them and added others to enlarge the company. A year later Vitera seems to be saddled with debt, and according to Reuters, decided not to borrow US$365 million to refinance its current debt and make a US$100 million acquisition. Having said that the company seems to be doing very well, as they completed the acquisition using equity.
What would I do with DTI and Saxotech? As I see it, the value in DTI is their customer base, the value in Saxotech is their amazing ability to close deals.
DTI is a legacy company that has been struggling to fashion a new self. When I most recently sold against DTI, I considered their product offering really an integrator’s solution made of very good products, hosted in the cloud in a Citrix-like environment. Not a cloud solution to my thinking, but rather enterprise software running in a hosted VM environment.
Saxotech has been on a sales tear. The successful deals closed are breathtaking. When I last sold against Saxotech, the company closed the deal across a weekend by working directly with client’s publisher rather than the selection committee. We were in awe.
For some insight into what the deal might mean to a DTI customer, I contacted Duncan Suss, director of information technology at the Boston Herald, a DTI customer and Jeff Kane, vice president for technical operations at Sun-Times Media, publisher of the Chicago Sun-Times. Duncan has worked on both sides of the vendor/newspaper divide on both sides of the Atlantic, and places his hopes not on the fruits of the merger, but on the fruits of the displaced.
“I think it’s very highly probable that some of the people who’ve been working for DTI and Saxotech will be laid off, most likely starting in development teams, once they’ve decided which product lines will be phased out.
“I don’t like this thought, but there’s a small glimmer of hope within it: some of these people might start new companies with fresh ideas, and the next generation of products may derive not from the merger but from the casualties of this announcement,” he told me.
Jeff Kane summarised the bottom line: ‘‘In the end the new company, Newscycle will need to come up with less expensive, simpler, digital-focused solutions moving forward.’’
A cold clear-eyed view is what is necessary in our industry. The former Goldman-Sachs boys who have formed Newscycle Solutions may have business ice-water in their veins, but what do they know that we don’t. Equity firms and their funds (Vista Partners forms funds that make the acquisitions) expect a very substantial ROI, but are probably also willing to accept certain rate of meltdown.
How does that level of return get generated in our industry? The answer may lie in taking the new company’s expertise outside of news media, but I don’t think so, given the problems DTI had with its flyer into the medical industry .
One can’t help but think back to Kodak’s acquisition of Atex and DuPont’s acquisition of Camex. Each company knew that new technology (desktop publishing) spelled the end of their current business strategy and found someone with deep pockets to convert perceived equity to cold hard cash. Kodak poured tens of millions of dollars into Atex before throwing in the towel, while DuPont pulled the plug on Camex after two years.
From the Camex ashes came CKP, which was eventually purchased by Saxotech, where CKP co-founder, Pat Stewart is head of development.
I can’t think of an instance in our industry where a white knight has come to a vendor’s rescue, resuscitated vendor and built a new profitable company, but then what are the metrics Vista will use to judge success? For all our sakes, I hope the outcome will be a new industry leader.
• Newspaper systems industry veteran John Juliano writes regularly for GXpress Magazine. Contact him at john@jjcs.com
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