On Monday, PeopleSoft announced it was acquiring J.D. Edwards in a US$1.7 billion stock deal, which will create a company with US$2.8 billion in annual revenue, 13,000 employees and more than 11,000 customers in 150 countries.
PeopleSoft has focused on human-resources software, especially in the high-end enterprise, while J.D. Edwards has worked more on manufacturing-integration software.
According to Gartner's research vice president Kristian Steenstrup, customers in Australia shouldn't worry about the merger as both companies are complementary in terms of the verticals that they focus on.
He said in Australia, PeopleSoft has a good chance of beating SAP to lead in the ERP (enterprise resource planning) space if it gets its act together. Citing historical data, he said the gap was narrow--as at 2001, the German software maker recorded a 20 percent market share (US$15.6 million) compared with PeopleSoft's 13 percent (US$10 milion) and 5 percent for J.D. Edwards (US$4 million).
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In Asia-Pacific, the deal will push PeopleSoft to second position behind Oracle in terms of application software licence revenue.
From a human resource perspective, employees in Australia and New Zealand could pay the biggest price being the largest pool regionally, Steenstrup told ZDNet Australia.
PeopleSoft has a total of 300 workers compared with J.D. Edwards' headcount of 200 in both countries.
Ian Hodge, J.D. Edwards' Australian and New Zealand managing director, has welcomed the move but conceded it brings with it a "bit of uncertainty" for employees.
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Regional mix
Gartner's Steenstrup believes by combining resources, PeopleSoft and J.D. Edwards would be able to penetrate
markets in Asia-Pacific better. At present, PeopleSoft is the bigger of the two organisations accounting for three fourths
of the licence revenue of the merged entity (US$ 41 million out of US$54 million).
"Each, on its own, would have found it difficult to take on entrenched players, mostly SAP and Oracle, and in some countries--such as Korea and China--the local players," Steenstrup said.
He added that PeopleSoft and J.D. Edwards are complementary in terms of the verticals that they focus on.
"In Asia-Pacific, J.D. Edwards has succeeded primarily in manufacturing and distribution (which accounts for 75 percent of licence revenue), while PeopleSoft has been successful in financial services, governments, higher education and telecommunications.
"Whereas HRMS (human resource management system) continues to be a big part of PeopleSoft's revenue, it accounts for as little as 6 percent of J.D. Edwards' ERP licence revenue. PeopleSoft has been pushing CRM, whereas J.D. Edwards has focused on SCM (supply chain management). By combining their strengths, they would be able to participate in many more deals than they could individually," Steenstrup said.
He added both companies have been venturing beyond the combined Australia and New Zealand (ANZ) base to reap a bigger market share--in revenue terms against Asia-Pacific, ANZ accounts for 58 percent of PeopleSoft and 65 percent for J.D. Edwards.
"They're focused on Greater China and India and have had very marginal presence in South Korea," Steenstrup observed.
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Will it work?
In addition to rivals Oracle and SAP, PeopleSoft also faces a growing challenge from other competitors such as
Microsoft. This situation has increased PeopleSoft's focus on business application software. In the US, Microsoft
recently reassigned its top sales executive to drive expansion of its small and midsize business applications unit and
hopes to eventually transform its business solutions division into a US$10 billion unit.
One analyst surmised that PeopleSoft's acquisition reflected how Microsoft and SAP are gaining greater influence in the midmarket sector, where most IT spending is occurring today.
"The key reason that drove the acquisition is the competitive threat from Microsoft and SAP," said Trip Chowdhry, an analyst with FTN Midwest Research, an independent research firm with no investment banking relationships. "Microsoft and SAP have changed the rule of what midmarket offerings need to be in terms of price, time to customisation, and in terms of out-of-the-box experience."
If the acquisition is approved, Gartner's Steenstrup sees a single product line as the most reasonable outcome.
"PeopleSoft and J.D. Edwards have very complimentary products so they'll need to have a clear view and be realistic [about that]," Steenstrup said.
As to avoiding common mistakes arising from mergers, he said: "It all goes wrong when internal politics comes into play...[so] PeopleSoft has to build a combined company which has the most positive attributes."
Meanwhile, in a new study, research firm IDC has valued Australia's CRM solutions market at AU$422 million as at 2002. In a statement, IDC said renewed interest in CRM solutions will see this segment increase at a compound annual growth rate of 6.7 percent to hit AU$583 million in 2007.
ZDNet Australia's Iain Ferguson and CNET News.com's Margaret Kane contributed to this report.
