Business intelligence software vendor Cognos recently announced its intention to buy in-memory business analytics firm Applix for $339m in cash, a 24% premium over the company's market cap.
Founded in 1983, Applix grew its revenue 45% to $61,2m in the last 12 months and has amassed over 3000 customers.
Ottawa, Canada-based Cognos gets its hands on Applix's flagship TM1 product, an in-memory multidimensional (OLAP) server that is well suited for the rigours of complex financial analytics that is a favorite among finance departments because of its Excel-based interface. Here Applix CEO, David Mahoney, answers the key questions in a ComputerWire exclusive.
Q. You managed to command a considerable premium for the company; was there a bidding war?
A. There was a lot of discussion, other companies called in and showed interest in different ways. Cognos showed the commitment to get the deal done.
Q. What is the latest on closing the deal?
A. We [last week] went through the regulatory hurdles and now after the tender offer it is usually four to six weeks. The sooner, the better.
Q. Analysts have questioned the premium of 24% over your market cap and the fact it is over five times trailing revenues. It is obviously a good price for Applix and its shareholders, but is it good for Cognos?
A. I think a year or two down the road this will look like a very, very good deal for Cognos. It may even look pretty cheap for Cognos. Even if Cognos does so-so [on integration] it will still look OK; if they do well it will look incredibly cheap. Cognos realised it was paying a lot but everything they heard from customers and partners reassured them that they are getting good value.
Q. You were not a founder, but you have been at Applix a long time. Give us the potted history.
A. I had been a director since 92. But in 2003 the directors decided to change the management team because things had started going either sideways or down. At that time the firm had a market value of $17m, and we have just sold for $340m.
I took over on a temporary basis. At the time I promised my wife I would do 18 months, but I have had more fun here than at any other company [Mahoney is a serial chief executive, having been CEO of LeadingSide, Verbind, Sovereign Hill Software and ePresence. From 1973 through 1983, Mahoney was the director of communication product development at Data General.]
Q. What do you put that down to?
A. There was and is an unbelievable passion around the product, in the company, from customers and employees. What I needed to do back then was take something everybody loved and fix the surrounding business.
When I stepped in all I got was complaints, but they were never about the product, they were always about lack of commitment of the company, communication, customer service and so on. I had to sort out the company, not the product, so I hired new people and rebuilt parts of the engineering team too.
Q. Any company's CEO must always ask whether selling up offers better upside than remaining independent. So the obvious question is, why sell now?
A. That is a very good question. Every year we asked that question and looked at whether we should remain independent. But until not so long ago a lot of the competition looked at us and said, "you are not that unique."
Then they realised that we were beating them in deals, and some went away to try and build this themselves but failed. Then they started saying "let us talk", to which I said, "OK, but it is going to be a very expensive discussion."
When we did our analysis recently we thought if we did this next year, how much more value would we have created as an independent for another year? How much risk would that involve? Now was the right time.
Q. Was there reassurance that most of Applix's jobs would be saved?
A. Cognos is looking for the upside in this opportunity. They did not pay that much just for a tuck-in acquisition and get cost out [sic]. They have a keen interest in the Applix people, a lot of our presales skills are unique, the engineering team and even some back-office.
We only have 225 people which for a worldwide business with $60m revenues is pretty incredible. Cognos is looking to invest in growth, and culturally it is a good fit too.
Q. Is it too early to know how Cognos will integrate Applix's TM1 into their own Cognos 8 platform?
A. Yes it is, really, and more a question for Cognos. But conceptually there are two quick options. Firstly, sell TM1 [Applix's in-memory business analytics suite] as it is today, as a complete analytics suite for the mid-market. Companies that want to do planning, forecasting, 'what if' etcetera, TM1 is simple, quick, easy to use and gives complete, immediate results.
The second is to put TM1 on top of their platform as a module of some sort. They have been building their enterprise offering and that is going to continue to grow, but they do not have the strong budgeting and planning, the powerful analytics of TM1.
It makes sense to make TM1 a module that can be used on that platform [Cognos 8]. That is what, conceptually at least, they will do.
Q. Do you concede that there are overlaps in the Cognos portfolio when Applix is added?
A. I think for the foreseeable future they are very complementary.
Q. There are no overlaps? Customers will be clear as to which products to buy for what purpose?
A. I guess they [Cognos] are looking at areas of overlap or duplication.
It makes sense that TM1 could easily become their long-term [front-end business analytics] platform but it is not clear how they will interpret their customers' needs. It is not just up to Cognos, they will be guided by what their customers want them to do.
Do not forget that this doubles Cognos' business performance management [BPM] customers, from 3000 to 6000. Those customers will tell Cognos what they want it to do more than Cognos will tell their customers what to do. But this gives Cognos a much better chance to be the leading independent player in CPM [corporate performance management] and BI.
Q. Some confusion in this space has come from vendors using corporate performance management (CPM) and business performance management (BPM) as you just have, and BPM clashes with business process management, also BPM...
A. I think business analytics is what we are talking about.
Q. Does not everything have to be a three-letter-acronym in this industry?
A. I do not know because sometimes when you have three [letters] it gets changed more! Business analytics should stay unique for a lot longer.
Q. How long will you stay on at Applix once the deal closes?
A. I will help with some transitional things but my job here is over. I came in as a turnaround specialist. Cognos will create a business unit under Michael Morrison [Applix's COO]. It is their turn now.
Q. So where to now? Will you go and lounge by a swimming pool somewhere, or get straight back into running tech firms?
A. I am not sure I can retire. Everybody I know is in this business.
I put a lot in and I got a lot out. I think I will go on some boards [of companies], but I will not be CEO again. Not with all the pressure that comes with it these days!