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Sage Figures CRM into its Equation
The Sage Group offers to acquire interact commerce.
For the rest of the July 2001 issue of CRM magazine please click here
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The past couple of years have seen widespread consolidation of the enterprise CRM market, and pundits predicted it was only a matter of time before the mid-market followed suit. UK-based accounting software developer Sage Group has put the mid-market on notice. In late March, Sage launched a bid to acquire Interact Commerce, turning the Scottsdale, Ariz.-based CRM vendor into a wholly-owned subsidiary and accelerating the integration of SalesLogix and ACT! into Sage's accounting suites.

Sage's offer values Interact at $260 million or $12 per share. That price represents a healthy 33 percent appreciation for investors who participated in the company's May 1999 IPO, but a considerable disappointment for those who bought into the company at its peak of over $42 before the technology stock meltdown began in the spring of 2000.

In the mid-market, Interact has long been considered a likely acquisition target, alongside Pivotal and Onyx. "Sage already had a relationship with [Interact], so it was easier," says Yankee Group program manager Sheryl Kingstone. "They weren't going to acquire Pivotal, or I don't think they'd get it for the same price."

Interact signed a number of integration partnerships with accounting firms last year, Sage among them, and apparently a taste of SalesLogix made Sage hungry for more. According to Interact Chief Marketing Officer Michael Simpson, Sage had been studying the CRM field for an acquisition target since the summer of 2000, and talks to expand Interact's North American integration efforts to Europe turned into a buyout offer. "At a time when the stock market hasn't been rewarding anybody, this is a great opportunity for us," Simpson says.

Sage Plans

Although Sage declined to be interviewed and outline its plans for Interact, Simpson says that Sage has not indicated that it will cut, integrate or relocate any of Interact's current corporate operations, and the company is heartened by Sage's track record with acquired firms. "They have seventeen companies that operate as independent companies, and we would be their eighteenth," he says. "They think our business is pretty well run."

AMR Research analyst Vanessa Fox believes that the pressures to extract early returns on ERP/CRM integration may squeeze Interact's freedom compared to other Sage holdings, however. "Given what they're trying to do, which is to integrate Interact Commerce across all the different financial packages, they may have less autonomy just because the needs of each [Sage software accounting unit] are going to put demands on Interact," she says. "They may find their loyalties split a little bit."

There is considerable synergy between the offerings of Interact and Sage. Sage's popular MAS/90 lines up well against the target SalesLogix market, while Sage's Peachtree product and ACT! are aimed at the same small business space. Interact has also coveted Sage's large reseller base since their integration partnership began last year.

Kingstone believes the acquisition gives those resellers something more interesting to do. "For Sage, the ERP market is slowing down--it's a replacement market," she says. "The trend is to have a complete solution." The move also gives Sage new ammunition in the mid-market accounting space against longtime rival Great Plains, now a division of Microsoft.

Worthy Asset

Founded in 1995 as SalesLogix, Interact was recognized early on as having solid potential to bridge the gap between sales automation and CRM, owing to its product's close affinity to ACT! and attractive pricing for small and midsize enterprises. Despite a customer base of over 3,300 companies and the acquisition of the ACT! product line from Symantec, Interact has never recorded a net profit. The company has made some apparent missteps: Interact was slow to integrate the customer support technology it acquired in 1997 into a unified CRM suite and took a total hit of nearly $31 million last year connected with the failure and eventual burial of its unprofitable Interact.com initiative, an attempt to build an Internet-hosted CRM service. Interact has since jumped on the Microsoft .NET bandwagon instead.

Kingstone also suspects that the Interact.com strategy may have provided a distraction. Although developing a solid Web-based approach may have been a worthwhile endeavor, "taking on so many management costs associated with it didn't make sense," she says. She also suggests that the name change may have hurt. "They don't really have a lot of brand equity in 'Interact' but they spent a lot of time on that. Their core competence was in branding SalesLogix and ACT!, which does work under the Sage name."

Despite years of losses, Interact had published its intent to achieve profitability in late 2001. Simpson affirms that goal was still within sight when Sage offered a buyout. As the magazine went to press, the deal had not been consummated, but Sage had cleared both German and U. S. antitrust approval processes for the acquisition.

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