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All systems gone?

IT | John Tate | 1 Jun 2006

John Tate wonders how users of Systems Union products will be affected by its recent acquisition.

Industry consolidation continues with the recently announced acquisition of Systems Union by Extensity, a company formed by Golden Gate, a venture capital group with over $2.6 billion of capital under management. Systems Union are a leading provider of business software and have a significant presence in the not for profit sector, especially with its Sun Accounts and Pegsasus products.

Earlier this year I reviewed the accounting software products available for the charity sector in this magazine. Systems Union products came in for some criticism.

Version 4 of Sun looks pretty dated and version 5 is regarded by many as being overly complex for medium sized charities. Potential purchasers of new software have a wide choice of systems including those owned by Microsoft. Existing users of version 4 of Sun may prefer to look outside the Systems Union product family if/when they decide to upgrade. In the late 1980s/early 90s Pegasus was a leading product for small to medium sized organisations but has lost significant market share since then and I suspect wins relatively little new business in the not for profit sector.

From Golden Gate’s perspective it has purchased a company with a large client base and significant recurring revenue stream. Looking at the 2005 Systems Union annual accounts one can see that out of £113 million of total income nearly £49 million was from maintenance revenue. Added to the maintenance there is no doubt significant additional client revenue from the purchase of services/new modules/upgrades.

According to the report this revenue is generated from over 50,000 global clients, including those in the not for profit sector. One option for Golden Gate is look to maximise profit from the existing client base. Research and development expenditure can be cut, customer support staff numbers trimmed and prices gradually increased. Customers are often reluctant to change accounting systems and may put up with a reduced level of service and an increasingly out of date product for several years.

In the meantime Golden Gate can make money from the user base. Add on products can be found to sell into clients, such as enhanced reporting tools. This again can strengthen the profit from their clients. There could also be some economies of scale that will further help the bottom line.

Alternatively Golden Gate may look to increase its new business activity across the Systems Union product lines. With its greater financial strength they have the muscle to significantly develop Systems Union’s global business. It will, however, face a number of challenges in doing this. Firstly, its product range. Pegasus is primarily used by UK companies in the small to medium sized market. According to the 2006 Charity Finance voluntary sector IT survey it is used by around 4 per cent of UK charities and has the lowest number of users of all the products in the survey who would actually recommend their product. With strong pressure from Sage, will Golden Gate be willing to make the required level of investment in Pegasus to generate significant revenue growth?

Looking at the Sun Accounts product, its UK charity market share according to the survey is around 5 per cent and users give the product the second lowest user rating after Pegasus. If the comments I make above about the Sun products are valid and apply also to users in the commercial sector, it is difficult to see how it will achieve significant revenue growth with its current accounting applications. It does have other software in its portfolio, including business intelligence software. Perhaps this could be an area of focus?

If one concludes that Sun Accounts and Pegasus are not likely to enjoy significant core product development how does this leave the charity users? The first question is do these products do the core job needed of them? If so, as long as the support costs do not rocket there must be a good case to stay with what you have got. If there are functional gaps in your application look first at work arounds. With Pegasus and Sun products both having a relatively open technical architecture you may well find a way of addressing a gap in the product. In terms of ongoing support these are still a wide range of resellers who support both the Pegasus and Sun products. With the size of the UK client base I would expect there to continue to be a good choice of support organisations for many years , regardless of whether the client base increases of falls in size.

John Tate is a leading IT analyst in the charity sector and chair of Citra 

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