By William Fellows
Sun Microsystems Inc will hand over $540m in a stock swap for enterprise application development ISV Forte Software Inc primarily for its Java and application integration tools. Having supposedly been rebuffed in recent bids to acquire Java development specialists Inprise Corp (formerly Borland) and Symantec Corp, Sun has chosen Forte to provide the glue to tie its webtop and Sun-Netscape alliance web application server products into back-end database and transactions systems, and to build new network applications.
Each Forte share will be converted into 0.3 share of Sun stock, which based on Sun’s Friday closing price of $74.25 values Forte at around $22.27 per share, a premium of $5.27 on its Friday closing price. Forte shares surged $4.12 or 24% to reach $21.12 at the close of the market Monday.
Sun, which typically makes small, technology-driven software acquisitions appears to have picked up Forte for a song. Its market capitalization stood at $346.8m at the end of last week. Forte, whose share price hit the $80 mark not long after its IPO in 1996 when it recorded a profit of $7.2m on revenue of $63.1m. Since then its fortune waxed and waned as a crop of enterprise application development ISVs were forced, by the emergence of component technologies and Java, to open up their proprietary frameworks and adapt to the requirements of the web, electronic commerce and integration with multiple applications.
CEO Marty Sprinzen has in the past reckoned Forte’s value proposition to be worth a market cap of $600m to $800m but after losing $1.4m on sales of $79.5m in 1999 and $500,000 on sales of $22.2m last quarter, insiders said it became clear the company needed an exit strategy. They said that these days you have to be big or niche to be a successful software company, and that management didn’t see a way of growing Forte from $80m to $500m where it would need to be to attain the critical mass to remain independent.
Although Forte has some 500 customers for its development environment – and claims 100 ISVs have used Forte to build their applications – its recent revival has come on the back on the promise of its new Enterprise Java Beans and enterprise application integration (EAI) products SynerJ and Fusion. These are certainly the tools for which Sun has splashed out, as well as picking up an attractive customer based at the same time. One Forte user, US West, is claimed to have 6,000 concurrent users. The company says it will continue to develop and support all three of its product lines.
Jumping on the EJB and EAI bandwagons – it OEMs New Era of Networks Inc’s EAI software as part of its Fusion product – Forte placed itself in the heart of two rapidly consolidating marketplaces. Forte, which Sun will run as a separate subsidiary, claims 25% of its users are running on Solaris, less than that are up on NT. It counts Compuware Corp as a rival in high-end application development; claims no one but IBM Corp can match its EJB, EAI development, generation and implementation tools; and views Vitria Technology and Active Software as the competition in EAI. Forte says the entry price point is $35,000 to $40,000 for an EAI install, although the average price of a Fusion deal is $350,000-plus.
Forte, which has a target to finish this fiscal year with an 8% to 10% operating profit, claims 52% of existing customers are building e-business applications.
Sun is very good at targeting an area, figuring out who the less- than-obvious players are, and partnering with them or acquiring them. With Forte, it will get a lot of development tools. In addition to the EAI Neon tools, Forte’s relationship with Tibco gives it messaging. Industry observers say that: Sun is clearly trying to build a good story for the plumbing, making applications works together. It si also a decent exit strategy for Forte, who’ve not been building a particularly strong presence outside their applications development tool space.
Sun president and COO Ed Zander said the acquisition is one of the cleanest Sun has made in terms of strategy and products and expects there to be as little as 3% to 5% of overlap with Sun products. Forte gives Sun Java and XML software development environments to add to its Fortran, C and C++ Workshop development tools.
