Archive for March, 2011

Microsoft SQL Server Licensing tip

March 18th, 2011

Virtualisation is often thought of as a panacea for saving money. Well, sometimes it does generate cost savings and sometimes it can cost you more money than you were spending before you virtualised. Here is an example of how careful you need to be – if you are using Microsoft SQL Server, you can run several instances of SQL on a single server but the minute you turn the server into a virtual machine you are now obligated to pay Microsoft for a server license for each VM you are using. So if you have 4 VMs running on a server you will need 4 SQL server licenses. Sometimes it can be more cost effective to beef up you hardware using a higher powered processor, more RAM or faster buses rather than virtualizing and having to buy more SQL licenses.

Are you prepared for your Software supplier being taken over by another supplier?

March 11th, 2011

We suspect that the pace of Merger & Acquisition activity that began in earnest in Q4 2010 is likely to continue throughout 2011. For this reason, we think it’s imperative that procurement, legal and IT organizations prepare themselves for the chance that their current software suppliers might be acquired. Aside from coming up with the right general strategies and preparations for the potential takeover of the owners of your licensed (or rented) application assets, it pays to look specifically at the opportunity that material change of control clauses present to reduce potential risks to your business and provide some reward based on your contributions to a supplier’s success at selling itself.

One structure for these clauses is to require the supplier to refund monies based on how soon the firm was sold. The theory behind such a clause is like a sinking bond fund requirement: the longer you get to use and get value out of your software ‘investment’, then the lower your liquidated damages are. If the supplier is sold after ten years, for example, you may get nothing for damages as you got full value for your investment. However, if the supplier is sold within the first year of your licensing, shouldn’t you get something for all of those implementation fees, license fees and maintenance monies paid to get this now obsolete solution partially installed?”

Suppliers hate these clauses; they believe that if too many of their contracts contain language that a potential acquirer would find economically challenging, then the value of their firm is adversely affected. Of course software providers are most likely to push back when they encounter additional considerations in these clauses that extend beyond the outright company sale. For example, a clause might also cover the loss of key software executives.

Regardless of how onerous you want to get with suppliers in negotiation, you’ll have far more leverage in larger suite deals than one-off module situations. And make sure that you allow adequate time in these discussions towards the end of a quarter to get what you want (incidentally you should always negotiate towards the end of a quarter, but hopefully you knew that already). The legal wrangling and back and forth between your legal counsel and suppliers could take days or weeks, hence the extra time to budget for. But in the end, it could very much be worth it.

P2P and sourcing software companies are doing well

March 3rd, 2011

There’s been a recent wave of financial announcements from some leading European technology firms in the P2P and sourcing space recently. Here’s a brief summary:

Trade Extensions, the Anglo-Swedish sourcing and optimisation experts, had a solid year in 2010. they’re private, so don’t release full data, but we understand they saw single-figure revenue growth, with more than 20% of revenue from new clients.  Their business is well balanced between licence sales and managed ‘events’; and very equally split between Europe and North America. That’s unusual for a firm of their size, as is the ‘blue chip’ nature of their client base (Cargill, Dow Chemicals, Coca-Cola).   Management were ‘ happy’ with the profitability, and further investment in staff boosted sales and R&D effort in particular.

Hubwoo, the listed French “global leader in SAP-based procurement solutions” delivered on a SaaS (cloud) basis, announced their Q4 results also.  And very impressive, they were too, with sales up 22% year on year in the quarter, giving full year growth of 9% to €37.6M total revenue. While services are only a quarter of their business, they are growing faster (60% yr on yr) than SaaS revenues.  Profit wasn’t disclosed, but “significant customer contracts in the quarter included Sigma-Aldrich, Barclay’s, Britvic, Shell, Campbell’s, Sara Lee, Monsanto and Telus”.

Finally, Basware, the quoted Finnish e-invoicing and P2P released impressive full year 2010 numbers. Sales grew 11.3% to €103M; operating profit was up 14% to  €13.5M, and international operations were some 54% of total sales. Cash flow was also strong. They also announced some structural changes designed to support the rapidly growing ‘automation services’ part of the business, and support their aim to be “the leading e-invoice company worldwide”. The company structure will become more regionalized; pricing models more flexible; and there will be greater focus on mergers and acquisitions.