JBA: Will it Remain "@ctive Enterprise"?

JBA International is a global supplier of integrated enterprise management software for midsize companies involved in the manufacture, supply and service of industrial and household goods. Founded in 1981, with headquarters in Birmingham, UK, JBA International is the sixth largest ERP vendor with $480 million in revenue in 1998 (approx. 3% of the global ERP market). The Company has a history of continuous growth since its inception, but fiscal 1998 was the first non-profitable year in the Company's history. JBA's initial success was based on Business 400, an integrated suite of manufacturing, distribution and financial software for the AS/400, which was complemented by vertical industry solutions Drinks 400 and Style 400. In 1995, JBA delivered System 21 as an evolutionary successor to Business 400, in tandem with JBA's business intelligence package, Advanced Information Management System (AIMS). Since then, JBA has expanded into several more markets. In 1998, JBA launched System 21 Version 4, which is component-based, cross-platform, and Internet enabled. In 1999, JBA launched its @ctive Enterprise Series product line, which allows customers to dynamically model and continuously update their business processes, by using the following components: JBA @ctive Modeler (drag-and-drop graphical business process design tool), JBA @ctive Processes (a family of predefined business process templates based on the Supply-Chain Operations Reference "SCOR" model), JBA @ctive Business Intelligence, JBA @ctive Supply Chain Management, and JBA @ctive e-commerce. More than a half of the Company's revenue comes from service and support. JBA distributes, implements and supports its products worldwide through a partner network consisting of subsidiaries and dedicated partners in more than 53 countries around the world, and derives 25% of its revenue from the non-European market. By the end of 1998, the Company had more than 4,400 customers and over 2,900 employees. JBA International went public in 1994 and it trades on the London Stock Exchange. The Company is currently in the process of being acquired by GEAC Computer Corporation Ltd., a large Canadian software company.

• Large customer base in the mid-market, coupled with a sharp industry focus (JBA System 21 is regarded as one of the best ERP systems for Food & Beverage, Apparel & Footwear, Automotive Components, and Office Supply & Electronics industries), and strong implementation and service & support skillsets.

• JBA was one of the first mid-market ERP vendors to embrace concepts of component technology, Internet and e-Commerce, and integration with other vendors' components (Active Partner Integration). Furthermore, JBA System 21 runs on a broad set of the most popular platforms and databases.

• JBA System 21 can be rapidly implemented and easy (re)configured, which are critical differentiators in the Small-to-Medium Enterprises (SME) market segment. Moreover, the strong workflow management and process performance indicators within the @ctive Enterprise Series suite, allows JBA's ERP System 21 to monitor company's processes, detect potential problems, and alert the appropriate people, instead of being a traditional passive transactional system.

• JBA System 21 can be rapidly implemented and easy (re)configured, which are critical differentiators in the Small-to-Medium Enterprises (SME) market segment. Moreover, the strong workflow management and process performance indicators within the @ctive Enterprise Series suite, allows JBA's ERP System 21 to monitor company's processes, detect potential problems, and alert the appropriate people, instead of being a traditional passive transactional system.

• The Company has experienced major financial setbacks during the last 18 months due to the combined effects of poor sales growth and an excessive R&D cost for System 21. Management's attempts to steer the Company in the right direction have been unsuccessful short-term fire-fighting "restructuring" moves without success, and have helped lead to the Company's acquisition for a price less than a quarter of its annual revenue (C$ 205 million).

• While the merger with GEAC brings some positive prospects as mentioned above, JBA's ambitious R&D pipeline may be jeopardized. The situation becomes even more complicated with GEAC's most recent acquisition of Clarus, another mid-market ERP vendor, which will result in the coexistence of 3 products with overlapping functional modules. The integration of Clarus and SmartEnterprise financial modules may take precedence over JBA's product line development (35% probability).

• JBA's narrow vertical industry offering does not provide it much maneuverability within an ERP market with a declining growth rate. Furthermore, the lack of Client Relationship Management (CRM) and Advanced Planning & Scheduling (APS) modules in the JBA System 21 product suite will remain even after merging with GEAC. This adds additional future integration issues to a company that already faces massive integration of its disparate ERP systems.

• Fiscal 1999 will prove to be very challenging for JBA. We predict minor revenue growth (maximum 15%). Break-even net income is the most optimistic scenario (40% probability).

• The four key vertical markets (automotive, style, food & beverage, and electronics) will contribute more than 80% of JBA's total license revenue within the next 3 years (70% probability).

• Within the next 3 years, JBA will derive 40% of total revenues outside of the European market and 25% of total revenues from the North American market (70% probability).

• The mainstream of JBA's future product development, particularly the portfolio of @ctive Enterprise products for process improvement and e-Business, will remain on track after the merger with GEAC (65% probability).

• Further expand its North American presence, both by opening new offices and developing new affiliate partnerships, and step up marketing campaign in the North American market. Consider utilizing GEAC's infrastructure to fill existing gaps in current geographical coverage.

• Further penetrate mid-market ERP segment in the following ways:
  
  

  • Expand business in existing customer base, by upgrading older versions of software and by offering new extended ERP modules and enterprise applications.
    
    

  • Deliver more new, focused and pre-configured vertical solutions, and offer application outsourcing to make JBA System 21 attractive to smaller, resource constrained enterprises.

• Remain committed to its envisioned R&D pipeline (expanding @ctive Enterprise Series and releasing new vertical solutions) by focusing and leveraging existing resources, and exercising cost monitoring.

• We generally recommend including JBA in a long list of an enterprise application selection to mid-market and low end tier 1 companies (with $50M-$1B in revenue), based on a very deep understanding of customers' needs within the following industries: Automotive Components; Apparel & Footwear; Beverage; Food; Electronics, Service and Rentals; Metals; and Repetitive Manufacturing.

• JBA should be included on a short list in any selection within the following industries: Automotive Components; Apparel & Footwear; Beverage; and Food.

• Until the outcome of JBA's merger with GEAC regarding its R&D vision is clear and unequivocal, any organization evaluating JBA should exercise moderate caution and consider existing functionality only.