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Baan to take back spin-off

The Dutch firm is planning to take back control of its spin-off Baan Midmarket Solutions, which it jointly owned with venture firm Vanenburg Ventures.

Baan is reining in its company to return to profitability.

The Dutch firm is planning to take back control of its spin-off Baan Midmarket Solutions. BMS was jointly owned by Baan and Vanenburg Ventures, a venture capitalist organization that was closely tied to Baan.

"It makes sense from an investment level for them to get away from Vanenburg," said Joshua Greenbaum, analyst at Enterprise Applications Consulting in Berkeley, California. Greenbaum said that Baan in October told analysts it would be buying out Vanenburg's share of BMS. BMS is the company that sells software to smaller companies. It is also handling outsourcing of Baan products.

Financial analysts have questioned the sketchy relationship between Vanenburg and Baan. Vanenburg holds large interests in resellers of Baan's products. Analysts were concerned Baan was accounting on its books software sales that it sold to the resellers.

"The relationship has been tainted for investors," Greenbaum said.

But beyond the image problem, Greenbaum said the troubled Baan needs to take control of the midmarket if it is going to survive. Most of the large business application vendors such as Baan, Oracle, and market leader SAP are setting up organizations to sell products and even run them for the smaller companies.

Up until recently, the market has been driven by sales to Fortune 1000 firms.

But unlike the large firms, medium-size companies have limited resources to spend on massive software migration projects. So many are looking to vendors to run it for them.

"Virtually every mid-market customer in the next five years will have some sort of outsourcing. It is a much better way to deal with the middle market than bundling software," Greenbaum said. "It makes sense then that Baan go ahead and try to hold Baan Midmarket Solutions as close to the breast as possible because outsourcing will be the way to service the midmarket going forward."

Baan is still trying to recover from a tumble late last year when it posted a $32 million loss. It is also laying off about 20 percent of its staff and restructuring to regain profitability.