Start-up kicks off buying strategy

Trying to capitalize on the mad rush to outfit middle market companies with business software suites, Salt Lake City start-up SolutionBank is buying up third party implementation firms to create a national network of value added resellers (VARs).

With concentration on the Baan Company's products, SolutionBank announced today that it is buying for an undisclosed amount Long Beach, California-based Baan Business Systems California (BBSC).

BBSC is one of the larger resellers and consulting firms for Baan's enterprise resource planning (ERP) software systems. The company focuses on installing the business process automation software at defense and aerospace companies, many of which are heavily concentrated in the Southern California region.

SolutionBank started business July 1 with an aggressive strategy to buy up and consolidate Baan resellers, e-commerce companies, and companies that deal in Web technology. Today's acquisition is one of the first results of that strategy.

The company is lead by Darl McBride, former head of Ikon Office Solutions technology services unit. His tactic of buying up existing players to form a widespread network or value added resellers paid off at Ikon. During his tenure he took the unit from no revenue to $450 million in less than two years by buying 32 VARs and system integrators across the country.

The focus of SolutionBank for now is implementing Baan ERP packages with Internet technology at companies with revenue between $50 million and $750 million.

The middle market is a huge industry that is virtually untapped by the ERP market. Baan as well as competitors SAP, Oracle, and PeopleSoft have all launched programs in the past year to target this lucrative industry.

In fact, Baan, SAP, Oracle, and J.D. Edwards all have direct sales channels to companies with more than $200 million in sales a year. Below that, companies will need to rely on VARs. Only PeopleSoft has a two-tiered direct sales system with separate but in-house sales teams targeting companies making less than $200 million and those making more than $200 million, according to AMR Research in Boston.

"If I am a company with under $200 million in revenue, I do not have a lot of options to buy direct from a software vendor anymore," said AMR's Jim Shepherd. "So the quality of a distributor becomes important. If I have to buy from a distributor then I will be more comfortable buying from someone that has a national network of distributors. If [SolutionBank] buys up a substantial amount of Baan distributors, then they have a good case as to why someone ought to buy from them."

But Shepherd said the market for those companies making more than $200 million a year is still unproven.

"Nobody really knows what the potential is for ERP channel sales in the middle market," Shepherd said. "In North America it is still an unproven business model."

One thing is for sure, and that is if SolutionBank is looking to buy companies in this arena, Baan is looking to sell. The Baan Company announced last week it is divesting its indirect holdings in a large network of middle-market implementers at the request of Wall Street. Wall Street analysts were skeptical of some of the accounting practices involved in the holdings.