Magazine article Computers in Libraries

The New Landscape of the Automation Business

Magazine article Computers in Libraries

The New Landscape of the Automation Business

Article excerpt

The Big News that broke just before this year's ALA Annual Conference, which was held June 25-28 in Chicago, was the acquisition of Dynix by rival Sirsi. The combined company, Sirsi-Dynix, is by far the largest in the library automation industry.

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That such a merger took place isn't a shock. Many, including me, have seen it coming for quite some time. It's only surprising that it took this long; such consolidation has taken place in other industries earlier and more aggressively. In my May column I forecasted this:

    The business landscape will change. A broad look at the slate of
  companies developing library software reveals a fragmented industry,
  consisting of a number of companies struggling to increase their slice
  of a fairly small economic pie....
    Although this has been predicted for years, I still believe that
  there will be another round of vendor consolidation in the library
  automation industry. It could happen before this column makes it to
  press, or it could brew for another year or two, but expect some
  change in the business landscape, whether it's a minor reshuffling or
  a major restructuring of the industry players.

The change that I predicted turned out to be a major restructuring. Folding two of the largest companies into one transforms the dynamics of the industry. Let's take a look at some of the acquisition's details.

Dynix Finds a New Owner

Although characterized as a merger, what took place was an acquisition of Dynix, the largest company in the industry, by Sirsi, the third-largest player. (Innovative Interfaces, Inc. still holds the No. 2 rank, by most measures.) The financial backers of Sirsi, primarily Seaport Capital (SC), bought out the owners of Dynix, a group of venture capital funds controlled by Hicks, Muse, Tate & Furst. When the transaction is complete, SC will hold ownership of at least 80 percent of the company, executives and directors of the company will hold 10 percent, and Hicks, Muse, Tate & Furst will retain a 10-percent interest. Pat Sommers, the president and CEO of Sirsi, will hold the same position in the combined company. Jack Blount, who was president and CEO of Dynix, will be retained as an executive technical consultant in charge of the completion of Horizon/Corinthian 8.0.

It isn't all that shocking that Sirsi emerged on top. For the last several years, I've noticed that Dynix is an atypical investment for its venture capitalists. Their other holdings tend to be in real estate and manufacturing. Since the burst of the high-tech bubble, holding a software company isn't very sexy, and the library automation arena isn't exactly a high-growth sector. With 6 years elapsed since its initial investment, and with the bank debt assumed in the purchase largely paid down, it makes sense that Dynix would need to find new ownership.

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Seaport Capital shows a better affinity for the library automaton industry than Dynix's venture capitalists do. The company's portfolio of investments includes companies in information and business services--a broad category that easily covers library automation. SC has also demonstrated interest in growing its investments related to Sirsi. In addition to its initial recapitalization of Sirsi in August 1999, the company backed Sirsi's May 2001 acquisition of Data Research Associates (DRA). And in January of this year, when Sirsi acquired Docutek, a small company with products in virtual reference and electronic reserves, it became clear that SC was interested in further expanding--not divesting--its investments in this industry.

The acquisition of Dynix represents another major investment in Sirsi. From the perspective of the Dynix employees, it may well be that SC, with its proven commitment to the automation industry and its experience with companies with similar business activities, will be perceived as a more progressive buyer. …

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