Tuesday, January 09, 2007

VistSi? DyniTa? (Musings on the SirsiDynix-Vista acquisition)

Well, SirsiDynix has been acquired--and not by another ILS. I have to put my two bits in on this... but first:

Disclaimer 1: We go live on Sirsi Unicorn in 2 months. Please spare me any screaming about how proprietary OPACs are evil--firstly I agree (to a point) and secondly it was this or sticking with DRA Classic for a few more years. Not all of us have software developers on staff, alas...

Disclaimer 2: As always, I'm not speaking for my institution in any way shape or form. I'm just as a whiny distance learning librarian/geek/corporate refugee who is intrigued by this development.

OK, for those who've been under a rock (or busy polishing off the last of the holiday egg nog), go read Sirsi's Press release, The LJ article on the acquisition, Dan Scott's two bits, andJessamyn's thoughts on the merger.

Ok, back? good. In my experience, private equity firms buy comapnies for one (or more) of a few reasons.

1: the company is currently being poorly run and thus underperforming (and thus cheap). The investing firm plans to bring in some turn-around mercenaries to fix the most blatant problems

2: The company is basically sound, but in a cash crunch due to a market slump beyond it's control. The investing firm buys the company, holds it until market conditions improve, before selling it off whole or in pieces at a tidy profit.

3: The company is in good shape both in terms of its business plan and cash flow, but happens to be a market leader in an undervalued or "boring" sector. The investing firm, believing due to research that this sector is due for a bump in business and/or existing customers could be gouged with higher prices, buys the company, waits for the boom, before either
A: Selling it off whole or in pieces at a tidy profit, or
B: If the market shift looks permanent, making the company a permanent part
of its collection of gravy train acquisitions.*

So which scenario does this acquisition fit into?

1. Obviously, since I'm not an employee of SirsiDynix, I've no clue as to how well it is or isn't run. I also can't see their balance sheets, as they're privately held. However, based on the training we've attended and the conference calls we've had with our project manager, they seem to have the customer service end down pretty well. If there are institutional problems, they haven't impacted out go-live process in any way. In addition, there's Vista's CEO's statement that they "are tremendously excited about working with SirsiDynix because it is clearly the market leader, with a suite of mission-critical software solutions." This suggests Vista is not a bottom-feeder.

2. Anyone who's been in LIS-land over the past few years knows the overall ILS market is decidedly NOT in a slump--hiring and such seem to be growing at a healthy pace based on the HR notices I see floating around, and while open-source is gaining ground, I suspect that institutional resistance, lack of coding know-how among LIS-types, the still-evolving nature of many of the open-source packages and general inertia will mean we won't see a big shift to open source for a few years. (a pity, but that's another post). Keep in mind that most libraries who are ILS buyers are governmental entities of some sort who will rightly or wrongly see proprietary solutions as less "risky" than open source. Government budgets (at leas in my neck of the woods) are growing again after a few years of belt-tightening during the recession, so libraries (like mine) with legacy systems are siezing the moment to upgrade or migrate. So the ILSes don't have a problem with fleeing customers (yet).

3. I think that this is the most likely rationale, based in large part on the Vista CEO's comments quoted above. SirsiDynix is the 800-pound gorilla in a small, stable and captive market. In one fell swoop, Sirsi's profits become their profits, probably with little or no tinkering needed on Vista's part. Sirsi gains the stability of being a subsidiary or a bigger conglomerate, their stakeholders get a very nice check, and it's all good. The only question is whether or not vista will sell or hold long-term, and for that we need to look at Vista's website.

SirsiDynix looks very much like the other companies listed in their holdings, about half of which have notes mentioning recent sales by Vista to other firms. In addition, we have the company's "investment philosophy", which states in part, that they "[select] well positioned companies with attractive market dynamics, aligning the interests of management with those of shareholders, and reducing unnecessary distractions." In plain english, that means, "We find basically good companies, turn them into great companies, and make a tidy profit when we sell them.". They do not bill themselves or describe themselves as a holding company, but rather as investors. That right there says that they are looking for a money-making opportunity, not a new subsidiary.

So what happens? I think that Vista will probably hold on to SirsiDynix for at least 3 years, but probably no longer than 5--enough time to make substantive changes. I think item one on the to-do list will be phasing out either Unicorn or Horizon. I don't have deep enough industry knowledge to know whether Dan's 75% odds of Horizon being the survivor is accurate--as a soon-to-be Unicorn customer I hope not, but we have an un-blemished record to date of purchasing ILSes which disappear within 5-10 years, so... *shrug* In any case, I've certainly got some good questions for our next conference call. What are your thoughts? I'd love to hear if you think I'm talking out my butt here.

Thursday: a long-planned post/rant on Library 2.0 and the digital divide. See you then!

*3B works best if you're Warren Buffett, otherwise it's kinda iffy.