In-Depth

Group1 to Acquire Sagent Technology

Synergies—and a higher profile—ahead

• By Wayne Eckerson
• 04/23/2003

Most industry observers agree that Sagent has always had good technology. Unfortunately, the company has never been able to get out of its own way. In eight years of existence, the Mountain View, CA firm never turned a profit – in fact, it has been bleeding cash profusely for years. (Sagent lost $22 million in FY2002 on revenues of $38 million.) Its financial credibility was further damaged in 2001 when a sales employee submitted fraudulent sales orders totaling $5 million.

Lack of Focus

However, the primary reason for its financial woes has been a lack of market focus and leadership. Through acquisitions and internal development, the company attacked multiple markets in rapid succession—ETL, reporting, analytic applications, data quality, data augmentation, and enterprise information integration. The company’s message was never clear, consistent, or unified.

Many industry observers attributed the company’s waywardness to the fact that it violated a cardinal rule of technology start-ups: don’t let the technical founder run the company. In early 2002, the board ousted founder Ken Gardner, who had ensconced himself as CEO and chairman. The board then sought a white knight to buy the company.

Who Will Buy?

The first apparent taker was Sybase, whose CEO John Chen saw plenty of synergies between Sagent and his firm’s emerging “information liquidity” strategy (which involves moving data fluidly throughout a corporate infrastructure regardless of the data type, platform, database, application or vendor). However, at the 11th hour, the Sybase board nixed the deal.

The acquisition by Group1 follows the pattern in reverse of Ascential Software’s acquisition of data quality vendor Vality. Both vendors are expanding their product lines horizontally to command a bigger presence in the emerging data integration market, which combines data quality, ETL, EII, and EAI technologies. In contrast, other vendors, notably Informatica and Business Objects, are pursuing a vertical integration strategy by straddling ETL and analytical tools and applications markets.

Although most data quality vendors are not in a position to acquire ETL vendors, Group1 breaks the mold. It generated almost $90 million in revenues last year, has about $50 million in cash, and has been profitable for years. Nonetheless, it appears any vendor could have purchased Sagent without much of an outlay. Group1 is shelling out $17 million for Sagent, but will deduct $7 million from the purchase price when the deal becomes final due to bridge financing it’s providing to Sagent.

It’s also interesting to note which vendors didn’t purchase Sagent. Leading BI vendors, such as Crystal Decisions, Brio, and MicroStrategy, are obviously sticking with a horizontal strategy and opting not to venture into the ETL market. EAI vendors could have picked up complementary ETL technology but opted not to. Database vendors, such as Microsoft, Oracle, and IBM, have already made moves to embed ETL into their engines.

Synergies

From a technology perspective, there is considerable synergy between the firms. Group1 will leverage Sagent’s data quality plus geospatial (point-in-polygon) and mapping technology and data (from Sagent’s Centrus division) to augment its own. It will also explore tightly integrating ETL and data quality components. Group1 currently has relationships with Informatica and IWay, but it uses the ETL tools only to feed its data quality engines. Also of great interest to Group1 is Sagent’s customer base, especially its international customers and Pacific Rim presence.

Overall, it appears Group1 has made a strategic acquisition that will enable it to better service its existing customers and elevate its profile in the emerging data integration market.