Lawson Reaches Turning Point

By Leslie Brooks, Pioneer Press, St. Paul, Minn.

Jun. 18–Lawson Software has always had potential, people say. Now it will have to prove it. Lawson is Minnesota’s largest business-software maker — and St. Paul’s high-tech hope. When Lawson moved to town in the late 1990s, it was mentioned in the same breath as the Minnesota Wild hockey team as a key to revitalizing downtown St. Paul.

But for years, the company didn’t have a lot to cheer about. Lawson went public to great fanfare in December 2001, but by then, the tech bubble had already begun to deflate. The company’s growth came to a standstill, and the stock price has never fully recovered.

Then, a year ago, Lawson made a bold move, buying Intentia, a Swedish software company that would double its size and make it an international player overnight. The $480 million deal closed in May.

The acquisition brings new challenges. Next month, Lawson’s new leaders, CEO Harry Debes and Chief Operating Officer Bertrand Sciard, will reveal more of their plan to transform the two struggling, midsize software firms into a world-class heavyweight.

It’s a critical time. After five years of sluggish sales, software analysts like Piper Jaffray’s David Rudow say the information-technology industry appears to be coming out of its cocoon. Customers who for years have made do with the software they have are poised to start buying and upgrading it again en masse.

Lawson can’t afford to miss out. The industry is contracting, so some software companies that are here today will be gone before the next upgrade cycle rolls around. In this game of musical chairs, Lawson, after growing in relative obscurity over three decades, is determined to take a seat at the table with the grown-ups — Oracle Corp., the database king from California, SAP, the German giant in business software, and ultimately, Microsoft.

CEO Harry Debes insists his company is ready. “This company has always had the potential to be a serious long-term player in the market,” he said.

Richard Lawson probably never dreamed the company he founded in his New Brighton basement in 1975 would one day take on global giants.

He didn’t even know he was getting into the software business until clients kept asking him to write the same programs over and over and he realized he didn’t have to do each job from scratch. And so Lawson Software was born.

When the 1990s exploded, Lawson Software caught fire too. Its annual revenue jumped from $37 million in 1993 to $201 million by 1998. When it needed to expand beyond its offices in northeast Minneapolis, the company chose downtown St. Paul, enticed by an offer by the city to build a 13-story office tower overlooking Landmark Center.

Lawson Commons, opened in 1999, was considered one of the city’s crown jewels of redevelopment, along with the Wild’s Xcel Center. Led by then-Mayor Norm Coleman, St. Paul sank $101 million into the project, which brought about 1,000 high-paying, high-tech jobs to downtown, taking some of the sting out of the city’s loss of West Publishing and its 2,100 jobs when that company moved to Eagan in 1992.

As the company prepared to go public, there were even visions of a mini-Microsoft effect, in which “Lawsonaires” — employees who would make millions off soaring Lawson stock — would spin off new enterprises, sparking more development downtown.

Those dreams soon ran headlong into the reality of a stock market crash and an industrywide downturn. Sales sagged, and the company went through a series of layoffs. While Lawson survived, its dreams of becoming a billion-dollar company seemed remote.

Then, in 2004, a new threat emerged. Oracle’s $10.3 billion hostile takeover of Lawson’s chief competitor, PeopleSoft, changed the industry’s landscape.

Oracle had even talked to Lawson about buying it that year, but nothing came of it. In March 2005, Oracle bought Minneapolis-based Retek Inc., a smaller retail software specialist, for $650 million after a bidding war with SAP.

The world was shrinking. While the company had shunned acquisitions for most of its history, Lawson’s board realized the company needed to grow or face extinction, Chairman Richard Lawson said.

Just as the company was drawing up its wish list of merger partners in early 2005, it received a call from Stockholm, Sweden. Romesh Wadhwani, chairman of Intentia, a similar-size software company there, had a proposal.

Intentia was struggling, posting a $48.2 million loss in 2004, and Sciard, who was Intentia’s CEO at the time, admits the company used to miss earnings forecasts.

But Lawson was no great catch either. Though it was profitable, posting $8 million to its bottom line in 2004, its revenue was stuck in a holding pattern.

Still, Intentia seemed to complement Lawson perfectly. About 85 percent of Intentia’s sales were focused on Europe, while Lawson got 95 percent of its revenue from the United States and Canada.

Better still, the two companies didn’t really compete. Intentia catered to manufacturers and distributors, while Lawson’s customers were in services like health care and the public sector. Intentia’s products helped companies keep the supply chain fed and track assets, while Lawson’s were focused on back-office functions like bookkeeping and payroll.

“My first reaction was fish or cut bait,” Richard Lawson said, “because this is what we wanted to do. We didn’t want to be gobbled up like other companies.”

The all-stock wedding was announced last June. Lawson and Wadhwani now share the titles of co-chairmen of the board. Jay Coughlan, Lawson’s CEO since 2001, left the company. Harry Debes was brought in to lead the new Lawson, with Sciard as his lieutenant.

The old Lawson was the kind of laid-back place where, an employee once said, a worker could tell her bosses a deadline was impossible, and they’d accept it.

Those days are gone.

“We talk every day about what we need to do, and we let you know if you’re not making progress,” Debes said. “And if you misread something or don’t accomplish something, maybe you need to go somewhere else.” Some people have done just that, he added.

“I’m hoping by now people know exactly what I’m expecting,” he said.

A compact man with a brisk, even blunt manner, Debes has been doing business internationally for much of his career. Born in Germany and reared in Canada, he cut his management teeth in Australia working for another software company called Geac. He has logged 250,000 miles traveling since his appointment last June, and he and a team of Lawson executives are planning a fall tour of Asia, the Pacific and Europe.

Most observers give Debes high marks so far. “I think he’s marching the troops pretty hard,” said analyst Peter Goldmacher of S.G. Cowan.

This past week, Lawson held a three-day sales training event for several hundred of its employees at the Minneapolis Convention Center, led by Sciard.

Debes and Sciard have known each other for years. They worked together at Geac in Australia, and Sciard said he owed his CEO position at Intentia to Debes. The Swedish firm initially asked Debes to be its chief executive, but he turned them down and recommended Sciard instead.

A Frenchman who lives in Paris, Sciard has no plans to move to St. Paul. The day before he was to give a presentation at Lawson’s annual customer conference in Orlando, Fla., this spring, he smacked his Porsche twin-turbo race car into a wall at Le Mans. The doctors told him not to travel for a week. “I’m OK, but my car is still in the hospital,” he lamented.

“Harry is a business friend and a very good teammate,” Sciard said. “It was a no-brainer that he was the one I would work with. We are twins, even though he is the boss.”

Lawson faces two big challenges: keeping its existing 4,000 customers and winning new ones. Once known for its excellence in customer care, Lawson has been less consistent in recent years, admitted Travis White, Lawson’s seventh vice president of marketing in six years.

The pressure is on. Lawson’s specialty has always been midsize companies — those with sales of $1 billion or less and 25,000 or fewer employees. But that middle-market fishing hole is becoming crowded, with SAP and Oracle moving downstream from their Fortune 500 base, and Microsoft working its way up from small businesses.

Now that PeopleSoft and J.D. Edwards have been scooped up, it will be easier for customers to see Lawson as the third alternative to Oracle or SAP, said Phil Fersht, director of the Everest Research Institute in Dallas.

Lawson’s applications aren’t as sophisticated or customizable as Oracle’s or SAP’s, but it claims its easy, “out-of-the-box” implementation is more attractive to mid-market businesses that can’t handle complicated installations.

And that’s what Oracle and SAP may give them. Both are in the middle of massive projects to rewrite their myriad applications into one seamless — but probably highly complex — package.

“The real trick is helping customers get to the next-generation applications without being too intrusive or (moving) too quickly,” said R. Ray Wang, a technology consultant with Forrester Research in Cambridge, Mass.

The new Lawson should have about $750 million in revenue by the end of this year, up from Lawson’s $335 million last year. If it can reach $1 billion in revenue, Lawson might be big enough to thrive against SAP or Oracle, even though they’re 10 times its size, Wang said.

Success is not assured. While Lawson may have dodged the threat of a takeover for now, analysts say things may look different in a year or two if the combined company isn’t able to grow.

Meanwhile, a different Coleman is watching Lawson closely: Mayor Chris Coleman, no relation to Norm.

Chris Coleman has talked to Debes about the Intentia deal, and he says that even though he understands that it may not bring many new jobs to St. Paul, he’s excited by the changes.

“This positions Lawson in a flat world to be very strong,” Coleman said, borrowing a phrase from New York Times columnist Thomas Friedman, an advocate of global competition. “Anything that strengthens Lawson strengthens St. Paul.”

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