Microsoft Lays Out Navision Plan

Microsoft agreed to a stock and cash purchase estimated at $1.3 billion for Navision. Microsoft announced the agreement after rumors of the acquisition had been floating for several days. Many industry watchers had speculated Microsoft would soon open its fabled war chest of more than $38 billion in cash reserves to make a major acquisition.

Microsoft says the addition of Navision, which specializes in business solutions for small and midsize customers, will help expand the Microsoft Business Solutions Division overseas and also enhance its .Net Web services strategy. Navision has approximately 1,300 employees and more than 130,000 customers worldwide, with more than 85 percent of its business coming from Europe. Microsoft says it expects the deal to be finalized sometime in August.

"This is an exciting acquisition because it brings together the complimentary geographic and product strengths of Navision with the Microsoft Great Plains and bCentral assets," Doug Burgum, Microsoft senior vice president and president of Microsoft Great Plans Business Solutions division, said during a conference call Tuesday. "This is a natural step for Microsoft to continue to provide solutions for small and midmarket companies on a global basis."

Microsoft is clearly making aggressive movements in the mid-market business solutions space. The company acquired Great Plains last January for $1.1 billion last January. Great Plains had established itself as one of the top SMB software vendors in the industry. With the Navision deal, Microsoft will have a European presence that equals its North American business for SMB solutions. Currently, more than 80 percent of Great Plains business is centered in North America, while the vast majority of Navision's business comes from Europe.

"Becoming part of Microsoft, we believe we can leapfrog the industry and become the market leader," says Preben Damgaard, co-CEO of Navision.

Navision, which expects to see approximately $210 million in revenue this fiscal year, offers SMB solutions in the areas of financial management, CRM, supply chain management and e-commerce. While some of these areas overlap with Great Plains, Microsoft officials say they don't see the two competing but rather complimenting one another.

"Great Plains tried expanding its supply chain management business, which didn't really take off," says Jeff Young, vice president of operations for Microsoft Great Plains. "But that's an area where Navision is strong."

One area that remains blurry is CRM. Microsoft's new CRM software, aimed at SMBs, is slated for a fourth-quarter release this year. Navision, however, has CRM offerings in three of its four product lines. Officials didn't say whether or not they expect the two companies to butt heads in the CRM market, only that Microsoft planned to leverage Navision partners for traction overseas once the new CRM product is launched.

"We had pior to today planned to roll out that product in half a dozen European countries in the first half of 2003," Burgum says. "We'll continue forward with those plans, and it's very likely that we will be pursuing some kind of integration or cooperative marketing with the Navision channel around the Microsoft CRM product."

In a report last week, IT analyst firm AMR Research speculated on the potential of a Microsoft-Navision merger, arguing that Navision could improve Microsoft's business overseas.

"Microsoft already has a low-end ERP product in Great Plains but has received criticism lately that the product is not well-suited to the European market, a niche Navision could fill," the report stated.

Navision had already established strong ties with Microsoft, working with a number of Microsoft products and technology platforms.

"We've been very Microsoft-centric for about the last decade," Damgaard says.

In addition, Navision became a Microsoft Gold Certified Partner last November. Similarly, Great Plains had a successful partnership with Microsoft before it merged with the software giant. And as it did with Great Plains, Microsoft sees Navision's strong channel as an important factor. Burgum says Navision's 2,400 partners, the bulk of which are based in Europe, will be a major asset for Microsoft. Burgum also emphasizes Microsoft's commitment to the channel in the SMB market.

"It's not our intention to build a direct sales force and try to move up into the enterprise," he says.

AMR also flagged Navision's channel as potentially the most important asset of the deal for Microsoft.

"Navision's product set forms a kernel to which partners add local industry-focused functionality to satisfy the diverse European small to medium enterprise market," the report stated. "As a result, the channel is well versed in business processes and Microsoft technology, an enticing combination for Microsoft."

Officials from both companies declined to give many details on product integrations and a timeline for merging operations. Navision will become part of Microsoft's Business Solutions Division, but no decision has been made yet on how the Navision brand name will be used or if the company will stand as a subsidiary, Burgum says.

Microsoft plans to use Navision's headquarters in VedBaek, Denmark, as the base of operations for Microsoft Business Solutions in Europe, Africa and the Middle East. Burgum says Navision's headquarters will become Microsoft's largest software development center outside the United States.

Burgum says there may be possible workforce reductions ahead once Microsoft identifies staff redundancies, but the company plans to retain the majority of Navision employees and operations. Navision's two CEOs, Damgaard and Jesper Balser, will take active roles with Microsoft, with Damgaard taking a leadership role for Europe, Africa and the Middle East for Microsoft's Business Solutions division and Balser taking on a global strategy position.