Update: Onyx bids to woo Pivotal from Talisma

Midmarket CRM (customer relationship management) software developer Onyx Software Corp. made a bid Wednesday to snatch a rival vendor, Pivotal Corp., from the arms of another suitor.

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Pivotal, in Vancouver, agreed in early October to be acquired by a private equity firm, Oak Investment Partners, which planned to merge Pivotal with another Oak-backed software maker, Talisma Corp. Oak offered $1.78 per share cash for Talisma, a total of approximately $47 million.

Onyx offered Wednesday a stock swap of 0.475 Onyx shares per Pivotal share, a trade valued at $2.25 per Pivotal share based on Onyx's Tuesday closing price. At that price, Onyx's offer is valued at about $59 million.

Onyx's unsolicited bid was submitted in a letter Wednesday morning to Pivotal's board of directors. Pivotal is pulling together its board of directors for a meeting, possibly as soon as Wednesday afternoon, to consider the proposal and issue a recommendation, said spokeswoman Leslie Castellani.

Onyx executives said merging their company with Pivotal would create the industry's second largest dedicated CRM vendor, behind Siebel Systems Inc., and give Onyx annual revenue of at least $110 million from a customer base of 2,600. Onyx, in Bellevue, Washington, posted revenue of $45.4 million for the first nine months of 2003, with a net loss of $4.6 million.

One CRM consultancy head who often helps companies with Onyx's software said he would welcome an Onyx-Pivotal merger, which he hoped would create a strong competitor in the higher end of the CRM midmarket.

"If we get a customer today that is an upper midmarket play, we go through their requirements. If they fit into Onyx, great, but if not, we have a hard time pushing them toward another product," said Ben Holtz, chief executive officer of Green Beacon Solutions LLC, which often works with Onyx software but has no official relationship with the company.

If Onyx doesn't fit a customer's needs, the dearth of other midmarket options means they're often forced to buy either a bigger or smaller system than what they really need, he said. A stronger company focused on midmarket customers could devote more resources to product development and to reaching financial stability, an important consideration for customers worried about their vendors' survival, he said.

Green Beacon is a Talisma partner but does more business implementing Onyx software. Holtz said he'd prefer to see Onyx as Pivotal's parent, because he thinks Onyx is the stronger midmarket competitor: "I think the Onyx purchase of Pivotal is a much more compelling entity than a Talisma-Pivotal merger."

Although enterprise CRM vendors including SAP AG, PeopleSoft Inc. and Siebel are paying increased attention to the midmarket, Green Beacon's consulting clients tend to prefer working with smaller vendors, Holtz said.

"To a large extent, they get scared off by those players," he said. "They'll spend half a million dollars on their CRM system. That's a lot of money to them. They'd rather be a bigger fish in a littler pond."

Analyst Sheryl Kingstone, of The Yankee Group, said she'd also prefer to see Pivotal with Onyx instead of Talisma.

"I was a little disappointed with the Talisma angle," she said. "Onyx has great technology, but these companies need financial stability to succeed. Marry the customer bases, get these companies together and then get through some of the hype and start helping the customers do real business."

Gartner Inc.'s CRM research director, Joe Galvin, said he's curious how Onyx would integrate Pivotal, which is going after the same market. He cast the bid, which comes days before a scheduled Pivotal shareholder vote on the Talisma deal, as "not eleventh hour, but maybe tenth hour."

"They both have weak cash positions," he said. "I'm interested to hear more details as to why it would be attractive for Onyx shareholders, and for both companies' customers."

Whichever parent Pivotal ends up with may have a small window of opportunity to consolidate market share: Microsoft Corp. is a sleeping giant in the market, said Green Beacon's Holtz. His company also works with Microsoft CRM, and he serves on a Microsoft advisory board for the product. While Microsoft's CRM software, first released last year, is still fairly rudimentary, Microsoft has ambitious plans for the system over the next several years, he said.

"I truly believe that if Pivotal and Onyx can do a good job, if they can merge and present themselves to the midmarket with a solid strategy, they should have a pretty easy run at that space for maybe two or three more years," Holtz said. "In that many years, Microsoft will be a big player in that space, there's no doubt in my mind."