by John M. Covaleski
Beaverton, Ore. - Best Software’s pending combination with Timberline Software Corp. underscores how important the construction/real estate industry has become to middle-market accounting/enterprise software developers.
Best’s parent, Sage plc, has a definitive agreement to acquire Timberline, a Beaverton-based maker of software for construction and real estate professionals, which has some 20,000 customers worldwide. Timberline will be absorbed into a Best organization that has been servicing the construction industry primarily with its Peachtree and MAS 90/200 accounting software lines.
Best is poised to use the Timberline deal to become a much bigger force in the construction/real estate industry by replicating strategies that it has used in the nonprofit/government and customer relationship management sectors. In those cases, it bought sector-leading vendors Micro Information Products in nonprofit/government and the SalesLogix CRM developer Interact Commerce Corp. It added to their core technologies and increased the company’s customer bases by migrating users over from Best’s other applications, particularly its Peachtree line.
“One of the largest untapped vertical markets is construction. Reaching out to that space leads you to Timberline - they are dominant,” Best chief executive Ron Verni said shortly after the sales agreement was announced in mid-July.
Best is already working on plans to expand Timberline’s reseller force by providing training on its products to resellers of other Best products. It also is determining ways to migrate users of its Peachtree products, which have low-end capabilities in accounting and construction, to the more advanced Timberline products.
Best, which has been seriously looking at the construction/real estate market for several months, is part of a growing list of accounting vendors that are interested in that vertical industry. They include:
● QuickBooks developer Intuit, which created a separate business unit - Intuit Construction Business Solutions - upon acquiring construction software specialist Omware, and renamed that company’s product Intuit MasterBuilder in 2001.
● Accpac International, in early July, added two key, construction industry capabilities - project management and job costing - to its flagship Advantage Series accounting line.
● Softline Software has launched a program to recruit third-party vendors to develop construction industry applications that integrate into its BusinessVision accounting line.
● Best’s main rival in the middle market, Microsoft Corp., has identified the construction/real estate industry as one of the vertical industries that it is considering aggressively pursuing under its new vertical development strategy.
“Construction is definitely a vertical we will consider. It has over 650,000 entities in the United States alone,” said Pat Fitzhenry, Microsoft’s director of vertical strategies. (For more on Microsoft’s vertical strategy, see story on page 28.)
Best may be capturing construction’s crown jewel with Timberline. “Basically, [Timberline] is now covering every single sector of construction,” Joan Tong, an equity analyst at New York-based investment firm Sidoti & Co., said in the construction industry trade journal, Engineering News-Record. “Their offerings are in no way comparable to other companies. They’re definitely top of the line.”
That news report also noted that Timberline’s Precision Collection product is used by fully 25 percent of all general contractors.
In a teleconference with shareholders, Timberline chief executive Curtis Peltz said that Timberline has been “an attractive target for other companies that wish to expand into the construction and real estate vertical markets,” and that Best made the best offer.
In the $102.9 million deal, Timberline shareholders will receive $8.25 per share in cash for their common shares, a premium of 33.3 percent over the stock’s price right before the deal was announced. Timberline, which will become a wholly owned subsidiary of Best, reported $61.9 million in revenue for the year ended Dec. 31, 2002 - with 53 percent of its revenue coming from maintenance and service work.
Intuit, which claims to have more than 350,000 contractor customers for all its products, quickly took the offensive after Best’s Timberline deal announcement. Intuit Construction Business Solutions vice president Carol Novello issued a statement that called Best’s strategy “follow the leader,” noting that Intuit entered construction/real estate in 2001.
The linchpin to Best’s strategy may lie in its ability to migrate users of its low-end Peachtree accounting line, which competes with Intuit’s QuickBooks. “Construction is one of Peachtree’s strongest markets,” Verni said. “We know that customers outgrow Peach-tree and move on, and that Timberline has already been getting a large share of its users from Peachtree.”
Keeping customers that outgrow Peachtree is a way to keep potential business away from middle-market solutions by Microsoft, which still lacks a low-end accounting product.
Also critical is Verni’s plan to expand Timberline’s sales channel, which now serves all of the United States with about 60 resellers. “We will not replace those resellers, but we will expand. We know there is opportunity beyond 60,” he said.
With just 60 resellers covering the entire country, some Timberline resellers have enjoyed market territories that span entire states, and they may now end up sharing those territories. Timberline officials declined to comment on the channel issue due to securities industry quiet-period regulations that govern the deal; however, the company has had no set rules on territorial coverage by its resellers.
Some Best resellers wonder how that channel expansion will play out with existing Timberline resellers.
“I would think there would be apprehension for them,” said Peyton Burch, of Burch Consultants, in Houston, which handles Best’s accounting, CRM and payroll products. “However, they should be positive about becoming part of Best and being able to tie into a feeder like Peachtree.”
Laurie McNicoll, technology consulting department manager for Schenck Business Solutions, in Appleton, Wis., agreed that some Timberline resellers might be concerned about their territories, noting that she knows of only one Timberline dealer in Wisconsin. Her firm handles Best and Intuit’s MasterBuilder.
“But the Timberline value-added resellers will have to look at other channel issues, like sales margins,” McNicoll added. “They’ll find that Best is channel-focused and focused on helping its resellers succeed.”
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