Following its July 2006 acquisition of Ex Libris, private-equity firm Francisco Partners announced a definitive agreement late last fall to acquire 100 percent of Endeavor Information Systems from Elsevier. This acquisition represents a major step toward consolidation in the academic library-automation industry. As a result, this combined company stands as the largest provider focused solely on providing systems and services to academic libraries.
Previously, Ex Libris and Endeavor were direct competitors. Both companies specialized in providing automation software and services for academic libraries and consortia. Neither company has a large presence in public or school libraries. Combined, Ex Libris and Endeavor form a new powerhouse in the academic library automation sector. Competition in this arena narrows but by no means approaches monopoly. SirsiDynix has a large installed base of academic libraries, though in recent years its new sales have gravitated toward public libraries, and Innovative Interfaces continues to offer formidable competition for both academic and public libraries.
In an era of industry consolidation, direct competitors often make natural partners. Those in the field have already seen consolidation in the pubic libraryautomation sphere with the acquisition of Dynix by the owners of Sirsi (to form SirsiDynix) and in the school library market when Follett Software Company acquired Sagebrush Technologies. In this new business cycle, a large consolidated company dominates each of the sectors of library automation space. Innovative Interfaces, with strong appeal to both public and academic libraries, continues to buck the trend by holding fast to its identity as a founder-owned company with organic growth through steady sales rather than through strategic acquisitions.
The Francisco Fold
This transaction is Francisco Partners' second strategic investment in the library automation industry in recent months. Francisco Partners announced a definitive agreement to acquire Ex Libris on July 26, 2006. That transaction completed on November 1, 2006; the company expects Endeavor's acquisition to be complete by year-end 2006 (approval must be obtained from regulatory agencies before the sale will be final).
Francisco Partners is a large private-equity firm with about $5 billion under management, investing exclusively in technology-focused companies. The firm characterizes its investment as “Complexity Arbitrage,” a strategy whereby it acquires companies in a position in an industry that may be complex and difficult to understand and creates an opportunity to simplify and clarify the strategy of the company in a way that increases its value.
This strategy often involves investing in multiple companies within an industry. Mergers such as this one result in a single company with more business efficiency than the individual companies entering the transaction. By combining, the two companies are able to consolidate administrative functions, such as finance and personnel; the combined company will require a fewer number of high-level executive positions than the companies individually require. Marketing costs can be streamlined by working toward a single presence at conferences and conventions and blending staff into a unified sales force.
The consolidation of Endeavor under Ex Libris does not imply the demise of the Voyager Library Management System. On the contrary, the new owners of the company plan to increase the level of development resources channeled into Voyager. The success of the combined company depends on building loyalty from the libraries using Endeavor. Both Aleph 500 and Voyager will see continued development. In addition to two of the leading integrated library systems, the company includes a number of other major products:
- SFX context-sensitive link resolver;
- Verde electronic-resource management system;
- Meridian electronic-resource management system;
- MetaLib metasearch environment;
- DigiTool digital librarymanagement system;
- Curator digital librarymanagement system; and
- Primo discovery and delivery portal.
Endeavor had recently made major changes in its product strategy, dropping its ENCompass family of products related to managing electronic resources and its LinkFinderPlus link server. In lieu of these products, Endeavor offered its customers similar products through a partnership with TDNet. It seems reasonable to expect that following this acquisition, Endeavor customers will be enticed toward the Ex Libris products for linking and metasearch and toward Primo as a next-generation library interface. It's too early to know the company's positioning of the overlapping electronic-resource management products, Meridian and Verde, but based on the company's strategy, it makes sense that the chosen platform will be Verde.
Outside the library automation sphere, the new company will take on the ongoing development of the Journals On Site platform (JOS) for Elsevier, which serves as the platform for Science Direct On Site. As part of Elsevier, Endeavor's resources had been tapped to provide an updated platform for the aging ScienceServer product. ScienceServer allows organizations to access Elsevier's electronic journals from their internal networks rather than through the Internet. The JOS platform will support electronic journals from other publishers.
As with any transaction involving the combination of two large companies, it will take some time to sort out the specifics of the new organization. The tenor of the new company, however, can be seen from what has been announced so far. The Endeavor name disappears, and Ex Libris and Endeavor will be combined into a single company named Ex Libris Group. Matti Shem Tov, president/CEO of Ex Libris, will lead the combined company. Roland Deitz, president of Endeavor Information Systems, exits. These indicators point to Ex Libris leading the way as the new company forms. Over the next few months, a management team will be formed, drawing from both sides of the company.
The new company will consolidate a number of its office locations. Both companies had offices in the Chicago area, which will be combined into Endeavor's facility in Des Plains, IL. International offices will be consolidated into Ex Libris facilities where each company has a presence in the same region.
Impact on Endeavor's Library Customers
Librarians and library staff view the acquisition of the automation company providing their individual libraries' systems with uncertainty. Very few library personnel want to have to change automation systems unexpectedly. No such disruption should result from Francisco Partners' acquisition of Endeavor, though. Endeavor did not prosper under the ownership of Elsevier, and ongoing development of Voyager lagged.
Those in Francisco Partners indicate they will significantly increase the development resources devoted to Voyager. In the longer term, given the new company's sole focus on the academic library sector, we can expect a stronger long-term product strategy than would have emerged under Elsevier, which struggled to define a strategy for Endeavor in the context of its interests in electronic publishing. In recent months, Elsevier shifted Endeavor's strategic focus toward digital archiving, devoting less attention to mainline library-automation products.
Combined Company Scale
As a combined company, Ex Libris and Endeavor form the largest supplier of automation software to academic libraries. The combined company will initially employ a workforce of about 417, still significantly smaller than SirsiDynix, with 679 employees reported at the end of 2005. Innovative Interfaces ranks as the third largest company in the industry. The automation systems of the two companies are installed in more than 2,300 library organizations (Voyager: 1325; Aleph 500: 981). The number of individual library sites using these systems totals about 2,600; adding in the non-ILS products would increase this total to a higher figure.
The combined company includes a number of automation products and a customer base of a large portion of the world's most prestigious academic libraries. The company offers ILS software to 56 (21 Aleph 500, plus 35 Voyager) of the 123 members of the Association of Research Libraries (ARL). More than 80 ARL members are using ILS or other software products from the combined company, and 25 national libraries use either Aleph 500 or Voyager, including the Library of Congress.
Endeavor Corporate History
As Endeavor Information Systems becomes absorbed into a larger corporate entity, we take note of the company's history—one of the more interesting stories in the annals of commercial library automation. Though the company's founding took place in January 1995, Endeavor has a longer history, involving multiple antecedent companies.
Looking back one direction, Endeavor follows the corporate secession of Carlyle Systems and MARCorp. Carlyle Systems emerged in 1981, offering an automation system called “The Online Multiple User System,” or TOMUS. The company received $2 million in venture-capital investments in 1986, but it had financial difficulties throughout its history. In September 1989, the company filed for Chapter 11 bankruptcy, emerging in January 1990 with the help of investments from Technology Funding, Inc. In January 1992, Carlyle introduced a new client/ server automation system, the Voyager Library Series, and in June 1993 Carlyle Systems changed its name to MARCorp (Multimedia Access & Retrieval Corporation). The company failed to thrive and was put up for sale.
Endeavor Information Systems, Inc., came into existence in November 1994, when it acquired the Voyager Library Series from MARCorp. Endeavor provided support for the existing version of Voyager, but the company immediately began the creation of a new client/server system of its own design.
Endeavor's other legacy emerges out of NOTIS Systems, Inc. Individuals at Northwestern University created the mainframe-based NOTIS Library Management System, a system that earned the reputation as the premier automation system for academic libraries.
In 1981, under the leadership of Northwestern University librarian John McGowan, the university began marketing NOTIS to other libraries. On September 1, 1987, Northwestern spun off NOTIS Systems, Inc., as a for-profit company, and then Ameritech Information Systems—one of the “baby Bell” telephone companies—acquired NOTIS on October 1, 1991. Ameritech further extended its presence in the library automation market with its January 20, 1992, acquisition of Dynix.
In the context of declining interest in mainframe-based systems, in June 1993, NOTIS began the development of a distributed client/server system, with Carnegie Mellon University as a development partner. In August 1993 NOTIS announced its new system would be called Horizon. About a dozen other large academic libraries signed with NOTIS as beta test sites for Horizon, and another eighteen libraries signed contracts as early implementers.
In late 1990 Dynix created Marquis, a company to develop a client/server library-automation system by that same name, which debuted at the ALA Midwinter conference in January 1991. Marquis early customers included the corporate library for Microsoft Corporation.
But on June 20, 1994, Ameritech announced a major change of strategy. The NOTIS Horizon project would be discontinued; Dynix Marquis would be re-branded as Horizon, would become the company's strategic client/server product, and would be offered to satisfy the thirty-six contracts pending for NOTIS Horizon.
It was the Marquis-based system that formed the basis for the today's Horizon product (as part of SirsiDynix's product line). Ameritech took this opportunity to consolidate its portfolio companies in the library-automation industries, forming a division called Ameritech Library Systems, with Paul Sybrowski, president of Dynix at the helm. Jane Burke, president of NOTIS Systems, left the company.
Following the demise of NOTIS Horizon, many of its key developers exited from Ameritech, and by November 1994 formed Endeavor Information Systems to develop a new client/server automation system for academic libraries. The team had strong support of the academic library community as well as the opportunity to learn from any mistakes made in its initial efforts. The founders of Endeavor included ex-NOTIS employees Patrick Franklin, Verne Coppi, Cindy Edgington, and Don Reilly. Jane Burke joined the company as president and CEO in March 1995. Endeavor redeveloped Voyager from the ground up, keeping little more of the original product than its name, and the company quickly emerged as one of the leading companies in this sector.
Academic libraries responded to Endeavor Information Systems and its new Voyager ILS, and as a result, the company saw strong sales and won a large percentage of the ARL members and built a strong customer base of medium-sized and large academic libraries too. The Library of Congress implemented Voyager to replace its locally developed libraryautomation systems. Today, Voyager is used in 35 of the 123 members of the Association of Research Libraries.
Endeavor's founders paid off their debt to TFI in February 1999, gaining complete ownership of the company. The company's financial independence lasted only a short while, though. In April 2000, the founders sold the company to Elsevier Science, an Amsterdam-based multinational publisher of scientific scholarly literature. Burke continued as president of the company through December 2004. At that time Roland Dietz, who previously served as managing director of Global Sales for Elsevier, took charge of the company as president and CEO. Elsevier's ownership ends with the sale of the company to Francisco Partners.
Francisco Partners' acquisition of Endeavor and the reformation of Ex Libris Group as a combined company focused on the technology needs of academic libraries marks a new phase of commercial library automation. Viewed optimistically, this new company offers the opportunity for the development of a new generation of library-automation systems better aligned with the needs of academic libraries in an increasingly digital age. A more pessimistic perspective would note the decrease in competition and might fear that pressures to make the new company more profitable could moderate the level of research and development investments. The outcome likely falls somewhere between these two positions.
Given the faltering position of Endeavor under the stewardship of Elsevier, remaining with the status quo would ultimately be more disruptive to the libraries relying on the company's products than any of a number of other possible outcomes. As customers of the new leading company in the academic library market, Endeavor libraries may gain access to more ambitiously developed and higher quality products than they would have seen had the company not been sold. The upcoming months and years will test the ability of this consolidated company to deliver on its ambitions to develop technologies that will take academic libraries forward in these times of rapid change.