May 28, 2001 — Consistent with the trend toward consolidation in the library automation industry, SIRSI Corp. (http://www.sirsi.com) has purchased one of its major competitors, Data Research Associates, Inc. (DRA). While SIRSI has been steadily attracting new customers and developing new products, DRA has been facing declining revenues, a steady decrease in libraries operating its older products, and sluggish acceptance of its next-generation Taos library automation system. This acquisition further strengthens SIRSI's position in the marketplace.
Facts and Figures
The announcement issued jointly by SIRSI and DRA on May 17 stated that DRA will be purchased for a total of $51.5 million, or $11 per share. DRA will become a wholly owned subsidiary of SIRSI and will operate as an independent business unit. SIRSI president Patrick Sommers will head the combined company. Michael J. Mellinger, the well-known chairman, CEO, and president of DRA, will take a seat on SIRSI's board of directors, retain the title of DRA chairman of the board, and report to Sommers.
Both SIRSI and DRA say that there are no intentions to consolidate operations, close any offices, or terminate employees. The products of both companies will continue to be supported and developed as they were before the acquisition.
SIRSI's offer to purchase the 4.5 million shares of common stock at $11 each represents a significant premium above the $5.91 price per share offered at the close of trading the day prior to the announcement. Although the price paid per share for DRA's stock is high compared to its most recent levels, the offer is relatively consistent with the stock's values prior to January 2000.
In August 2000, DRA announced that it had retained Crescendo Capital Partners, an investment banking firm, to assist with strategic acquisitions and investments. While the announcement emphasized interest in developing investments and acquisitions, it was widely speculated that DRA was seeking a buyer. SIRSI has had a strong business relationship with venture capital firm Seaport Capital since October 1999.
The transaction between DRA and SIRSI is expected to be complete within about 75 days of the announcement, or about the end of July. Until that time, DRA remains a public company and the two companies are officially still competitors, though it's virtually certain the acquisition will happen.
DRA's Background
A veteran library automation company, DRA began in the mid-1970s, successfully marketing the ATLAS system it originally developed for the St. Louis Public Library and the Cleveland Public Library. That system evolved into the product known today as DRA Classic. The company's Library System for the Blind and Physically Handicapped (LBPH) was also successful within its more specialized arena.
DRA had its initial public offering to become a publicly owned company in 1992. In October 1993, it acquired the INLEX/3000 system from the now-defunct INLEX Corp. of Monterey, California, and purchased the multiLIS product from Sobeco Ernst and Young in October 1994.
In its 25 years of operation, DRA has built a large customer base. Today, many libraries continue to use DRA's legacy products, with 68 running INLEX/3000, 660 using multiLIS, and 856 still operating DRA Classic, according to Library Journal's most recent “Automated System Marketplace” report. This combined customer base of some 1,584 libraries running automation systems due for replacement is an extremely attractive asset as it translates into a significant level of income through support contracts. However, as these libraries migrate to other systems, this revenue source will diminish.
DRA developed the first Web-based OPAC, which has evolved into the current Web 2 product. To maximize the investment in Web 2, it operates with all four DRA systems.
From the mid-1990s it was clear that none of DRA's existing products could survive into the future in their current state—they each relied on operating platforms that had lost industry support. Additionally, library requirements, particularly those of academic libraries, were exceeding the capabilities of these legacy systems' underlying technical components. DRA Classic relied on the OpenVMS architecture and INLEX/3000 relied on Hewlett-Packard's MPE operating system. multiLIS is in a somewhat better position in that it operates on UNIX in addition to VMS. DRA continues to upgrade this product.
Knowing that its existing product lines wouldn't remain long-term choices for libraries, DRA set a strategy to develop a new state-of-the-art system, beginning around 1995. Based on DRA's prior success with its Classic product and reflecting a high degree of confidence in the company as a leading developer of library automation software, there was an initial period of strong market acceptance. As early as August 1996, UCLA committed to the new system, Taos, with a contract of about $500,000. Other large and prestigious libraries and library consortia followed, including The University of California–Santa Barbara (December 1997) Harvard University (June 1998), Tacoma Public Library (August 1998), and the Minnesota Library Information Network (August 1998).
Taos, unfortunately, took much longer to complete than originally planned. The system is only now coming into finished form and its acquisitions module won't make its public debut until the ALA (American Library Association) Annual Conference in June. The only large academic library that went forward with installing Taos was UCLA, which experienced an incredibly painful implementation process. The largest public library system that has implemented Taos is the Bucks County Library Network in Pennsylvania. One of the key reasons for the delay in developing Taos has been attributed to the lack of available programmers with expertise in object-oriented programming. DRA had the financial resources to fund the design and development of its new system, but recruiting technical talent proved to be a major obstacle.
The loss of several major contracts for Taos, the delayed and difficult implementation at UCLA, and the sluggish market acceptance of the system have weakened DRA's overall market position. To date, 23 libraries have implemented Taos, according to Mellinger. Except for UCLA and Bucks County, all the libraries that have installed Taos are relatively small in size. Another 20-plus sites are in the process of implementation.
DRA, a very successful company through the mid-'90s, has experienced a steady decline in both revenue and earnings. Revenues steadily fell from $38.6 million in 1996 to $28.3 million in 2000, while earnings dropped from $4.5 million to $1.9 million in the same period. Despite the company's gradual decline in strength, it remained profitable overall and ranked fourth in revenue among library automation companies, according to ALA's Library Systems Newsletter, falling below only epixtech, Innovative Interfaces, and Geac. DRA's annual revenue for 2000 was roughly the same as SIRSI's.
SIRSI's Background
SIRSI has been in the library automation industry for 22 years. Its Unicorn product has had a steady course of development and adoption by libraries throughout that period. SIRSI was founded in 1979 by Jim Young, Jacky Young, and Mike Murdock. The Unicorn library automation system they developed was first installed at Georgia Tech, and is now in almost 1,000 libraries.
From its beginning, Unicorn was based on the UNIX operating system. This was a fortunate choice, as it allowed the product to steadily evolve in the same basic computing platform over a long period of time. SIRSI was never forced into starting over in its development, as was DRA (because of the demise of its underlying operating system). Unicorn has evolved and reshaped itself significantly over time. Its original terminal-to-host environment has morphed into a true client/server system and its textual interface has now been replaced by the graphical, Windows-based WorkFlows clients. SIRSI was one of the early library automation vendors to add a Web interface for its public access catalog, and has recently led the field in bringing additional content to the Web OPAC through its iBistro product.
As a privately owned company, less information is available about SIRSI's finances. Library Systems Newsletter's annual vendor survey estimated SIRSI's revenues at about $25 million. Throughout its history, SIRSI has operated as an independent private company, owned and managed by its founders. In October 1999, SIRSI entered into a partnership with CEA Capital Partners of New York and obtained the venture capital it needed for more aggressive product development. (CEA was renamed Seaport Capital in February 2000.) As part of its investment relationship, Seaport occupies two seats on SIRSI's board of directors.
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