The ownership of SirsiDynix has changed, as Vista Equity Partners, a large private equity firm based in San Francisco, will acquire 100% of the company. The parties involved made public their definitive agreement for the sale on December 27, 2006; the deal was expected to close by mid-January 2007. The terms of the sale of SirsiDynix to Vista Equity Partners were not disclosed.
Although the press announcement downplays the event, describing it as the company working with a new investment partner, it represents a change in ownership that places strategic control of the company in an organization new to the industry. With this move, SirsiDynix shifts from a company supported by venture capital into the increasing fold of companies owned by private-equity firms, which assert a more strategic view aimed at increasing value of the company over the longer term.
Impact on Library Customers
Although the company's change of ownership marks a significant event in the company's history, it does not necessarily imply a short-term impact on the company's library customers. Current management will remain in place and all operations and product development will continue as before. We can expect some rethinking of long-term business strategies, but for now we can expect continuity in the products and services offered by the company.
Despite speculation to the contrary, this change in ownership will not necessarily lead to increased prices for libraries or abrupt changes in the company's product offerings—that wouldn't have happened anyway. Such disruption would cause significant customer dissatisfaction, which would run contrary to the company's business interests. Long-term growth of the company depends on delivering affordable, high-quality products and services.
This transition follows the acquisition of Dynix by Sirsi Corporation about a year and a half prior. The combined company shepherds two flagship automation systems, Unicorn and Horizon, each with large and expanding customer bases. The number of libraries running Unicorn or Horizon are roughly equal, and since the merger, SirsiDynix has continued to market and develop both automation systems. Given the numbers of libraries running Unicorn or Horizon, the company has a strong business interest in keeping both systems intact. An abrupt change in one or the other of these flagship products could result in large numbers of libraries moving to products of its competitors or adopting one of the emerging open source alternatives.
Over the next few years, the company will undoubtedly evolve its products into a more unified product line. The library world has already witnessed the initial stages of this evolution in the development of front-end Web portal products, which can operate with either Horizon or Unicorn.
Business Perspective
Although it was not widely predicted, the sale of SirsiDynix by Seaport Capital to Vista Equity Partners is not inconsistent with the underlying business dynamics. As a venture-capital fund, Seaport Capital would not be expected to be a permanent owner of a company such as SirsiDynix but as an investor that would eventually want to see a return on the funds it put into the company. On its Web site, Seaport indicates it expects to maintain its investments in a company for three to seven years. Seaport made its initial investment in Sirsi Corporation in 1999, placing the duration of its involvement with Sirsi near the outer edge of its investment horizon.
When Seaport Capital (then known as CEA Capitol Partners) made its initial investment in Sirsi Corporation in August 1999, it had been operated by its founders for twenty years and had grown to be the fourth largest in the industry, with annual revenue of about $25 million. In its initial recapitalization, Seaport acquired the majority interest in the company, though the founders retained about one-third of the ownership of the company. The founders stepped down from day-today management of the company when Seaport brought in Patrick C. Sommers as president and CEO in January 2001. Shortly after the recapitalization, in May 2001 Sirsi Corporation acquired competitor DRA for $51.5 million with the financial backing of Seaport Capital.
In June 2005, Sirsi Corporation acquired Dynix, with the backing of Seaport, and adopted the name SirsiDynix. Dynix was owned by a group of venture-capital funds, including 21st Century Group, Green Leaf Ridge, and Stratford Capital Partners. Two of these funds were tied to Hicks, Muse, Tate and Furst, a large Dallas-based invest investment firm, now known as HM Capital Partners. At the conclusion of this merger, Seaport Capital owned 80% of SirsiDynix, HM Capital maintained a residual 10% equity, with another 10% of the equity split among executives and directors.
Jack Blount, Dynix president/CEO, remained with SirsiDynix for a short period as technology consultant and acting Chief Technical Officer. Blount left SirsiDynix in mid-2006 to start a new company named Alpha Bay Corporation, which provides software and services for the retail sector. Steve Nielsen, former senior VP of SirsiDynix for product management; Byers Parsons, chief software architect for SirsiDynix; Brad Rust, a senior software architect; and Stacy Bets, a former Dynix sales representative, all joined Blount to co-found Alpha Bay Corporation.
Following this series of mergers, SirsiDynix stands as the largest company in the library-automation industry with annual revenues expected to exceed $125 million. Its customer base includes more than 4,000 library clients, representing as many as 20,000 individual library facilities. The company has international scope, with customer libraries throughout the Americas, Europe, Africa, the Middle East, and in the Asia-Pacific region. The company provides products to all types of libraries, including public, academic, K–12 school, and government agency and other special libraries. As Seaport Capital exits, the company is five times larger than it was at the time of its initial investment.
The transition of SirsiDynix from a venture-capital fund to ownership by a private-equity firm fits well within current business trends. Venture-capital funds tend to invest in start-up or earlystage companies that require additional funding to realize their potential within a given market; private-equity firms tend to acquire more mature, established companies. Private-equity firms have made a significant impact on the business world in recent years, as a large number of public companies have become privately owned through the involvement of private equity. The sale of SirsiDynix fits within the recent surge of interest in the libraryautomation industry by private-equity firms. Even small and obscure markets, such as the library-automation industry, have attracted the attention of private equity. Previous examples of this trend include the July 2006 acquisition of Ex Libris by Francisco Partners, the November 2006 sale of Endeavor Information Systems to Francisco Partners, and to a lesser extent, the November 2005 acquisition of Geac by Golden Gate Capital.
In a recent Wall Street Journal article, Donald J. Gogel, CEO of a private-equity firm, describes some of the advantages of private equity's role in the current business landscape. An encouraging point he makes involves the ability for a company to reset expectations following its acquisition by a private-equity firm:
A change in ownership offers a great opportunity to reconsider assumptions about how a company gains and sustains its competitive advantage. A fresh look at the business, unencumbered by legacy strategies and investments, is usually the starting point for good private-equity investors, and often leads to reallocation of capital, new research and product priorities, emphasis on different market segments and sharper understanding of a company's competitive cost position.When a buyout occurs, it is a big event, and everyone from the CEO to first line supervisors in the field to vendors and customers expects change and a higher bar for performance. As the industrial sociologists have known for years, this period of heightened expectations creates a wonderful climate for innovation. The first year of a buyout is an unparalleled chance for the management team, backed by the new owners, to demonstrate that things will change. (Donald J. Gogel. Wall Street Journal [Eastern edition], November 27, 2006: A.13)
In this time of increasing pressures on libraries and rapid transitions from print to digital technologies, more than ever before the library field requires library-automation companies to be innovative and deliver high-quality products at a reasonable cost. Given that so many libraries rely on SirsiDynix products, there is a lot riding on the ability of this company to deliver technologies and services that can help libraries move forward.
Looking Forward
Following the completion of the transaction, Vista Equity Partners will own 100% of SirsiDynix. This is in stark contrast to earlier phases of the company, during which multiple parties shared ownership of the company, with the Board of Directors comprised of representatives of each major investor. As the sole owner of the company, Vista will work closely with the management to set the strategic direction of the company. As we have seen with Francisco Partners, private-equity firms can acquire multiple companies in an effort increase their presence within the industry.
Although the specifics are yet to unfold, we can be sure that the reshaping of the library-automation industry is not yet complete. It is reasonable to expect additional realignments—among the companies involved in providing technology products and services to libraries—including those that specialize in products other than the core integrated library system (ILS). Though the change of ownership of SirsiDynix does not involve further consolidation, it is a major touchstone in the reshaping of the economic landscape of the library automation industry.
| The SirsiDynix Chronicles | |
|---|---|
| 1975 | Data Research Associates begins operation. |
| 1979 | Sirsi Corporation founded by Jim Young, Jacky Young, and Mike Murdock. |
| 1983 | Dynix founded. |
| 1992 | Data Research Associates goes public through initial public offering. |
| October 1993 | DRA acquires INLEX for $1.5 million. |
| October 1994 | DRA acquires multiLIS from Sobeco Ernst and Young for $1.9 million. |
| August 1999 | CEA Capital Partners recapitalizes Sirsi. Founders retain 33% ownership. |
| November 1999 | Ameritech Library Services purchased by a consortium of VC investors: 21st Century Group, Green Leaf Ridge Co.; new company renamed “epixtech.” |
| January 2001 | Patrick C. Sommers appointed CEO/president of Sirsi Corporation. |
| May 2001 | Sirsi Corporation acquires Data Research Associates for $51.5 million. |
| January 2005 | Sirsi Corporation acquires Docutek. |
| June 2005 | Sirsi Corporation acquires Dynix; company later renamed “SirsiDynix.” |
| December 2006 | SirsiDynix acquired by Vista Equity Partners. |