Billionaire Carl Icahn's stake in Lawson Software could lead to a sale of the ERP (enterprise resource planning) vendor to larger rivals, a move that would take the already significant consolidation of the market to a new level.
In a regulatory filing this week, Icahn revealed he has taken a roughly 8.5 percent stake in Lawson, which at about US$757 million in annual revenue during its fiscal 2009 is one of the software industry's largest ERP vendors after Oracle, SAP, Microsoft and Infor.
Icahn is often referred to as an "activist investor," as he aggressively seeks a say in how companies operate and pushes for moves he believes would increase returns for shareholders, such as a sale. His filing stated that Lawson's shares were undervalued, and that he wants a meeting with Lawson's executive leadership to discuss the "maximisation of shareholder value."
A Lawson spokesman declined to comment. Icahn could not be reached for additional comment Thursday.
But some observers say his endgame is clear.
"Let's face it. He wants to sell the company," said Mark Schappel, an equity research analyst with The Benchmark Company. "He thinks they should be bought by somebody else, and be part of a larger operation. Those options do exist, but they're not as plentiful and [financially rich] as they once were."
It would have been a different story back around 2005 and 2006, when the ERP space saw a run of consolidation, Schappel said.
Meanwhile, it's not clear how much more profitability Icahn could squeeze out of Lawson, so a sale is most likely his goal, Schappel said.
Although Icahn does not yet have a controlling interest in Lawson, he can still work behind the scenes, talking to other large shareholders, to set a sale in motion, Schappel said.
It's possible Icahn may not end up pushing for a full-blown divestiture. "From time to time in software, you will see activist investors take positions in companies with the hope of gaining board representation," said Steve Koenig, an equity analyst with Longbow Research.
But Lawson is already "a shareholder-friendly company in my opinion," Koenig added. "It's not clear to me exactly what sorts of things Lawson could be doing that would be radically different in terms of shareholder value creation."
Altimeter Group analyst Ray Wang echoed Koenig. Lawson has reshaped its management team in recent years, gained focus in its product strategy and managed to improve profit margins even as revenue fell in recent years, Wang said. "There's really good management going on."
However, one way Lawson could jumpstart growth "would be to sell off the ERP business and use the proceeds to invest in health care software," Forrester Research analyst Paul Hamerman said via e-mail. "Health care is Lawson's strongest vertical play, and the opportunity is to expand into patient care and billing apps."
Meanwhile, potential buyers of Lawson as a whole include IBM, Oracle and SAP.
If IBM were to "move back into the mid-market apps business, perhaps the way to do it is with a company they've partnered with and whose software they've hosted," 451 Group analyst China Martens said via e-mail. IBM, which generates a great deal of revenue through its services arm working on SAP and Oracle projects, could keep those partners happy by "pointing out the specific industries Lawson plays in and its desire to focus on them," Martens added.
Oracle might be tempted as well, given Lawson's healthy installed base, vertical expertise and the health care-oriented integration software it gained from acquiring Healthvision Solutions earlier this year, Martens said.
It's less likely that Microsoft or SAP would bid for Lawson, she added.
Infor, which is far from a stranger to the ERP acquisition game, is the most likely suitor for the company, according to Schappel.
Whatever happens, in the short term the "Icahn effect" will take place, Wang said. "If anything ... he raises [Lawson's] stock price just because he's in there," Wang said.
Lawson's shares were up $0.30 to $8.26 in late trading Thursday.