The Bloor Perspective: Due diligence progress, winning XML and Ascential gets Mercator

Due diligence is an exhaustive, time-consuming but important process conducted by bankers, accountants and lawyers during the course of a merger or acquisition. It is becoming an even more exhaustive and expensive process as a result of the increasing scepticism over the veracity and integrity of statutory and other officially published corporate information. Historically due diligence is a process whereby bankers, lawyers and accountants comb through data about the company, which is made available to them on the basis of additional questions they ask about the company, its structure and activities. This exercise becomes extremely expensive when the acquisition has global dimensions, when a variety of locations may be involved. The concept of so-called data rooms seems to be changing the concept. A company, Intralinks, is now providing online data to investment banks and potentially others employed in the corporate due diligence processes. It enables corporations to post information online. This enables prospective purchasers to conduct at least some of the more routine elements of due diligence on line. This has a number of benefits. It reduces some of the costs. The process may be accelerated. The logistics of site visits and co-coordinated review of relevant data are simplified. Intralinks is anticipating a substantial rise in the use of this form of due diligence process as corporations and professional advisers alike see the benefits at a time when the financial services sector remains under profit constraints and overhead pressures. This form of due diligence process and data access has its limitations. There is inevitably information of commercial confidentiality such as key contracts, prospective orders, future sales and marketing strategy, which even though non-disclosure agreements are in place, may be too sensitive for display in data form.

*XML's success*

Wherever you turn, whatever you read, XML is there. The number of new standards and products based on it is phenomenal. The first XML standard was approved only five years ago. I would suggest that it is now having more impact than SQL, which has been around for 25 years. Why is this? There are technical reasons but primary reasons are business related. First, the standard is well defined and works well. The group that defined it understood the requirement and learnt from the past by basing it on existing mark up languages such as SGML.

But good technology and standards do not ensure success. Microsoft and Sun, amongst others, were on the committee and their endorsement and active support and implementation drove the take up. One thing that normally cripples standards is the desire by vendors to add unique function. This makes their product more attractive in the short term but locks the user in over the longer term. This never happened to XML because no one could assume or insist that their technology was at the other end. This led to the unusual sight of Microsoft and Sun walking shoulder to shoulder and being joined by all the other big players. XML does require more bandwidth and compute power than other more specific messaging protocols and this would probably have killed it 10 years ago. The exponential growth of these commodities has meant that performance has never been a real inhibitor. So the technologists are in favour and the technology is good. Does that ensure that it succeeds? Absolutely not.

The real drive behind XML is that the business executives can understand the benefit. The difference between SQL and XML is the same as explaining to an executive how invoices can be filed better as compared to ensuring that the recipient of an invoice can easily understand and act on it. The first is understood to be important but is boring and can be left to the nerds in IT. The second has a real business benefit, will impact on the executive's daily life and is addressing the problem that they face every day of how best to communicate with other people and enterprises. To take a specific example, WalMart understood the difficulty of communicating effectively with its suppliers and the cost implications of getting it wrong. It has now mandated its suppliers should use AS2, a standard built on XML, for all communications. This was a board level decision not an IT decision. The board could understand enough about the technology to see the benefit. IT was delighted to implement the decision as it was good for them too. XML is great but there needs to be a health warning. It is very easy to design an XML message. It is very much harder to design a coherent set of messages. ER and object modelling has always been hard because the models had to be coherent and complete. Questions such as should an address be part of an invoice, part of a persons record or independent are hard to get right or get agreement on.

These questions do not go away in the XML messaging world. In fact this may be a great opportunity for the data modellers and architects to come out of the ivory towers they have been pushed into and interact with the business in terms that both sides understand.

*When it's time to buy instead of build expertise*

Ascential, who are essentially an enterprise information integration (EII) company, have agreed to buy Mercator, whose products map onto the enterprise application integration (EAI) space. This looks like a good deal for all concerned, shareholders, customers and employees. If you look at the combined EII-EAI space there are a bewildering number of companies. To succeed in this market you have to have some very special technology or cover a wide area of the solution space. This is especially true with some of the big players integrating their products to try and take over the market.

So what do the mid-size players like Ascential and Mercator have to do? They can build new product extending their base into related areas, Mercator has been doing this over the last year by taking products designed for specific industry verticals, generalising it and selling into other verticals. Or they can buy existing technology and merge it together with their existing product line. Ascential has been doing this. For this to be really effective requires a concerted effort to integrate the products at all levels. The development environment must be seamless as well as sharing metadata. Also the run time and the post-hoc reporting facilities need to be coordinated. With so much technology out there Ascential's decision to buy rather than build makes perfect sense. Mercator appears a good fit as there is very little overlap between the product sets even though EAI and EII are neighbouring technologies. The trick for Ascential is to ensure that they have a roadmap to merge the technologies and provide a compelling reason for clients to buy the combined solution. So is this a good deal? For Mercator shareholders who have seen there shares move from $0.50 last November, to $1.50 last month, following a hostile bid by Strategic Software Holdings, to $2.96 today the answer is yes. For Mercator clients this appears to be a takeover that will continue to build and enhance the product, and gives financial security to a supplier who was in need of some help. For Ascential clients there is no immediate change. However, if they are happy with Ascential and are looking for an EAI solution then this deal may make their decision process easier. For the employees there is bound to be some uncertainty but on the whole this gives the employees a stronger product set to sell and enable growth. Given the positive reasons for this takeover we suspect we will be seeing several more similar events in the next six months.

Bloor Research is a leading independent analyst organisation in Europe. You can find out more at www.bloor-research.com or by emailing mail@bloor-research.com.