Baan

» see baan.com as it lived, on the wayback machine

~ the eulogy ~

In 1998 Baan was worth somewhere around ten billion dollars and I was fourteen, with a modem and no notion that enterprise software existed. ERP is the category nobody chooses for themselves. It arrives because the company you work for bought it, and the people who spend their whole working day inside it had no say in the matter.

Jan Baan founded the business in May 1978, and his own company's proxy says so flatly: he had been chairman of the board of managing directors and chief executive since inception. It began as a management consultancy doing financial planning work in the Netherlands, and the first software it ever wrote was bookkeeping code for a computer a client handed over instead of a fee. His brother Paul joined in January 1982. The holding company that became Baan Company N.V. was incorporated in 1983, and the ERP package, originally called Triton, was restarted from scratch in 1985 and did not reach the market until 1991.

What turned it into a giant was a single customer. General Atlantic bought a third of the company in 1993, and on 3 August 1994 Baan signed an agreement with Boeing, beating a long field of larger bidders. After that the industry started saying BOPS, for Baan, Oracle, PeopleSoft and SAP, as though the four of them were a fixed set. The shares began trading on NASDAQ on 19 May 1995 and in Amsterdam four days later.

The numbers from Baan's own annual filings are worth putting in a row, because the shape of them is the whole story. Revenue ran $68.3 million in 1993 and $415.5 million in 1996, then peaked at $735.6 million in 1998. Net income reached $77.2 million in 1997 and then fell off a cliff: a loss of $315.2 million in 1998, and another $309.6 million in 1999. Headcount went from 1,618 at the end of 1995 to a high of about 6,200 in mid-1998. The stock's best closing price was $55.50, in the second quarter of 1998.

~ the dossier ~

~ the orgware idea ~

BAAN IV shipped as ERP modules bolted to a development toolset, and the interesting piece was neither of those. It was a third component the company called Orgware: a set of templates and methods for modeling a business and then wiring that model straight into the functional software, which Baan sold under the name Dynamic Enterprise Modeling.

The pitch against SAP was speed. Baan's filings put it in terms that a customer could feel: you modeled your own business instead of being constrained by the prescribed models typical of other ERP systems, so implementing it and then re-implementing it when things changed was supposed to be easier. That was the claim, and it landed, because what everyone hated about ERP in the 1990s was the two years of consultants that came with it. Baan also went after companies too small for SAP, selling through a reseller channel that grew past two hundred partners. Remember the channel. It is where the company died.

~ the family holding company ~

Jan and Paul Baan controlled a private Dutch vehicle called Baan Investment B.V., later renamed Vanenburg. It owned about 39 percent of the listed company as of April 1998, and it also sat on top of the reseller network that sold Baan software, along with a midmarket wholesaler that was 85 percent owned by the family vehicle and 15 percent by the public company.

Baan Company's own annual report lists the license revenue it recognized from those related parties: $14.5 million in 1996, $66.3 million in 1997, $50.6 million in 1998, and $2.0 million in 1999. In the same filings the company explains the policy change that makes those figures legible. Through 1997, sales to channel partners were recorded at the time of product shipment. From 1998, revenue was recognized based on what the resellers actually sold to end users. Baan had been booking revenue on software shipped into a distribution network its founding family owned, and when it stopped doing that the number went to two million dollars.

The loans were the second half of it. In October 1998 the family vehicle disclosed that it had taken $500 million of loans, secured on its shares in the public company. The share price had been falling since the summer, and the lenders started selling the collateral to pay the loans down. A filing that November records the holding dropping from 75,577,960 shares, which was 38.66 percent of the company, to roughly 58 million. By April 1999 it was about 20 percent. The founders' stake was being liquidated by their own creditors, in public, into a falling market, while the company tried to explain its accounting to analysts who had stopped believing it.

~ seven losing quarters ~

The first quarter of 1998 looked fine from outside: revenue up 35 percent to $179.5 million. Underneath, net income had dropped from $12.8 million to $2.1 million, and about $43 million of license revenue had been deferred over an accounting standard on software revenue recognition. A profit warning on 12 October 1998 took the stock down by roughly a third in a day. Against a $55.50 peak in the spring, the fourth quarter of 1998 saw a low of $9.50.

The management turned over completely. Tom Tinsley took the chairmanship of the board of managing directors in May 1998 and Jan Baan left as chief executive that July. Mary Coleman became chief executive on 1 June 1999 and resigned in January 2000 along with the chief financial officer, leaving the chairman of the supervisory board running the company on an interim basis. The fourth quarter of 1998 alone carried $140.5 million of charges, including severance for more than a thousand people and the closure of around fifty offices. Bad-debt expense went from $12.4 million in 1997 to $55.3 million in 1998. By the end of 1999 shareholders' equity was negative and the Amsterdam exchange was asking about its listing requirements.

~ eleven years in liquidation ~

Lazard was retained on 31 January 2000 to find a buyer, and Invensys agreed terms on 31 May at €2.85 a share, valuing the equity at about €762 million. The tender offer did not go well. By late July only about three quarters of the shares had come in against a 95 percent minimum, so Invensys dropped the condition to a simple majority and switched tactics: an extraordinary general meeting on 18 August approved the sale of the entire business, with all its assets and liabilities, to an Invensys subsidiary. The subsequent offering period closed on 29 August with Invensys holding 80.4 percent.

The asset sale closed on 1 September 2000, and Baan wrote its own death certificate in a later filing: as of that date it ceased to be an operating company or to have any business activities or operating assets. NASDAQ delisted it on 6 October. The auditors then resigned before the statutory accounts could be prepared, which held the whole thing up for a year, and the shareholders formally resolved to liquidate on 27 November 2001. The liquidator was a company called Invensys Administratie BV.

And there it sat. The Amsterdam listing outlived the takeover by almost eleven years, because the liquidation could not finish: there was a creditor objection that an Arnhem court did not reject until March 2010, and Dutch shareholder litigation that ran to a final appeal in October 2007. The last trading day was 8 August 2011, the shares were delisted the following day, and on 12 August the liquidator paid a final distribution of €0.35 a share. The last document Baan Company N.V. ever filed with the SEC, three days later, is a one-page notice of that payment. It never filed a Form 15. There was nothing left to deregister.

The software did better than the company. Invensys sold the Baan business to SSA Global in July 2003 for about $130 million, SSA was swallowed by Infor in 2006, and the product was renamed: the first release called LN went out in December 2004. Baan-named versions were supported until 30 June 2021. baan.com today redirects to Infor's page for Infor LN, where the name appears twice, in the past tense, under a heading that reads "What is the relationship between Baan ERP and Infor LN?"

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