Sterling Software

~ the obit ~

Sterling Software was not a software company in the way the phrase is normally meant. It was a holding structure with a tax department and an appetite, founded in Dallas in 1981 by Sterling Williams and the brothers Sam and Charles Wyly, and its product was other companies. By the time it reached its thirtieth acquisition in 1998, Cayenne Software of Boston for $11.4 million in cash, the method had been running for most of two decades without a serious interruption.

The one everybody remembers is the first big one. In June 1985 Sterling made a tender offer for Informatics General, a company roughly ten times its size and the author of MARK-IV, the first software package to clear a million dollars in revenue after IBM was forced to unbundle. The tactic, as English Wikipedia describes it, was to offer shareholders an interesting price and then raise it slowly until the Informatics board could no longer refuse. It worked. Sterling went from around $20 million in annual revenue to around $200 million, and the mechanics of how a $20 million company swallows a $200 million one got written up in the IEEE Annals of the History of Computing twenty-one years later by one of the Informatics founders.

Then it kept going. Systems Center of Reston, Virginia, in 1993 for $185 million in stock, which was the twentieth deal and the one that forced Sterling to reorganize itself along lines of business rather than absorbing each purchase as another division. KnowledgeWare of Atlanta in 1994 for $74 million, which cost about 250 jobs across the combined companies and put Fran Tarkenton on the board. Texas Instruments' Dallas software division in 1997 for $165 million in cash, about two thirds of its prior year's revenue, which carried the rights to what became CA Gen. Interlink Computer Sciences in 1999 for $64 million.

None of this was aimed anywhere near a teenager on dial-up in Ankara, and I want to be clear that I am reading this company rather than remembering it. Enterprise systems management in 1995 is the least visible kind of software there is. By Computer Associates' count Sterling's products sat at more than 20,000 customer sites, 90 percent of the Fortune 100 among them, and not one of those installations ever put the name in front of a person who did not work in the data center.

~ the rap sheet ~

~ the rollup ~

A rollup works until it does not, and the thing that usually breaks is integration. Sterling's answer to that was unusually honest: it stopped pretending to integrate. The 1993 restructuring split the company into business lines and dropped acquired firms into whichever line they resembled, which is the approach of an operator who knows that the value is in the maintenance revenue and the customer list rather than in a unified product strategy.

By the end Computer Associates was describing the result in its own filing as "a developer and provider of systems management, business intelligence, and application development software products and services, as well as a supplier of specialized information technology services for sectors of the federal government." That last clause is the Federal Systems Group, and CA sold it on to Northrop Grumman later the same year.

~ the tender offer ~

Computer Associates came through a wholly owned subsidiary named Silversmith Acquisition Corp., offering 0.5634 CA shares for each Sterling share. The offer expired at midnight New York time on Friday, 31 March 2000. CA's own announcement two days later reports that approximately 75,906,290 shares were tendered, roughly 91.4 percent of the stock outstanding, and that operational integration would begin immediately.

The price depends on which page of CA's filings you read, and this is worth spelling out because the number is quoted three different ways in the wild. The quarterly report filed that August says that on 31 March 2000 CA acquired Sterling, merged a subsidiary into it, issued approximately 46.8 million shares and put their fair value at approximately $3.3 billion. The same document, in its research and development note, calls the transaction a stock-for-stock exchange valued at approximately $4.1 billion. The press at the time said $4 billion. All three figures are defensible because they measure different things, and that is why English Wikipedia's $3.3 billion and the contemporary headlines have never agreed.

~ the two sterlings ~

Here is the part that gets lost. When Sterling Software ate Informatics in 1985 it sold off several divisions and kept one: OrderNet, an early electronic data interchange network founded around 1978 by William Plumb. It renamed that division Sterling Commerce, and Sterling Commerce grew into a separate company big enough that SBC Communications bought it in 2000, the same year Computer Associates bought the parent. Sterling Commerce went on to AT&T and then to IBM in May 2010, and its Columbus campus is an IBM facility now.

So the one asset Wyly kept out of the 1985 raid outlived the company that did the raiding, and both halves of the empire left his hands in the same year. Computer Associates had bought PLATINUM technology, the other great software rollup of the decade, ten months before Sterling for around $4.3 billion. One collection took nineteen years to assemble and the other twelve, and they landed in the same catalog inside ten months of each other.

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