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Orbital's relationship with Sopheon is no soap opera

November 8, 2001

Trials and tribulations of a small Scottish software firm do not merit such attention

 

READERS OF Business AM may be a little surprised that, until now, I have resisted the temptation to write about Orbital Software in this column, since I am chairman of its board and, yes, I do have views.

 

After all, it seems to feature daily on the news pages - often the front page lead - of this newspaper. In recent weeks the Orbital "story" has occupied the kind of coverage in Business AM that the other tabloids devote to torrid TV soap opera plots.

 

I must admit I struggle to know quite why we warrant so much attention. After all, Orbital is a small company - less than a thousandth of the value of the Royal Bank. It employs fewer than 80 staff, and almost all its customers are overseas. Yes, it is vitally important to those of us who have been intimately involved in its development, its staff and its customers, but surely it must be of minimal interest to others.

 

Despite this, the company has recently become the focus of trenchant and ill-informed comment on these pages. Paul Stokes devoted his column last week to the subject, declaring that the Orbital Board was short sighted and lacking in vision. All we had to do, opined Mr. Stokes, was to buy the company back from its shareholders. Easy, or what?

 

Well, ink is cheap. Meanwhile back in the real world, it may be worth remembering the purpose of a board of directors; which is to supervise the activities of a company in order to grow shareholder value. This is difficult at the best of times, and more so in current market conditions, but the Orbital board has remained focused on this goal.

 

The board is a particularly experienced one. It includes Andy Davis, a founder and technical director of Spider; and Derek Gray, who used to run the entire sales operations of Adobe, the world’s fourth largest software company.

 

Orbital has been a particularly talented and creative company, and has built a world-class technology business around its product Organik, which helps organisations to share expert knowledge. By any measure, it has come a very long way from its single room above a garage in Dunfermline back in 1997.

 

However, the downturn in technology markets in the last year has been dramatic, and Orbital has not been immune to the effects – our sales have not grown as forecast.

 

We reviewed our focus, helped by technology marketing experts from the Chasm Group, and concentrated on the New Product Development (NPD) market. Even in a downturn, major corporations are still developing new products, and Organik is particularly valuable in supporting NPD activity. In fact, two recent customers, Atofina and Ericsson, have adopted it for exactly this purpose.

 

In July this year, when it became clear that we would seriously underperform against our plans, we announced to our shareholders that we were conducting a strategic review of our options. Not surprisingly, the options considered included: share buy-backs; winding-up the company; resizing to survive the downturn, and so on.

 

We also considered linking up with another company with complementary products, and, ideally, with many existing customers in our target market. We appointed Broadview, the world’s largest technology mergers and acquisitions adviser, and considered over 20 companies with which to partner. Out of all this came Sopheon, which was by far the best fit.

 

Sopheon specialises in expert technical consultancy in the NPD field and sells a product, Accolade, which helps to manage the R&D process leading to new products. It strengthened its hand by acquiring Teltech in the US last year, and Aventis, a specialist life-sciences company, in Germany earlier this year.

 

The result of all this is a company with a NPD management tool, a pool of over 1700 experts in technology expertise, and over 570 blue-chip customers. Sales for the first six months of 2001, including the Aventis business, were over £9m.

 

Almost half the Fortune 500 companies use Sopheon’s product or services to help them in new product development, and, we believe, a good proportion of those will be keen to add Orbital’s Organik to help them manage their expertise better.

 

The deal to Orbital’s shareholders offers them over 48% of the combined company, and the Edinburgh operations of Orbital will be the European R&D and support centre.

 

It may not be as exciting as a soap opera, but we think it’s by far the best route to create value for our shareholders.

 

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