The impact of all these changes are buttressed by two significant facts: The Geac acquisition of Cybergraphic was valued at $US11 million and folding FutureTense into Open Market was valued at $US125 million.

The supplier of the future
It is now clear that the publishing systems supplier of the future will be a smaller division of a much larger company (as always, we defer to the exceptions that prove the rule).

This trend has been evident for more than two decades and there have been almost more examples of failure than success at the strategy.

Nonetheless, let's look at some of the top system suppliers in the industry today:

Even if the return to the parent is proportionately small, there is a good body of evidence that the division within a larger business model not only works, but thrives. In the case of CCI, Harris and Unisys, the other divisions share technology with the publishing systems group, which reduces research and development costs. And DTI has always bragged that its weekly newspaper division represents the perfect product development and testing environment -- an environment whose cost isn't passed along to customers.

Let's take a look at one of the first acquisitions on the headline list to see where other benefits come from being a smaller part of a whole.

Last December Agile Enterprise Inc. of Nashua, N.H., let it be known that it had been acquired by Applied Graphics Technologies Inc. of New York.

Agile, founded almost a decade ago by former Atex employees, has developed a high-quality editorial front-end system, called TeamBase, an implementation of Microsoft Word and Quark XPress with aggressive hooks into databases. (Agile's initial product was its own proprietary database; after getting brutalized by publishers for this seeming indiscretion, the company changed direction to focus on front-ends and began using off-the-shelf databases).

Applied Graphics Technologies, known as AGT, is an amalgam of graphic arts businesses put together by real estate and publishing magnate Mort Zuckerman and his lieutenant Fred Drasner. Though initially a private company, AGT is now traded on the Nasdaq stock exchange. Zuckerman, the owner of the New York Daily News and U.S. News & World Report, still has controlling interest.

AGT provides a nationwide network of imaging service facilities for magazines, as well as having developed and implemented a digital asset management environment called Digital Link. It also provides display ad makeup for advertising agencies, retailers and newspapers. On Wall Street it is described as a provider of greeting cards, calendars, art prints and "other wall decor products." It is a $394 million-a-year business.

Though AGT had initial interest in Agile because its sibling company U.S. News needed an editorial front-end system (ultimately Agile got the business), the acquisition came because AGT technologists recognized TeamBase as a good front-end to Digital Link. The research and development teams from the two companies believe that melding the two systems will give AGT much more potential reach for Digital Link.

The acquisition by AGT gives Agile two important things missing in the past: operating capital and broader potential market. Agile's founders, with newspaper-and-magazine background, were doing well selling systems to the likes of Newsweek and the Daily Record of Parsippany, N.J. (as well as eight other papers, including Times Publishing of Erie, Pa., which made its decision to buy an Agile system last spring with the assistance of Cole Group consultants).

But with AGT now representing TeamBase (as is Compaq Computer Corp.), the product will have a potential market broader than newspapers and magazines.

One harbinger of wider acceptance is Agile's sale of a TeamBase system last year to Amway Corp., to produce catalogs for its cosmetics, nutrition, home and personal care products.

The relationship between AGT and Agile means that Agile can become more aggressive in its selling and that newspapers and magazines can be comfortable in knowing that AGT will be healthy and around for a while.

Tampa takeover
Ever since Geac Computers Ltd. of Markham, Ont., purchased Collier-Jackson of Tampa, Fla., from CompuServe Inc. in 1994, there was concern in Canada that the business wasn't growing fast enough.

Collier-Jackson, then the leading provider of business software to newspapers, traditionally had provided systems that ran on Digital Equipment Corp. VAX hardware. By the mid-'90s, VAX was out and Windows NT was in, and the Geac managers had a difficult time making the transition to new operating systems and hardware.

In the last year or so, it was an open secret among publishing systems suppliers that Geac was looking for another acquisition. "They made the rounds," said one supplier chief executive. He detailed that the company had spoken to providers of not only classified advertising systems, but also editorial front-ends and add-on products.

Cybergraphic Systems, the Australian supplier that has had plenty of success Down Under (Murdoch and Fairfax dominate Australian newspapers, and both use Cybergraphic exclusively for pagination), has had its share of troubles as well.

Following lackluster performance in the North American market, Cybergraphic's founder was ousted by his board of directors in 1992. The divided board settled on an engineer at the company, Bernard Grinberg, as managing director. Over the next few years, Grinberg found new investors and replaced the fractious board.

Nonetheless, it became apparent that Cybergraphic was not going to crack the U.S. market on its own. In 1996, the company cut a deal giving System Integrators the North American and European marketing rights to Cybergraphic's Genera line of systems.

Unfortunately for Cybergraphic, SII soon was to get its third chief executive in less than a year, and the alliance never worked. By October 1997 the deal had fallen apart, and Cybergraphic was back on its own in North America.

Despite plans for an aggressive North American push starting this year, Grinberg's new board began to lose patience. And then Geac came calling.

The deal came together in a matter of weeks and Cybergraphic was sold in June -- just before NEXPO -- for $US11 million.

"That price was depressingly low," said an industry chief executive. The general belief was that if Cybergraphic sold, it would go for at least twice, if not three times that.

Cybergraphic insiders indicate that investors had decided they wanted out immediately. The investors' assumption was that Geac would serve the existing customers well and that they were willing to take a price hit to sell the company quickly.

Within weeks of the Cybergraphic acquisition, Geac then acquired a United Kingdom provider of circulation software, Matrix Publishing Systems Ltd.of Nottingham. It should be noted that Cybergraphic had an agreement to represent Matrix in Australia and had reached an agreement in principle to sell the Matrix software in North America.

Geac has moved relatively quickly to consolidate its three divisions -- the Burlington, Mass., office of Cybergraphic was closed (about 15 people lost jobs) and Grinberg went to work in the Tampa office. After floundering in recent years with the name VisionShift for its business software, it appears that Geac Publishing Systems now has three product lines: Collier-Jackson (which sells VisionShift software), Cybergraphic and Matrix.

The Canadian parent company, with annual revenues of $US529 million, should be able to build its publishing systems division into a $50 million-a-year business within a few years.

A North American headquarters probably won't hurt Cybergraphic's sales in Australia (the research and development will remain in suburban Melbourne) and will only help in sales to North American publishers. Further, the access to capital and a soup-to-nuts product strategy should be tremendously beneficial.

The issue of patience
Most of the changes we've seen over the course of the last year in the publishing systems supply business all boil down to the issue of patience.

Essentially, investors are impatient. They want their investment -- plus a sizeable chunk of interest -- back as quickly as possible.

Unfortunately for them, the newspaper industry moves at its own pace. The typical sales cycle of a newspaper system -- whether editorial, advertising, business or pre-press -- is about 18 months. That means 18 months of a sales person spending 10 to 20 hours a week handling the client, not to mention the overhead of responding to requests for proposal, sales support and extensive travel.

This is not a mixture that can easily be explained to impatient investors. It makes for a roller-coaster effect on the balance sheet -- there is either feast or famine.

But, if a publishing systems supplier resides within a much larger company, that larger company's other divisions can even out the harvest. Even if the other divisions have their own roller-coaster effects, they can usually be balanced off against one another and provide for a more even income.

And, then, there's the issue of Internet company valuations. We are fairly certain that the sale of FutureTense to Open Market set off a firestorm within the ranks of the Atex directors. Why is FutureTense valued at $125 million and Atex isn't? Is it worth more like Cybergraphic's $11 million? Milhachik didn't have good answers and now he's no longer chief executive.

The Internet effect will wear off as soon as Wall Street begins to value Internet companies more realistically.

But the impatience of investors will never go away, and as long as publishing systems suppliers are owned by people who don't understand the publishing business -- or are owned by companies that are willing to be a little patient, because they are big enough to afford to be patient -- there will be turmoil in the publishing systems supplier business.

-- dmc

Agile Enterprise Inc.,
(603) 880-6440,
e-mail: frizzo@agilent.com;
Applied Graphics Technologies Inc.,
(212) 716-6600,
e-mail: info@agtroch.com;
CCI Europe Inc.,
(770) 419-1588,
e-mail: edeasley@mindspring.com;
Digital Technology International,
(801) 853-5000,
e-mail: dtinfo@dtint.com;
Geac Publishing Systems,
(813) 872-9990,
e-mail: vsinfo@geac.com;
Harris Publishing Systems Corp.,
(407) 242-5330,
e-mail: jfitch@harris.com;
Unisys Corp.,
(215) 986-4080,
e-mail: williamhstroud@unn.unisys.com.

From THE COLE PAPERS, September 1999, Copyright © 1999, All Rights Reserved.