German software company acquires troubled CText and SII

SAN FRANCISCO -- "Amazing."

That word was uttered across the floor of NEXPO 2000, held here June 17-20. The utterers weren't talking about new products; they were talking about the days-earlier acquisitions of CText Inc. of Ann Arbor, Mich., and System Integrators Inc. of Sacramento, by a German Yellow Pages software company, which heretofore was unknown in the newspaper industry.

Both companies had been troubled in recent years, yet both had long, colorful newspaper industry histories. CText was a pioneer of newspaper client-server technologies, while SII was the company that orginated the concept of fault tolerant (no crashing) newspaper software.

The acquiring company, Net-Linx AG of Dresden, Germany, immediately attempted to rebrand the NEXPO booths of the companies; the fact that they were across the aisle from one another helped.

Net-Linx appointed Bill Solimeno as its senior vice president for newspaper publishing solutions; he will be the chief executive of the division, with executives at CText and SII reporting to him. Solimeno, a former executive with Raytheon (makers of the RayComp display-ad makeup system in the '70s) and Hastech (makers of the pioneering pagination system) has been an industry writer and consultant for almost 15 years. He was affiliated with Seybold Consulting and the Seybold Report on Publishing Systems from the mid-'80s through 1993 and has had his own consulting practice since then. In 1998 Solimeno returned to the Seybold Report as a part-time writer.

Who is Net-Linx AG?
A privately held company based in Dresden, Germany, Net-Linx was founded in 1992 and was known for most of the last decade in the European directory publishing markets as Pre Press GmbH and in the U.S. and Canadian directory markets as Pre Print Inc.

Specializing in Yellow Pages and White Pages cross-platform page makeup, Net-Linx Directory Solutions had approximately 300 employees.

Holm Hallbauer, who is the company's chief executive officer, founded Net-Linx AG. The Net-Linx web site (http://www.net-linx.com) uses the phrase "investors (IPO)," which would indicate the company is contemplating a public stock offering.

The company recently launched its Advanced Media Services (AMS) division, which is based in Kuala Lumpur, Malaysia. AMS is 67 percent owned by Net-Linx, with a 33 percent stake held by a subsidiary of SingTel Yellow Pages Pte. Ltd. of Singapore, publishers of the local telephone directory. Though AMS develops software, its primary role is as a service bureau making up display advertising.

Software developed in Malaysia is sold under the Web Solutions banner and is handled out of the company's Canadian office in Edmonton, Alberta. The division's leading product is called nxTraveler and is a software package that allows users of personal digital assistants or data-capable cellular phones to search telephone directories wirelessly. The product also provides mapping capabilities using MapQuest information and conforms to the Web Access Protocol (WAP) standard.

How did Net-Linx happen?
According to Solimeno, he became involved with Net-Linx last year when the company approached him to evaluate its directory publishing technology to see how much work it needed to be customized for use in the newspapers.

"I took a look at it, and it was pretty close to a classified advertising system," Solimeno said. It also provided accounts receivable and billing software, which are features uncommon in classified systems and a superior composition engine. Nonetheless, Solimeno came to the conclusion that it would be economically unfeasible to customize the product for the newspaper industry.

Undaunted, Net-Linx elected to purchase its way into the newspaper systems industry. At a supplier seminar that Solimeno held last January, Net-Linx executives openly stated they were interested in acquiring companies in order to "jump into" the newspaper business.

As Net-Linx talked with "just about all the major players" in the industry, it was also doing some stealth interviewing in an attempt to put together a newspaper business management team. "Without them knowing what was going on," said Solimeno, "they were being interviewed."

The Net-Linx executives then began to actively recruit an individual to become the head of the newspaper publishing operation. After a number of real interviews, Hallbauer and his team came back to Solimeno and said, according to Solimeno, "You're the one we want."

Solimeno says he hesitated in taking the job. "I liked my lifestyle," he said, citing the ability to winter in Florida and summer in New Hampshire. A conversation about his retirement plans -- or lack thereof -- with his adult son, though, changed his mind and he took the job.

In addition to Solimeno, the management team includes Larry Moore, a founder of CText who will remain chief executive officer; Dennis Doolittle, a former engineering executive with Monotype and president and chief operating officer with Autologic Information International (AII) of Thousand Oaks, Calif., as president of SII, and Mike Lee, who has served as SII's European division chief as well as director of worldwide sales and marketing, as chief operating officer of SII.

Initially, Alvin Brunner was slated to be the new president of CText; Brunner has been a sales and operations executive with AII since the '70s. When AII Chief Executive William Shaw realized he was losing his top two executives, he made Brunner a counter-offer to become the president of AII, which Brunner accepted.

A head of sales and marketing for the combined companies is still being sought, as well as, presumably, a president for CText.

What's the plan?
"We aren't going to have six editorial systems," said Solimeno a few days before NEXPO. His plan is to take the core advertising technologies of CText to build the Net-Linx advertising product and to take the core editorial technologies of SII to build the Net-Linx editorial product.

Still, Solimeno said his plan is to incorporate SII technologies into the advertising product and to incorporate CText technologies in the editorial product.

One of the more amusing aspects of NEXPO was to watch SII engineering people sit in the CText booth to have CText technologies explained to them, while CText engineers sat in the SII booth learning the SII secrets.

Solimeno said that Net-Linx AG's intention is to keep both the CText operation in Ann Arbor and the SII operation in Sacramento. "We are going to keep SII and CText exactly as they are, definitely in the short-term," said Solimeno. "Long-term, there may be compelling reasons to change. But these guys [Net-Linx] didn't do this for economy of scale."

Nonetheless, sales and marketing have been pulled out of each respective company and there will be one sales force handling one product line. "I didn't want people competing all over hell," said Solimeno.

What's it all mean?
Despite assurances otherwise, CText and SII are effectively dead. As Net-Linx centralizes sales and marketing, the two companies will, in effect, become research-and-development houses. Whether the legal entity of CText Inc. or System Integrators Inc. still exists in two years or 20 seems immaterial.

When you go to your next trade show, it will be a Net-Linx booth you will visit, with Net-Linx salespeople showing Net-Linx products. The name on the engineer's paycheck won't affect the customer at all.

Both CText and SII had seen better days. It is well known in the industry that CText has frequently gone from customer to customer, seeking project work to help cover expenses. SII, which was so preoccupied with its financial health in the early and mid-'90s that it essentially missed the movement from proprietary systems to commodity hardware and industry-specific software, never recovered from its Chapter 11 bankruptcy, which it filed in late 1993 (see The Cole Papers, November 1993).

Though Solimeno contends that both companies were profitable, both companies were definitely shrinking and neither really had the resources to pursue effective research and development.

Net-Linx -- which appears to have solid profits in the directory software business -- has indicated it's willing to spend money to make its Publishing Solutions division a major player. This is money that neither CText nor SII had -- or probably would get.

For the owners (and creditors) of CText and SII, this was a great solution. For most of the employees, it will mean continued work.

But for the customers? Despite all the amazing aspects of this business deal, it's too early -- and too tough -- to call.

-- dmc

CText Inc., (313) 677-4700, e-mail: sales@ctext.com;
Net-Linx AG, {011} (49) 351-318-750; e-mail: marketing@net-linx.de;
System Integrators Inc., (916) 929-9481, e-mail: sii@sii.com.

From THE COLE PAPERS, July 2000, Copyright © 2000, All Rights Reserved.