The tough playing field of Israel's major computer companies this week admitted a new player, namely Computer Direct. This company has started overhauling its software activities, with the object of becoming one of Israel's largest computer companies.
An expanded Board of Directors of some of the companies owned by Computer Direct convened on Thursday afternoon to set in motion a sort of revolving deal, designed mainly to construct a new Israeli brand in the computer services field.
Until the end of the week, Computer Direct held a number of subsidiaries that it acquired in the past year. One was Yaana, purchased from Liraz two months ago in a deal in which the company acquired 95.1% of ownership for $9 million. In Q1 1999, Computer Direct acquired 54% and control of Amigar, and also holds 51% in Da-Rom and 26% in Comtec, which provides insurance solutions.
All the companies' directors convened at Thursday evening's meeting and totally restructured the group. In the new format, Yaana acquired the holdings of Computer Direct in the other subsidiaries for NIS 20 million, becoming its parent company.
Yaana general manager Jonathan Korpel becomes general manager of all the subsidiaries. He now has the task of reorganising them to form a national computer company group able to complete with strong groups such as IBM Israel-Tadiran Information Systems, the Wolfson group (including Compro, Advanced Technology and Contahal), and the Zeevi group, holder of MLM. Another rival in the field is Team Computers, seen as one of Israel's foremost integrators.
Through this move, Computer Direct has created a service and outsourcing group with a payroll of 350, and a 400-strong existing customer base. "Our object is to set up a software division consisting of a finance and logistics section and a general software branch". "Globes" heard this explanation of the move from Korpel.
"The finance and logistics section will consist of Amigar, Da-Rom and part of Yaana. The general branch will be based primarily on Yaana's existing mix, growth being achieved mainly through acquisitions", he said.
The group's main axis will consist of the consolidation of Yaana and Amigar. Both companies work with Oracle's database and with the Uniface development tool, even though it is not widely used in the market. The technological similarity will help them merge their products. That will happen once they have concluded their current examination of their respective software packages, with a view to combining them.
In other respects, the companies are very different. Amigar, like Yaana, has 130 employees, but its sales this year will amount to an estimated NIS 45 million, with the bottom line showing a loss. Yaana will notch up NIS 35 million in sales this year, but will end with a profit. It already has NIS 15 million cash in hand. It is actually a bye-product of the weekend's merger that, one way or another, any cash will pass straight to Computer Direct.
Comtec specialises in the relatively narrow field of insurance applications. Amigar and Da-Rom engage primarily in the manufacture and marketing of financial logistic programs ("ERP" in professional jargon). Amigar started out as a kibbutz company, and has 160 customers, many of them in the kibbutz sector and many in the business sector, which it recently entered. Da-Rom markets its products mainly to 150 kibbutz sector customers.
Yaana, on the other hand, offers a wider diversity of computer services. It also provides full outsourcing services, in which it is responsible for the hardware and software of large organisations, such as pension funds Nativ, Poalei Habinyan (Construction Workers), Agricultural Workers and Yovalim. At the same time, the company sold "Merhav" its logistic-financial software package, to twenty-five organisations, and executes computerisation projects in other countries, accounting for 10% of its revenue. Its two largest current projects are the computerisation of the public defenders system, and that of the entire logistics and distribution system of a German company for DM 2 million.
This latter project is underway in Bremen, Germany. It deals with everything pertaining to the import and distribution of tropical fruit for the company in Germany. It is interesting to note that, due to the unique attributes of tropical fruit, Y2000, for purposes of that sector, already commenced in October 1999.
The recent move puts Computer Direct in a position in which it is running a Big-League software group. This league consists of IB Israel-Tadiran Information Systems, MLM, the Formula group with Forsoft and Applicom and the Wolfson group holding Advanced Technology, Contahal and Compro. In one field, though, it is almost a unique player: parent company Israel Computer Direct holds a group under common control, namely Computer Director Systems, which deals in hardware.
This hardware arm includes representation of major computer manufacturers such as Hewlett Packard and IBM, but its main platform is Compaq computers, from the PC to the Alpha servers level. Compaq is also a strong field for Team, seen as a tough competitor in systems (along with IBM and AMT Computers). Team was its principal representative in Israel until Compaq Israel was founded.
According to Adi Eyal, controlling shareholder of Computer Direct, "the move was designed to create a software division which will compete for one of the lead positions in the software services industry in the Israeli market. The division will commence operations with an aggregate turnover of more than NIS 100 million and 350 professionals. We are a player that is going to be stand on two substantial legs, hardware and software, and in the services field we should reach NIS 250 million and 230 employees within a year".
"Globes": Many Israeli companies are turning to other countries today. Why do you focus on the Israeli market instead?
Eyal : "In my opinion, Israeli companies that are successful abroad also operate in a niche or markets with technological hype. The computer services market in Israel is enormous, and I think Computer Direct has a whole lot more to do in it before looking outside. In my opinion, the market for software and software services to organisations in Israel can be assessed at over $2 billion annually. Today, organisations are showing a trend to outsource an increasing number of projects to external specialist bodies".
Israel Computer Direct, the parent company, is listed on the Tel Aviv Stock Exchange. How are you affected by the market's soporific condition?
The TASE is dormant, and that is bad. The way I see it, at a certain stage, when we reach a critical business mass, if the capital market continues as is, we will consider an overseas issue of our software division. Even now, I can say that there are large foreign software concerns that are making enquiries about the software division of Computer Direct".
As was only to be expected, the move is not passing unchallenged. According to unconfirmed rumours, Team is trying to put a spoke in the wheel through Commtech. Comtec, like Computer Direct and Yaana, is traded on the TASE. According to rumours abounding in the market over the weekend, Team Computers is trying to acquire 40% of Comtec from Comtec managers David Nahmias, Shaul Yosef and Ben Glazer, for $5.9 million. Computer Direct, too, incidentally, would like to gain control of Comtec, but "only at a reasonable price", as Eyal put it.
Published by Israel's Business Arena October 18, 1999