Embattled CRM vendors agree to merge

Kana Communications Inc. and Broadbase Software Inc., a pair of struggling software vendors, Monday announced plans to merge with the hope that the combined entity will have more success in the customer relationship management (CRM) market than the two companies have had on their own.

The new company, to be called Kana Software, will be formed through an acquisition of Broadbase by Redwood City, Calif.-based Kana. Chuck Bay, president and CEO of Broadbase in Menlo Park, Calif., will hold similar titles at Kana Software, while Kana CEO Jay Wood will become chairman of the merged business.

The stock-swap deal is valued at about US$40 million at current prices – a sign of the hard times that have befallen the two CRM vendors. Kana and Broadbase are both unprofitable, and their stocks were trading less than $1 per share Monday – a fate that the merger announcement did nothing to change.

Kana develops Web-enabled software that lets users view and manage e-mail, online chat and telephone interactions between a company and its customers, while Broadbase’s products analyze data from multiple channels for use in planning online sales and marketing campaigns. The new company will have more than 1,300 users, including The Boeing Co. in Seattle and New York-based American Express Co.

But the merger comes just a month after Kana laid off 20 per cent of its workforce in a cost-cutting move that followed the January hiring of Wood as the company’s new CEO. The cutbacks also came in the aftermath of a $33.2 million loss for the fourth quarter on revenue of $42.4 million.

Broadbase, meanwhile, warned last week that its first-quarter financial results would be below expectations, with operating losses totaling about $19 million and revenue coming in at just $13 million. The company also said that its chief financial officer had left and that it’s operating plan for the rest of the year was being revised.

Wood Monday said in a statement that the combined software offerings of Kana and Broadbase could be used to create “extraordinary relationships” between companies and their customers. But Boston-based consulting firm AMR Research Inc. described the merger deal as more of a defensive move than anything else.

Both vendors “were among the many that crashed a week ago after warning investors of a worse-than-expected first quarter,” said AMR in a report issued Monday. It added that the deal “seems strange” from a financial standpoint and could be viewed as a case in which “misery does indeed love company.”

There appears to be some technology overlap between Kana and Broadbase, according to AMR. But combining their product lines and operations “makes sense,” the company said. In addition, AMR noted, the deal backs up beliefs “that the CRM market was and still is ripe for consolidation.”

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