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20 years ago today: The story behind Microsoft’s acquisition of Danish Navision

The planning tool Navision became a textbook example of how to build a global company based in Denmark. Here, Hans Peter Bech tells the story of when the American giants came knocking for acquisitions.

Hans Peter Bech, cand.polit. (born 1951), is an author and consultant specialising in international business development in the software industry. He has published several books, articles, podcasts and videos on the subject and also advises companies worldwide.

This was the big news in early summer 2002.

Microsoft had made a bid to buy the Danish technology company Navision. The Americans were ready to put more than 10 billion kroner in cool cash on the table to realise their ambition to gain a position in the global market for ERP (Enterprise Resource Planning) software.

In the wake of the dotcom bubble bursting in the first half of 2000, Navision was a minor miracle in an otherwise battered industry. The company employed some 1,200 people, had a turnover of close to two billion kroner and a bottom line of 400 million. They had 2,000 resellers, over 100,000 customers and were active in 30 countries.

The news of the acquisition was not universally welcomed. Many were upset that yet another successful Danish company was to fall into foreign hands. The pattern repeated itself too often. Clever Danes turned a good idea into a successful business, then capital-rich Americans bought it up and moved the best jobs away.

It happened to Navision too, but what were the alternatives?

A successful merger

In November 2000, Damgaard and Navision Software announced that they would merge. The two companies were essentially doing the same thing and also using the same channel-based business model. Together, they could save significant administrative costs internally and be much stronger externally. Uniquely, the distance between the companies’ headquarters in Birkerød and Vedbæk was less than 15 kilometres, making synergies in particular much easier to capture.

On the very day that the board of the newly merged company had its inaugural meeting, Microsoft announced that it was entering the ERP software market and that it had initially acquired the ERP company Great Plains. This changed the competitive landscape completely. When, less than six months later, Microsoft unofficially sent out a feeler about buying Navision, the latter now had effectively two options: to get Microsoft on board or to get them against it.

The owners, who also made up the top management, chose the former.

Bill Gates and 9/11 got in the way.

The acquisition initially fell through. Bill Gates thought it was a bad idea, which complicated negotiations out. When terrorists flew into the World Trade Center in New York on September 11, the project was cancelled altogether.

The approach from Microsoft took Navision’s board by surprise. It had not established a solid strategic alternative. That mistake was not to be repeated, so when Microsoft approached again in spring 2002, it was dressed in a very different, warmer outfit. As a result, the negotiations, which of course had many dramatic elements, were completed relatively quickly.

On 7 May 2002, the world press was informed and on 22 August of the same year, Navision’s shares were delisted from the Copenhagen Stock Exchange. At the same time, Microsoft downgraded the company from a public limited company to a private limited company.

Still much to learn

In my opinion, Navision remains a textbook example of how to build a successful global company based in Denmark.

The foundation was good products for a broad market. The marketing model was indirect, with the products enabling an exceptionally high level of value creation. When a reseller sold a solution, only 10 percent of the project was Navision software. The other 90 percent were services and software, where the resellers had the entire contribution margin.

It is worth remembering that for the first 16 years Navision was two different companies. Damgaard, which until the stock exchange listing in 1999 was called Damgaard Data, was started and run by Erik and Preben Damgaard. PC&C, which changed its name to Navision Software in 1995, was started by Jesper Balser, Peter Bang and Torben Vind. The two companies, which made essentially the same products, for essentially the same market and used essentially the same marketing model, were very different.

Culturally, they were almost opposites. Navision Software was academically thorough, cautious and meticulous. The decision-making structure of their global setup was highly decentralised. Damgaard was innovative, resourceful and risk-taking. Their decision-making structure was centralized. Navision was big abroad. Damgaard was the market leader in Denmark.

The different cultures attracted different types of people, and the employees of the two companies each loved their workplace. This, of course, created major challenges in a merger, but the construction of two co-directors, Preben Damgaard and Jesper Balser, one from each camp, would prove to be the glue that would hold the strengths together. Such an arrangement is to be avoided according to management textbooks, but in real life there are always exceptions to the rules.

Navision did manage to show impressive results before Microsoft threw billions on the table.

Hans Peter Bech is the author of the business biography From Damgaard to Microsoftwhich details the development of the two companies from their inception in 1984 to their sale to Microsoft in 2002.

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