Egghead Deal Paves Way For Software Spectrum

After committing $45 million three weeks ago to buy a big piece of Egghead Software, Spokane’s newest high-tech corporate citizen dished up another $45 million for an Australian company last week.

Software Spectrum acquired the Essentially Group, an Australian-New Zealand software reseller, as a platform for launching Software Spectrum’s entry into Asia.

All that’s pretty heady stuff, says Software Spectrum’s chief executive officer, for a company that was hatched through some wishful thinking by neighbors over pizza on Friday nights in Garland, Texas.

“These two acquisitions are very, very important to us for very different reasons,” says CEO Judy O. Sims. “They take our company to a new level in terms of size and market presence on a global basis.”

And, Spokane now has a stake in the growth and success of Software Spectrum.

On March 26, Egghead announced that it was selling one of its major business unit - its Corporate, Government and Education (CGE) Division - to the Texas company. The deal affects about 200 of Egghead’s 550 Spokane employees.

Just last year, the software retailer had relocated its corporate headquarters from the Puget Sound to Spokane amid much fanfare. Egghead hired almost all its employees for the relocated operation locally.

About half of Egghead’s sales historically have been generated through retail outlets. The other half come through direct sales to big corporations and government agencies. But the CGE division was disrupted by Egghead’s corporate relocation, and the division had been a drag on Egghead’s profits.

The blow of Egghead’s March announcement was eased, though, by Software Spectrum’s announcement that it would keep the Spokane call center that services Egghead’s CGE division. The company signed a three-year lease, and is currently interviewing the Egghead CGE employees for jobs in Software Spectrum’s operation.

“I’m sure we will not be hiring everyone that’s here,” Sims says, “but we think we will be hiring many of them. We’re very pleased so far with the quality and the enthusiasm of the people we’re finding here.”

Software Spectrum’s commitment means that, at least for the short term, Spokane’s corporate roster includes another major player.

And like so many of today’s premier high-tech companies, Software Spectrum had humble origins.

The Sims (Richard and Judy) and the Tindles (Frank and Janet) were neighbors in Garland - a suburb of Dallas - who liked to get together for pizza on Friday nights 15 years ago. They were all certified public accountants, and “we didn’t have any ties at all to the technology industry,” Judy Sims recalls.

But they were all “entrepreneurs at heart,” and many of their Friday night discussions focused on someday having a company of their own.

In the early 1980s, the emerging personal computer industry caught their eye, so the two couples hired a consultant to map a path for them.

In 1983, they pooled their life’s savings and opened an 1,800-square-foot retail space selling educational and entertainment software.

That’s the concept upon which Egghead built its corporate success. But the Sims and Tindles failed.

“Over about six months, we had very little traffic in our store, and very few sales,” Sims recalls. “But we were getting calls from our friends and acquaintances in the business world who were wanting business applications.

“So we re-evaluated the business plan. We said, ‘You know, we really don’t know the retail industry. What we do know, from our CPA experience, is selling business-to-business.”’

They scrapped the retail store to focus on corporate sales, “and we’ve never strayed from that.”

Richard Sims is a senior vice president with the corporation, and a member of the board. Frank Tindle has retired from the company, but remains a board member.

Last year, Software Spectrum had sales in North America and Europe of $359 million. This year, without the two recent acquisitions, those sales will be about $400 million, Judy Sims says. That’s in line with the company’s historical growth pattern. The Egghead and Essentially Group acquisitions will, of course, push those numbers higher.

In its 13-year history, Software Spectrum has made two other acquisitions, both of which were made very carefully, and both of which foreshadowed the most recent deals.

The company acquired a small Toronto-based company to gain a presence in the Canadian market. The Australian acquisition is a larger version of that strategy.

“Our large customers want to buy their software on a global basis,” Sims says.

Software Spectrum’s very first acquisition was a small technology services company.

“We saw the industry changing and the needs of our customers changing,” Sims says, “so we acquired a company upon which to base the growth of our technology services group.”

That group now includes 250 employees.

The Egghead CGE acquisition represents the same kind of anticipation of an industry trend.

“This is a highly competitive, maturing industry,” Sims says. “And as industries mature in a highly competitive situation, the natural thing to happen is consolidation.”

That consolidation has already occurred at the software publisher and distributor levels, she says. So next come the resellers.

“That was the driving force for us behind the Egghead acquisition,” Sims says. “It’s a perfect fit for us. It brings us a lot of advantages in terms of a larger customer base and a trained work force.”

In announcing the deal in March, Egghead officials said the requirement that Software Spectrum maintain a call service operation in Spokane for three years was part of the sales agreement.

That raised the question of what Software Spectrum might do after the three years are up. But Sims says the agreement imposed no requirements that forced Software Spectrum to remain in Spokane.

“At the very beginning of the discussions,” she says, “I told them that we would want to keep your call center right there in Spokane.”

Software Spectrum’s biggest call center operation is located in Garland. As it has grown, Sims says, company officials have discussed the need to have a second center in a different geographic region.

“So from our perspective,” Sims says, “we were thrilled to have (the Spokane call center) as part of the transaction.”

The company has not yet determined how big the Spokane call center will be. But, Sims adds, consideration is already being given to expanding other operations to the Spokane site.

The company has a telemarketing operation and telephone technical support operation.

“Both of those existing pieces of our business are today only in Garland,” Sims says. “And they will both be candidates as we grow and expand to be located up here as well.”

, DataTimes ILLUSTRATION: Graphic: Software Spectrum’s expansion