Micrognosis Acquires Assets Of FD Consulting, Abandons Merit, Sees The Future In MIPS

The trading room systems market was all aquiver two weeks ago as word began to spread that Micrognosis Inc. had purchased the assets of FD Consulting Inc. Of course, all sources agreed that the deal made sense: Micrognosis would get the record-based data distribution system it desperately needed and FD would get the financial bailout it, even more, desperately needed.

Micrognosis officials say the vendor will bring to a halt further development of what some have described as its mostly unsucessful Merit record-based data distribution system. Meanwhile, advancement of its more widely used page- based Digital Distribution System (known as DDS) and its Tradelook workstation software system will now be deemphasized in favor of FD's product line. And some Micrognosis development operations will be diminished in favor of FD's. At the same time, the officials say Micrognosis will maintain agreements with FD's existing customers for six months only -- though it hopes to sign them all to new contracts by the end of that period. The six-month grace period is of special interest to Swiss Bank Corp. which sources say has enjoyed a one-time-charge-only universal license to FD's products since 1992 (see sidebar, page 6).

Still, the apparent straightforwardness of the deal -- to say nothing of the degree to which many at both shops welcomed it -- has been marred by a number of unsettling events. For one thing, there was the little matter of the Internal Revenue Service charging into FD's offices at 5 p.m. on Monday, July 12, and shutting them down. There was also the departure of two of FD's most visible representatives, marketing executives Bill Cline and George Lipsker; surely that won't make for a smooth transition of clients. Meanwhile, at press time, comes word that some key development executives -- exactly the people Micrognosis says it wants to keep -- have also made their way for the exits.

And then there is the much larger issue of how it would all fit together: What will be the migration path from Micrognosis' DDS and Tradelook to FD's MIPS and Infotec S.A.'s Infotrade? Which FD clients will become Micrognosis clients? And how will Micrognosis' DDS-supported clients take the news that they'll have to convert to MIPS should they seek enhancements in the not-too-distant future?

According to numerous sources -- some speaking for attribution and others not -- the deal took two months to pull together. During that time, FD's asking price dropped as pressure from creditors mounted. A year ago, sources say, before FD's fiscal woes were widely known, interested parties were shown a price tag in excess of $12 million. (Sources say Micrognosis also gave thought to buying Teknekron Software Systems Inc.) As recently as two months ago, sources say the ballpark had shifted to $5 million. In the end, the heat from the IRS made it impossible for FD to really negotiate; it was sell or die. Exactly what the debt- ridden FD cost in the end may be impossible to determine, but all sources agree the price was low.

While many people at both vendors knew something was afoot, few at Micrognosis knew that FD sat at the other end of the table and few at FD knew that Micrognosis sat at the other end of the table. Sources say that many top-level executives in both camps were caught off guard when news of the sale broke.

Perhaps most surprised of all were FD's customers. Micrognosis says there are a total of 61 MIPS sites and another 12 TiPS sites. On the MIPS end, users include First Boston Corp., Kidder Peabody & Co., Lehman Brothers Inc., Mellon Bank, PaineWebber Inc., Sumitomo Bank Capital Markets Inc., Swiss Bank Corp./O'Connor, UBS Securities Inc. and Wells Fargo Nikko Investment Advisors.

In addition, FD has recently landed a number of Latin American accounts for MIPS, including Bancomer and Banco de Gallicea. The most notable recent buyer of TiPS is Quick America Corp. (A number of sources, including some at FD, take issue with the FD-customer-site counts released by Micrognosis, noting that the numbers appear to be a bit high.)

A survey of systems executives at firms where FD is incumbent yields a range of reactions, from disappointment at being kept out of the loop by vendors to delight that FD had found a way out of the fiscal swamp.

Pleased firms include SBC/O'C and Lehman, both of which happen to be users of both FD and Micrognosis (though Lehman uses FD at only a handful of positions). Displeased users include PaineWebber, which sources say canceled plans to extend its FD system to support a 100-position taxable fixed-income group when it moves to the firm's New Jersey campus (TST, June 28). (The TFI group will still move to Jersey, but it will keep its Reuters/Rich Inc. video switch.)

Reaction is also beginning to emerge at as-yet-uncommitted accounts -- including Prudential Securities Inc. and Bear Stearns & Co. At Pru, where the contest has been narrowed to Micrognosis and Reuters, chief information officer Bill Anderson says that with the FD deal, Micrognosis has "now leveled the playing field" (see story, page 8).

At Bear Stearns, however, sources say that certain members of the committee conducting the evaluations had reacted negatively to FD's fiscal troubles in the past and remain unconvinced by the arrival of Micrognosis on the scene. Bear Stearns had been looking at FD, Reuters and Teknekron and is now considering whether to drop FD from the list altogether, sources say (see related story, this issue).

Meanwhile, most other firms with reason to evaluate the fate of FD and Micrognosis have decided to wait and see. Some question whether Micrognosis' decision to leave FD's development organization alone is the right one. They say that FD's development group has in reality produced few, if any, enhancements or new products in the past year. They suggest that perhaps a stronger hand is needed.

Still others take the doubting a step further and ask whether Micrognosis is capable of providing that stronger hand. They cite the vendor's poor track record in bringing its own record-based data distribution system (i.e., Merit) to market.

But Micrognosis marketing vice president Sharon Gregory says that such concerns are unwarranted. She says that the stagnation of FD's development effort was a result of its fiscal difficulties, which affected both the cash flow to the group and the motivation of the people in it.

And she adds that Micrognosis is a strong company that has come a long way since it was bought more than two years ago by Japanese electronics conglomerate CSK Corp. (TST, Dec. 3, 1990) -- despite the fact that development of its record- based facility fell behind schedule. Gregory attributes the problems with the record-based system's release to a lack of commitment and good management on the part of Micrognosis' prior ownership, Control Data Corp.

Meanwhile, though the dust is far from settled on the deal, the ink has dried -- and enormous changes have already gotten under way.

What has happened is this: Micrognosis has purchased the assets, but not the liabilities, of FD Consulting. According to Micrognosis officials, the deal includes the software for the vendor's TiPS ticker plant, its MIPS local data distribution system, as well as related applications and APIs. It also includes FD's name.

With the abandonment of Merit (which stands for Micrognosis Environment Record-based Information Transport) Micrognosis will shift its record-based system development efforts to FD's Staten Island plant -- where lately they've been answering the phone by saying "FD/Micrognosis." Heading up operations there will be FD senior vice president of development Wayne Ginion.

Sources say that Ginion remains the most senior executive to make the transition from FD to Micrognosis. Prior to joining FD three years ago, sources say, Ginion worked for Salomon Brothers Inc.

Ginion's staff at Staten Island will consist of 25 development and 35 support and consulting personnel, including Robert Romeo. However, Ginion's organization suffered a number of blows late last week, when top developers Bill Lyon, Joe Noviello and Jagdish Ragwani decided to leave. Two field engineers reporting to Ginion also recently quit -- Joe Luminoso and Rohit Sood.

FD co-owner and executive vice president Charlie Leing will remain in the employ of Micrognosis, supporting the vendor's TiPS software product. As for the man after whom the vendor was named -- FD co-owner and president Frank DeChirico -- sources say he'll stay on as a consultant.

Micrognosis officials say the vendor will continue to support its own digital page-based data distribution system -- DDS -- but will not provide major new releases to that product. Instead, it will channel customers desiring enhancements into FD's MIPS. Upgrades to Micrognosis' Tradelook workstation software system have also been shifted to a slow track, in favor of FD partner Infotec's Infotrade. (Micrognosis says, however, that the latest release to Tradelook has already been completed and is due out now.)

The fate of FD's Infotec relationship -- and Micrognosis' future relationships with any of FD's other resellers worldwide -- is of particular interest. Both Infotec and Micrognosis now say their collaboration will go forward. But other sources speculate as to which corporate names are on FD's non-North American contracts -- and wonder whether those installed bases are now more or less open to replacement by other vendors' data distribution infrastructures.

One relationship that will probably not be renewed is FD's strategic partnership with Andersen Consulting Inc. Announced this spring (TST, May 31), the deal represented an earlier effort by FD to shore itself up. However, according to Andersen's Financial Markets managing partner, Joellin Comerford, FD's contract with Andersen was automatically terminated when FD sold its assets. Other sources speculate that with Micrognosis in FD's life, there's no role left for Andersen to play.

Micrognosis says it intends to continue to maintain its own relationship with Ireland's Quay Financial Software Inc., which has taken on much of Micrognosis' PC-based development efforts. QFS will come in especially handy because neither FD nor Micrognosis has made much progress in terms of PC-based digital data distribution systems.

As a result of the shift to MIPS, Micrognosis' London- based development group will undergo significant changes, including redployment of staff and some layoffs. Sources say 10 developers there have already been let go and that the head of development now reports to a new hire.

Thus, while sources say Micrognosis sales and marketing staff is very nearly elated at the news of the deal -- because, as one source puts it, "they finally have a product to sell" -- the development staff, particularly in London, is a bit demoralized.

The deal with FD was likely a particular blow to Micrognosis vice president of engineering Stefan Choppin. The leader of the development team and architect of Merit, Choppin appears to have been moved aside, sources say, and is now responsible for "long-range technical planning."

Micrognosis says it will retain some aspects of Merit- and DDS-related development, including certain feedhandlers (developed out of Danbury, Conn.) and applications, such as systems administration facilities (developed out of London). Micrognosis says its developers will set about writing gateway software to render such systems interoperable with MIPS.

FD also lost two executives whom it had hired only a couple of months ago: professional services senior vice president Tom Hughes and customer support head Tom Shaw.

Micrognosis says it released a total of 10 FD personnel, some of whom were asked to stay on for a transition period of three months. These include chief financial officer Bill Huntington and his staff. Meanwhile, a trickle of voluntary staff departures, which began before the deal with Micrognosis was announced, continues out of Staten Island. Sources say that Harvey Gerson remains the only key sales/marketing-side executive to remain with FD since the purchase by Micrognosis.

For FD, the events of two weeks ago were especially traumatic -- if not climactic. The IRS shutdown lasted about 36 hours, during which the vast majority of the vendor's employees were left to believe that they had lost their jobs. The notion persisted right through until noon Wednesday, July 14, when the deal with Micrognosis (consummated the night before) convinced the IRS that it would get paid and so FD opened up again.

As reported in these pages (TST, May 17), FD was carrying more than $1 million in state and federal tax liens. Sources say that a payment had come due, and that FD had missed it, and so the IRS locked up the vendor's Cortlandt Street and Staten Island premises and disconnected the office communications equipment. For a time there, things got almost comical: Sources say that FD executives were forced to ask the IRS for permission to hook up a fax machine in order to receive documents necessary to sew up the deal that would allow them to open for business again.

Of course, FD's tax debts were anything but comical. As of May, public records showed that FD, between 1990 and 1993, had incurred eight separate tax liens. Of the eight, only two had been settled. The largest active, and most recent, lien -- attached Feb. 17 of this year -- was for some $650,000.

A tax debt of $1 million-plus is no small matter for a company that netted only about $10 million a year and maintained -- until layoffs and walkouts began last month (TST, June 28) -- a staff of about 120. For months, when people weren't whispering about who was going to buy FD, the word on the street was that FD had a habit of missing its payroll dates.

Meanwhile, at Micrognosis, present and former staff recall an earlier occasion -- in 1990 -- when the vendor seriously considered buying FD.

Sources say that many at Micrognosis at the time concluded that buying FD was a good idea -- because Micrognosis was without the digital platform that all the up-and-comers in the data distribution market were already busy selling. But sources say Micrognosis developers assured their bosses that they would soon have a competitive product and the deal was nixed.