Mark Smith's Analyst Perspectives

NICE Systems last week announced an agreement to acquire Merced Systems, a provider of business applications for customer service and sales organizations. This acquisition slipped by with little fanfare, but it marks a significant milestone for NICE, a major provider of applications and technology for call centers and a player in their evolution into multichannel contact centers. Building on a good 2010, as my colleague Richard Snow noted, NICE expects to reach almost $800 million of revenue in 2011, which would make it one of the largest companies in its segment. NICE has made multiple acquisitions to build its software portfolio, including purchases of Actimize, CyberTech, eGlue and others mentioned below. It recently won our 2011 Ventana Research Leadership Award in the contact center category with its customer deployment at Alliance Data. NICE Systems plans to have Merced Systems as a foundation of its enterprise systems and a complement to its contact center workforce optimization offering. This purchase builds on its other acquisitions, including FizzBack recently and IEX and Performix in 2006, which helped NICE establish its customer service and back office agent performance management software. That area has not grown as quickly as NICE would like, mostly due to marketing that was not aggressive enough in attracting customers. NICE recently rebranded its NICE SmartCenter for helping agents, as Richard noted, and is leveraging its assets into the back office, which he also assessed. Our benchmark research on contact center technology found that companies’ priorities for future investments match up well with NICE Systems’ focuses on expanding customer service agent applications and analytics applications. Merced Systems brings to the deal a strong foundation based on analytics and metrics: areas we have benchmarked in the contact center and sales among others. While software for customer service and contact centers motivated this acquisition, NICE Systems plans to expand into sales organizations through Merced’s sales performance management. In agent performance management NICE and eight competitors all have comparable ratings in our Value Index for Agent Performance Management. NICE is rated near the top, but it has struggled in its marketing and sales. This is part of why it needs to retain Merced’s team to continue its market momentum. On the sales side, with a smaller number of dedicated providers, Merced ranked in the middle of the Value Index for Sales Performance Management but is part of a significantly larger organization worldwide with access to a large number of organizations using NICE. Customers of Merced Systems should look for affirmation that NICE Systems will include their needs in its product roadmap before they make further purchases and deployments. They should look for continued operations of Merced as an entity and availability of its applications. Potential purchasers should restrain themselves to ensure the Merced products they are examining are part of the future NICE enterprise portfolio as the company evolves its application architecture. Existing NICE customers will find a new portfolio in agent performance management and sales performance management, which appear to put NICE’s existing performance management applications at risk or position them to receive lower priority. On another front it will be interesting to see if NICE will continue distributing Merced Systems’ new analytics offering built on an OEM of MicroStrategy, with which the company has built applications that also operate on smartphones and tablets. NICE Systems made a wise investment in acquiring Merced Systems, especially at the price it paid (approximately $150 million and $20 million in cash), considering the company’s profitability, growth, products and customer success. Now NICE must retain Merced’s key people and grow its investment in the newly acquired company. NICE can extend its current reach to grow its business significantly, pending effective investments in marketing and sales. Regards, Mark Smith – CEO & Chief Research Officer

NICE to Acquire Merced Systems for Excellence in Customer Service and Sales

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