Manatron, Inc.

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Manatron, Inc.

510 East Milham Avenue
Portage, Michigan 49002
U.S.A.
Telephone: (269) 567-2900
Toll Free: (866) 471-2900
Fax: (269) 567-2930
Web site: http://www.manatron.com

Public Company
Incorporated: 1972
Employees: 359
Sales: $36.3 (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: MANA
NAIC: 541512 Computer Systems Design Services

Based in Portage, Michigan, Manatron, Inc., designs, develops, installs, and supports Web-based and client-server property software systems used by state and local governments to perform such functions as property recording, tax assessment, and billing and collection. The company also offers mass revaluation, appraisal, and consulting services to ensure that public property information is up to date and accurate. For most of its history, Manatron developed custom solutions for its customers, but this proved to be an expensive and time-consuming approach that hindered growth. The company now offers the Government Revenues Management (GRM) software suite that can be used by government recorders, auditors, assessors, tax collectors, and treasurers. The fully integrated enterprise system is able to track a property for its entire life cycle, from the recording of the deed to tax billing and, if necessary, delinquency notices and tax sales. Manatron has more than 1,300 customers in 30 states and two Canadian provinces. In addition to its Michigan headquarters, the company maintains offices in Georgia, Illinois, Indiana, Ohio, and Washington, D.C.

COMPANY FOUNDED: 1969

Manatron was cofounded as a partnership in Michigan 1969 by Allen F. Peat, who was in his early thirties, along with his brother Randall L. Peat, who was a dozen years younger. The company was originally established to create specialized data processing systems for Michigan’s local government units, this at a time when all such work was conducted on large mainframe computers. The company did not limit itself to property-related functions, also becoming involved in financial management systems such as general ledger, accounts payable, accounts receivable, payroll, inventory control, and human resources. Over the years it would also develop utility billing software, as well as a judicial information system to help the courts with case management, probation tracking, voter registration, and other functions.

In 1972 Manatron was incorporated in Michigan and began expanding beyond the state’s borders, entering Indiana, which would become a major market. Three years later Manatron began doing work for government entities in Illinois, and in 1981 the company entered Missouri. At this point microcomputers were beginning to supersede mainframe systems, and Manatron responded by developing data processing systems that could be run on this platform. A major source of income for the company also came from the sale of Unisys microcomputer equipment and supplies, as the company benefited by offering complete turnkey systems, which included hardware and at least one software application.

In the 1980s Manatron began to expand through strategic acquisitions. Kansas City, Missouri-based Current Systems Company was added in 1983. Next, in April 1986, Manatron acquired Geogroup Corp. and began doing business in California. Parts of Morse Data Processing, a Nebraska company, were purchased in 1987. By this point Manatron was also doing business in about 30 states, although most of its revenues came from Michigan and Illinois (20% each), Indiana (15%), and Missouri (10%). Sales increased from $4.5 million in fiscal 1983 to $6.8 million in fiscal 1986, when the company also posted net earnings of $436,000. In September 1986, fiscal 1987, Manatron went public, completing an initial public offering of stock. Manatron’s investments in new product development, some $3 million over four years, and the beefing up of its sales force began to provide even greater benefits in fiscal 1987 when revenues jumped to $9 million and net income nearly doubled to $820,000.

Manatron closed out the decade by taking steps to broaden its county and city government processing capabilities, both in terms of product offerings and the hardware on which its software ran, through the acquisition of application software companies or specific assets in categories such as real estate appraisal, tax collection, utility billing, and vehicle registration. In 1989 Manatron acquired assets from several companies, including the mainframe property tax and appraisal software capabilities of Clearwater, Florida-based Bryder & Associates, Inc., and financial management software developed by Lawson Associates Inc., a Minneapolis software development company.

ATEK ACQUIRED: 1993

Strategic acquisitions continued into the next decade. In 1990 the company purchased microcomputer-based tax and vehicle registration software developed for use in Georgia by Savannah-based Charter Micro Applications. Then, in early 1992, Manatron acquired a Greenville, North Carolina-based software company, Specialized Data Systems Inc., which had a customer base of 300 cities and 50 counties in the southeast for its PC-based applications that included accounting, payroll, property tax billing, and utility billing. In July 1993 Manatron acquired ATEK Information Services Inc., a 25-year-old company with offices in Canton, Ohio, and Indianapolis, Indiana, that served local governments in much the same way as Manatron but on the VAX and Alpha computers produced by Digital Equipment Corporation. At the end of 1993 Manatron acquired virtually all the assets of Birmingham, Alabama-based City Computer Solutions, Inc., a software company that served about 100 cities and several counties in Alabama and other Southern states.

Manatron completed a pair of deals in 1994. In May of that year it acquired most of the assets of Horizon Systems and Software, Inc., a Michigan software company that developed judicial information systems that it had installed in 18 locations in Michigan and Indiana. Later in the year Manatron added the Real Estate Services Division—a major competitor known as Sabre—from Moore Business Forms, Inc. Sabre was the second largest provider of property tax and appraisal software to local governments, especially well represented in Ohio where it was based, as well as in Indiana and Pennsylvania. The acquisition spree came to an end in early 1995 when Manatron acquired most of the assets of Harrisburg, Illinois-based MSL Business Computers, a software company that served about ten county customers with software systems for fund accounting, payroll, taxes, and appraisals that ran on the IBM System 36 and AS/400 minicomputers.

COMPANY PERSPECTIVES

Manatron’s vision is to be the leading provider of software and related products and services that allow government agencies, taxpayers and private industries to efficiently process, manage and archive information. We seek to delight our customers with our products and services, to build a healthy culture with our employees who embrace the core values we have outlined and to maximize the return on our shareholders’ equity.

In October 1995 Allen Peat retired as chief executive officer and chairman of the board of directors. He was succeeded by his brother, Randall Peat, as chairman. By this time Douglas A. Peat, the son of Allen Peat, had been with the company for a decade and had been named executive vice president. Several months later, in March 1996, Paul R. Sylvester, Manatron’s chief financial officer for the previous ten years, took over as CEO. When the new management team took over, Manatron was coming off a year, fiscal 1995, when sales approached $25 million and net income totaled more than $435,000. Revenues declined over the next two years, due primarily to delays in rolling out new Windows-based products and the cyclical nature of the appraisal business in the key Ohio and Indiana markets.

Manatron bounced back with a strong performance in fiscal 1998. Revenues were slightly better than 1995, totaling $27.8 million, and after losing more than $3 million in fiscal 1996 (of which $1.6 million was a management restructuring charge related to Allen Peat’s retirement) and more than $400,000 in fiscal 1997, Manatron recorded net earnings of nearly $314,000 in fiscal 1998. The Sabre Appraisal Division led the way, increasing its revenues by 65 percent over the previous year. Also noteworthy was the completion and deployment of the company’s first Internet-based product, MVP Connect (Manatron Visual Property Web Search & Inquiry).

Fiscal 1999 proved to be an even better year for Manatron. Revenues surged to $37.6 million and net income improved to more than $1.3 million. With more cash flow at its disposal, a month after the fiscal year ended in April 1999, Manatron completed its first major acquisition in a few years, paying $1.5 million in cash and stock valued at nearly $2 million for Springfield, Ohio-based ProVal Corporation, which had its mass appraisal software system installed in 16 states and three Canadian provinces. Later in the fiscal year, in March 2000, another acquisition was completed, the $1.8 million purchase of certain property tax and appraisal related assets developed by CPS Systems, Inc., a Dallas, Texas, company that was operating under bankruptcy protection. As a result, Manatron was able to add government customers in Florida, where it had little market penetration. More than half of Florida’s 67 counties used CPS software, as well as parts of Texas and Oklahoma.

GOVERNMAX.COM FORMED: 2000

During fiscal 2000 Manatron also formed a new division, GovernMax.com, to promote the company’s emerging Internet software and services. The unit was actively developing the back-office information systems that government entities would need in order to add so-called e-government capabilities. GovernMax.com introduced online products to allow citizens to access public information 24 hours a day to apply for licenses, complete registrations, and make online payments of taxes and fees with a credit card. GovernMax’s suite of products included PropertyMax, CollectMax, RevalMax, RecordMax, and CourtMax. These new initiatives combined to help fuel an increase in revenues to more than $43.6 million in fiscal 2000 and an improvement in net income to $1.6 million.

Business fell off in fiscal 2001, due in large measure to customers opting not to spend money on upgrading systems because they had just invested significant sums to make sure their operations were Y2K compliant. Hence, revenues dipped to $41.1 million and the company recorded a net loss of more than $940,000.

Manatron focused on three main product lines, its MVP Tax software, ProVal property appraisal software, and the GovernMax suite of applications. Manatron returned to profitability in fiscal 2002, netting more than $225,000, despite flat revenues caused by difficult economic conditions. Revenues fell to $40.4 million in fiscal 2003 as the economy continued to struggle, yet Manatron was able to net $1.5 million. The company also divested a financial product line that no longer fit into long-term plans.

The company began to focus all of its resources on property tax and appraisal systems and services. The loss of the financial product line adversely impacted revenues, which fell to $38.5 million in fiscal 2004, but that sale added $2.4 million to Manatron’s record net profit of nearly $4.6 million. The company’s Judicial product line was then divested in fiscal 2005 as Manatron continued to pursue a new business model.

KEY DATES

1969:: Company is formed as a partnership in Michigan.
1972:: Manatron is incorporated and enters Indiana market.
1986:: Initial public offering of stock is completed.
1995:: Randall Peat retires as CEO and chairman.
1999:: ProVal Corporation is acquired.
2006:: ASIX Inc. is acquired.

In the past the company had spent a great deal of time and money making a system comply to a client’s particular circumstances. The more Manatron worked within a state or jurisdiction, the more efficient it became, but it had become clear that by pursuing such a “legacy” business model the company would never grow much beyond the $40 million plateau. Manatron began taking steps to become more of a national company, perhaps even an international company, by developing a single, standard product that could be easily customized. To achieve that end the company hinged its future hopes on a Web-based Government Revenues Management (GRM) suite of property tax and Computer Automated Mass Appraisal (CAMA) software programs. In fiscal 2005 Manatron unveiled its new GRM software in Gwinnett County, Georgia, where the company’s CAMA and Records components went live during the second quarter of the year. To build on its core competency, Manatron also acquired VisiCraft Systems in fiscal 2005, adding that company’s VCS Tax software programs as well as a number of customers in Georgia. For the year, Manatron netted $2.4 million on sales of $40.2 million.

In November 2005 Manatron added greatly to its client base in Indiana through the $1 million acquisition of Indianapolis-based Plexis Group LLC. A far more important transaction was completed three months later, in February 2006; it was possibly the most significant in the company’s history. To accelerate the rollout of its GRM suite of programs, Manatron spent $10.9 million to add ASIX Inc., a Bellevue, Washington, software company that offered Ascend, a property tax billing and collection program that was already installed in 16 counties in Washington, Oregon, Colorado, Nevada, Missouri, Minnesota, and Illinois. Like the GRM software suite, Ascend was able to meet the requirements of each state through the configuration of its software and did not need to be overly tailored for each customer. By combining forces, Manatron hoped to accelerate the national rollout of its GRM suite, augmented by Ascend capabilities. Moreover, ASIX had achieved a foothold in the all-important California market, where Manatron hoped to achieve considerable growth in the years to come.

Revenues slipped to $36.3 million in fiscal 2006 and Manatron lost $4.3 million as it invested further in its transformation. A restructuring effort and a three-year growth plan was launched in fiscal 2006. Later in the year the company received a buyout offer from Constellation Software Inc., which Manatron’s board unanimously rejected. The company was convinced it was on the verge of exceptional growth and did not believe that a sale was in the best interests of its shareholders.

Ed Dinger