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This week
VOL. 21 NO. 42, DECEMBER 25-31, 2000

Technology
Former Software Artistry employees fair game
Expiring agreement could hurt Peregrine

By Peter Schnitzler
IBJ Reporter

When Peregrine Systems Inc. acquires Tivoli Systems Inc.’s Indianapolis operations, it will obtain some of the most experienced information technology professionals the city has to offer.

But Peregrine might struggle to keep those seasoned employees, thanks to a non-solicitation agreement that expires Jan. 26.

“If these employees are fair game for the Aprimos of the world, these would be the first employees they’d want to consider, because they’re known quantities and they’re high-caliber,” said Don Kellner, president of The Consulting Forum Inc., a placement firm specializing in IT professionals in central Indiana.

“If [Peregrine] wants to keep these people,” he added, “they’d better start doing some good public relations very fast.”

San Diego-based Peregrine is purchasing the local division of Tivoli, an Austin, Texas-based subsidiary of IBM Corp., for $105 million. The division has about 200 employees. It once was Software Artistry Inc., a locally grown high-tech firm that sold to IBM in January 1998 for $200 million.

Besides employees, Peregrine will gain Tivoli’s Service Desk suite of products and its related customer base.

Back when Tivoli bought Software Artistry, savvy dealmakers realized experienced employees were among Software Artistry’s best assets. Afraid those workers might bolt after the name over the door changed, Tivoli brokered a provision in its deal as insurance toward employee retention.

The non-solicitation agreement prohibited Software Artistry executives from immediately enlisting their old employees in their new ventures. Instead, the Software Artistry executives had to wait six months after a worker left IBM, or obtain written IBM consent, before hiring the worker.

Software Artistry executives have gone on to help spawn a number of successful local high-tech firms, including Aprimo Inc., Interactive Intelligence Inc., Mezzia Inc. and Volatus Technology Group LLC, which by extension are covered by the non-solicitation agreement.

The three-year agreement expires next month. In a tight labor market, those Tivoli employees could become hot commodities.

“It’s a pretty impressive group of senior people,” said Bryan Everly, Tivoli’s Indiana director of development for service management. “For the people still with Tivoli/Peregrine, the last block is lifted allowing them to go to Aprimo, Mezzia and so on.”

As soon as the Peregrine deal was announced, Everly said, he began receiving calls from several local high-tech firms asking about worker availability.

Peregrine has already announced it will release 80 of the 200 Indianapolis-based Tivoli employees when it takes over. Those workers have the option to take new jobs in other Tivoli and IBM divisions, or to accept a severance package, Everly said.

Corporate secrets and employee retention are extremely important for high-tech companies. Raghavendra Rau, assistant professor of management for Purdue’s Krannert Graduate School of Management, specializes in corporate finance. He said non-solicitation agreements are necessary in an industry where engineers are the most significant asset and intellectual property is easily transferable.

“It would be irresponsible for them not to have something like this, because your No. 1 asset is your people,” Rau said.

Mike Schade, Tivoli’s director of human resources, said Peregrine’s staff roster won’t be decimated when the agreement expires.

“We’ve given Peregrine three or four weeks’ lead time to get established in Indianapolis,” Schade said. “I believe there are some key employees that some of the former Software Artistry executives will be interested in. Clearly, Peregrine’s walking into this with their eyes open. They know what they have to do to keep their people.”

Peregrine, Interactive Intelligence, Mezzia and Volatus officials declined to comment.

Steven Ehrlich, Aprimo senior vice president for operations, said the market for employees will become a bit freer for Aprimo after the Software Artistry agreement expires.

“I wouldn’t say we’re standing by waiting for that day to pass, waiting to pounce on Tivoli’s employees. That’s not our objective,” Ehrlich said.

Aprimo, which already employs 140, is recruiting to fill 40 to 60 positions, Ehrlich said, although not all of those are Indianapolis-based. Aprimo will double its size in the next year, he said.

Some workers may prefer to join smaller, emerging high-tech firms, rather than enlist in another large company like Peregrine, which had 1,400 employees before the Tivoli deal was announced. Ehrlich said the chance for rapid advancement entices some toward firms like Aprimo. Others simply prefer to see the direct results of their work.

“If you think of IBM as an ocean liner, when you rearrange your room, it doesn’t affect the balance of the ship,” Ehrlich said.

Companies founded by former Software Artistry executives have an advantage if they pursue Tivoli employees, said The Consulting Forum’s Kellner, because they already have established relationships. But among the most important inducements a high-tech company can offer its workers is access to cutting-edge technology.

“That’s a big incentive,” Kellner said. “These people want to have access to all the fun tools.”

Indiana’s limited number of trained IT professionals once caused a bit more local competition than it does today. The failure in recent months of many Internet-related ventures has softened the market.

“I used to go to INITA [Indiana Information Technology Association] board meetings and we’d joke about who passed employees around this week,” Everly said.

But several successful high-tech companies hope to expand rapidly in Indianapolis. Interactive Intelligence and locally based Powerway Inc., for example, plan to hire about 4,500 over the next decade, thanks in part to $114 million in economic incentives.

Whether local companies attract any Tivoli employees away from Peregrine may depend most on whether those employees like Indiana. John Warne, senior program director for high-tech analysts the Meta Group, said it’s likely Peregrine will move the development aspect of Tivoli’s Indianapolis operations to San Diego over the next 12 to 24 months. Related employees could move along with their jobs.

The Indianapolis operations would then focus on sales and support of Service Desk, which is a logical Midwestern operations hub for Peregrine. Within 60 days, about one third of Peregrine’s 120 Indianapolis workers will probably leave for other ventures, Warne said. To keep the employees it wants, Peregrine could offer higher salaries, stock options or bonuses, Warne said.

“Peregrine really does want to retain those people, both short- and long-term,” Warne said. “But I think its long-term strategy is in San Diego.”

Generosity could be Peregrine’s best incentive if it wants to keep the workers it just acquired, Rau said.

“If the employee is treated well enough, he tends to stay on,” he said. “It just depends on how the acquisition is managed.”

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