Robert Dean in Budapest -

Gabor Bojár, founder and chairman of Hungarian tech flag-bearer Graphisoft, may have received Ernst and Young's prestigious "Entrepreneur of the Year 2006" gong for Hungary, but is his decision to sell his promising company to German rival Nemetschek really the stuff of entrepreneurial genius? Monday's announcement of a spin-off of the costly "5-D Virtual Construction" software business could yet prove he deserves his title.

While Nemetschek's acquisition of 54.3% of Graphisoft's 10.6m shares at €9 per share late last year was in excess of the market value of the company, the fact Graphisoft was a company going places makes the price something of a giveaway.

One analyst who chose not to be named believes the Graphisoft owners must have been eager to offload their shares in quick fashion, as the price was far too low for a company that could have possibly gone all the way alone and with superior products to Nemetschek's. There must have been some other reason behind Bojár's decision to sell his over 25% stake, he says.

Attila Gyurscik, an analyst at Concorde Securities, agrees. "On the one hand the price looks fair, but on the other hand the market expects some extra value when an acquisition takes place and that's why some aren't happy."

For his part, Bojár has said that "size matters," so for Graphisoft to flourish in the long term in the vast global software market there was an overwhelming need for it to scale up the business. He has shrewdly retained the role of chairman, while his own appointed successor as CEO, the American Dominic Gallello, also keeps his position. As neither looks set to depart anytime soon, it appears job security was part of the terms of the deal.

Bojár and Professor Nemetschek

Even though Graphisoft is the prey rather than the predator, its management has received assurances, publicly at least, from the new German owner that it will be left to run itself.

"We have 30 companies in our group structure, and our philosophy is to leave successful companies to operate independently," says Gerhard Weiss, the CEO of Nemetschek.

Importantly, selling Graphisoft also appears to have saved Bojár from the fallout associated with having to take the cash intensive but hugely promising "5D Virtual Construction" software business out of the Graphisoft portfolio, which it announced on February 12 it would to dolast in a management buyout deal backed by private equity house Borealis Ventures.

Virtual cover

Bojár and co. have pulled a lot of their hair out over this part of Graphisoft's business, which ultimately became too hot and expensive for it to handle on its own. The new company incorporating the Virtual Construction business will be run by Mark Sawyer, who himself earlier turned down the position of CEO of Graphisoft.

"The only challenge is the time that it will take for Virtual Construction to go mainstream," says Gallello, who was also a minority owner of Graphisoft. "We believe that the financing of the losses required until the market moves more to the mainstream would be best be done outside of Graphisoft."

Nemetschek's Weiss says he likes the Virtual Construction business too, but it's prohibitively expensive to create new solutions for markets that are not there yet. "You can't spend big like this in the long term," he argues.

Concorde Securities' Gyurcsik says that Graphisoft never really had enough money to introduce such a new product. "It had been spending €9.5m annually on development and marketing [of Virtual Construction] and this is too small."

For others like Daniel Lion, an analyst at Erste Bank, Virtual Construction is a revolutionary product that will have a bright future, especially with IT penetration still low in the construction sector. Lion described pre-buyout Graphisoft as an exciting company with strong dynamics.

Therefore, taking the company out of Graphisoft with Nemetschek at the helm has taken the heat off Bojár from critics like Lion. "This might not have proved popular with shareholders [before the buyout] and the share price might have been adversely affected," Gyurcsik reckons.

Nemetschek has thus taken the weight of the Virtual Construction axe off Bojár's shoulders, as Bojár himself is viewed as successful for finding the company a buyer to take it onwards and upwards. By being able to remain at the centre of things as Graphisoft's chairman, freed from the shackles of a new product whose costs have spiralled out of control, his award might be warranted after all.

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