NEWTON, MASS. — A string of recent mergers and acquisitions is changing the distribution software industry.

Such consolidation activity hadn't ceased, but it had cooled off during the economic slowdown. While former M&A activity was often focused on strategies aimed at cornering large shares of the market, the recent strategy seeks to expand a company's value proposition and complementing its software offering.

"The former acquisition strategy was a kind of gold-rush strategy which was fueled by the dot.com frenzy," said Kristian Steenstrup, research director for business at re-search firm Gartner, Inc. in Stamford, Conn. "As there is less money in the market, there are fewer providers that must provide a more industry-focused product."

Steenstrup said software vendors need to have a strong, industry-specific value proposition. To justify the technology investment for distributors, he said there needs to be a significant cost reduction that they can pass on to their customers.

"[Software providers'] offerings are becoming more strategic over time, which is beneficial to their customers," said Steenstrup. "They are morphing into the right value proposition."

Intuit, Inc.'s purchase of Eclipse, Inc. earlier this year is a case in point. The Eclipse purchase followed Intuit's acquisition of OMware, American Fundware, CBS Payroll and Management Reports, Inc. Intuit is the maker of QuickBooks, a well-known business accounting product used by about 225,000 businesses, said Michael Honig, director of business development for Intuit Eclipse. The Eclipse acquisition was part of the company's strategy to move beyond accounting solutions and serve larger, more complex businesses. It also fit Eclipse's growth strategies, he added.

"Eclipse will still sell, support and enhance its product," said Honig. "We will always continue to evolve and improve the package around our customers' needs."

Intuit will continue to develop the Eclipse product.

"Our research and development budget was always substantial and that will continue," said Honig. "We develop cutting-edge features and functionality to remain a leader in our market."

What Eclipse gained from the merger was the leverage of the Intuit brand. Intuit's wide presence will introduce Eclipse to other wholesale verticals where the product is not well known, said Honig.

"We were designed for industrial distributors, but our product can be tailored to many industries," said Honig. "Hopefully with Intuit we can expand into those wholesale industries that we haven't penetrated."

He said Intuit is assisting this effort by marketing Eclipse to QuickBooks users that may need to upgrade to a product with more functionality.

NxTrend Technology, Inc. recently unveiled a partnership with FRx Software Corp. to offer its Financial Reporter product. This offering is aimed at middle-market companies. While this may seem like a move to match Intuit's addition to Eclipse, NxTrend marketing manager Matthew Turner says the two companies are different and so are their strategies.

"NxTrend's strategy is to remain focused on distribution-specific solutions that provide value to our customers and our acquisition choices reflect that," said Turner. "I don't see us suddenly chasing after plug-in solutions."

Turner said the company made a commitment to grow organically and through acquisition. He pointed to the acquisition of SHIMS, Sabre Systems and TWL, which contributed to past growth, and this year's purchase of CorpDNA.

"With the state of the market there has never been a better time to find other companies to acquire that can help accelerate NxTrend's growth," said Turner. "We'll look for companies where their products complement ours or they offer us an entry into a market that we believe will be strategic to us."

Exact Software North America, a subsidiary of Dutch software developer Exact Holding NV, also has made recent acquisitions that broaden its offering. From its entry into the U.S. market with the February 2001 purchase of Macola Technologies, Inc., Exact has been expanding its influence and product components.

In May 2002, it acquired Kewill ERP, whose products complemented those of Macola. Exact continued this strategy with recent purchases of Comprehensive Business Systems and Integrated Planning Systems, Inc. Both companies had a former relationship with Macola.

Systems Design, Inc. has added PDA-accessible remote product information partnership with catalog provider Schmitt ProfiTools, Inc. The company says this will allow the distributor sales force and key customers to harness the back-end power of the ERP system, rounding out the Mobile Commerce component of its Prism e-Enterprise FrontOffice Solutions.

Of course, not all of the competitors have joined in the acquisition strategy. Tribute, Inc., is a competitor to Eclipse and NxTrend, but hasn't announced acquisition plans.

Prophet 21, Inc., also has a strong offering in this field. President and CEO Chuck Boyle said in a recent interview that Prophet 21 is concentrating on its existing offerings.

"We currently have nothing with regard to mergers or acquisitions in our business plan today," said Boyle. "It is something that may interest us at one point if the proper opportunity came along for Prophet 21 to grow through acquisition. But currently our focus is on delivering to our market and we're being very successful at it."

Steenstrup said he expects more consolidation to occur among software providers. Whether a company makes acquisitions or not, he said they need to continue developing new products and bring more value to their customers.