The actions of Computer Associates, the US software giant, have frequently mystified both financial and IT analysts over the years. And its decision to publicly float its business software subsidiary Accpac appears – at least on first glance – to conform to the pattern.

First, there is the small matter that the stock markets are moribund and investors highly sceptical of software companies. Then there is the fact that Accpac has filed to float before – but for a variety of reasons never followed through.

Add to this the fact that Accpac has not made full year profits since 2000, and that Microsoft is its main competitor, and the IPO starts to look distinctly difficult.

One partial explanation for the move is that Computer Associates needs to reduce its debt. But if that were the primary motive, a trade sale would surely have been an easier route. CA sold its interBiz enterprise applications subsidiary to Systems Software Associates (SSA) in April 2002.

The real reason seems to be that CA has genuinely high hopes for Accpac, even though it does not fit strategically with CA’s systems software products. As its flotation document outlines, the SMB (small and medium business) segment of the business software market that Accpac targets is set to explode. There are, it says, 8 million such businesses worldwide, many of them in need of an integrated business management package.

CA’s plan is to free Accpac to develop its product line and strategy independently, bank much of the $40 million raised, and keep a majority shareholding.

Accpac is clearly serious in its ambitions. It has made a series of acquisitions to flesh out its product portfolio, and now has something approaching a full line business suite for medium sized business. It even claims a customer base of about 140,000 small and medium-sized businesses (SMBs), which it defines as companies with between 20 and 1,000 employees.

The acquisition of SBT Accounting Systems in mid-2000, for example, enabled the company to penetrate the upper reaches of the SMB market. SBT’s modular accounting software, now called Accpac Pro Series, unusually uses ‘shared source code’, allowing customers and channel partners to customise the software in more complex projects.

Two key deals, struck in the last four months of 2002, have taken Accpac into new applications areas. First, it acquired manufacturing software from Lahey Software, a privately held California-based supplier, in September 2002. Three months later, it bought eWare, a young Irish supplier of customer relationship management software.

Accpac previously re-sold software from both companies, and as a result, these packages already integrate closely with Accpac’s core Advantage Series accounting product. But they can also be bought separately, says Ivan MacDonald, European general manager for Accpac.

MacDonald now argues that Accpac is ready to compete head-to-head as an independent company against software giants Microsoft, SAP, Oracle and PeopleSoft in the burgeoning mid-range business applications market.

These competitors are larger and more influential. But they are offering SMBs cut-down or specially packaged versions of products that were designed for far larger organisations. That could give Accpac an edge.

“Accpac is at an advantage because it actually has a broad spectrum of products – including customer relationship management, human resource management, and warehouse management applications – that are specifically tailored for different-sized [SMB] customers,” says John Bermudez, an analyst at IT market research company AMR Research.

“Vendors such as Oracle and PeopleSoft have to realise that they cannot simply move into this market by downsizing [existing] products,” he adds.

But the greatest threat to Accpac’s ambitions in the SMB market, according to Philip Carnelley, an analyst at market research company Ovum, is Microsoft, with its acquired Great Plains and Navision packages for the SMB market. Armed with these products, Microsoft is currently preparing for a new marketing assault.

Microsoft is certain to enjoy some success. But Accpac, with sales of $78 million in its last full year, and now profitable on a quarterly basis, has a good foothold and might reasonably argue that the market is large enough for itself and several of its rivals.