Find Research
Our World View
Industry Perspectives
Research Program
Parallax View Magazine
> RFID Renaissance

View our collections of research around key subject areas:
>
>
>
>
ERP
>
>
>
>
>
SRM
>
>
WMS
 
 
Article
Who Owns the ERP Market? Update

With the recent acquisitions of Plex and CDC's merger with Consona to create the new Aptean, the question becomes, who is driving the ERP strategy of the future?

(Note: This is an updated version of the article previously published 8/14/12, reflecting the lastest developments.)


Full Article Below -
Untitled Document

Introduction

There is a huge consolidation going on in the ERP market today. Infor—on a buying spree for a decade—excels at being the ERP shopaholic. Epicor and Consona also have a pretty good record at bargain hunting for the best buys in the market. All of these firms have been committed to taking care of the diverse and often ‘old’ customer base they absorbed. And they can, financially, because of two factors: the ERP market is experiencing healthy growth, and they have underwriters—their investors—who have stashes of cash with which to modernize and grow the companies. And with the recent purchase of Plex System by Francisco Partners,1 the private equity hold on ERP continues.

But not all ERPs have such rosy stories. Witness CDC Software’s purchase of Ross Systems in 2003. Ross Systems was one of the earliest ERP companies; along with Cincom (founded in 1968 and still successfully out there on their own); and Ask,2 now owned by Infor. CDC filed for Chapter 11 bankruptcy protection in 2011.

CDC suffered in spite of their strong position in the process (healthcare and food) industries.3 Another example of this is AspenTech, who had leadership in Oil and Gas.4 What’s the story with these two? Mismanagement? Sometimes. Missing the market beat? Maybe.

But Vista Equity Partners came to the rescue and purchased CDC shares.5 Also, Vista has now acquired Consona and then merged CDC with their other holdings, creating a new software firm called Aptean. In talking to the Consona team, they are excited about the opportunity-afforded investments by Vista to create a larger play in the market. CDC, more process manufacturing oriented, compliments Consona’s more high-tech/discrete manufacturing orientation. (We will have more on the merger/Aptean company in our next issue.)

Back to Aspen, investors have from time to time continued to infuse cash to sustain the company in its troubled life.

Private equity firms have been on the hunt for bargains for a long time,6 but recently have cast their gaze at the enterprise market for some undervalued assets. The ‘undervalue’ designation may not be a market issue. Sometimes companies are part of mega-enterprises that just don’t know how to sell or market in the software game. 

ERP Private Equity Story

Software Firm Investor(s) Comments
CDC Software Vista Filed for Chapter 11 in Sept 2011 after failing to pay investor Evolution CDC SPV Ltd. Purchased April 2012. Reference. This should be good news for nervous customers, with Vista’s long term growth strategy.
Plex Systems Francisco Partners Plex Systems was sold to Francisco Partners July 2012 by (majority investors) Apax. This is a good Cloud ERP story. Why not an IPO? Might be a future story in that with Francisco. Reference
Consona Vista Some history: consolidated several ERPs such as Made2Manage, Cimnet, Intuitive, and others, as well as complimentary applications. Have been on the acquisition path since 2006. Reference. Now acquired in August 2012 by Vista Equity and merged with CDC into Aptean.
Infor Golden Gate Capital
and Summit Partners
Infor’s debt was refinanced in April 2012; it allowed them to continue their shopping spree, as well as hire about 600 new developers to continue their modernization. This refinancing was a positive move, since Infor has been growing and making money.
Epicor Apax A rollup/consolidation of both Activant and Epicor ERP products. They have funding and plan to use it to acquire more companies and hire a lot more people to modernize the company. Epicor hired about 800 people last year.
HarrisData William G. Nelson Serial entrepreneur and private investor in such companies as Carbonite, Pilot, and Pansophic. He purchased HarrisData in 1990.
AspenTech Massachusetts Capital Resource Company Investments made at various stages for additional acquisitions and re-aligning the company.
    Source: ChainLink Research

Figure 1

Driving Strategy?

Money to keep companies going is a good thing. But my query was about whether these financial institutions drive the strategy of the companies they own, and thus the direction of the software market. The answer is yes and no.

These acquisitions are usually part of a portfolio strategy to own many companies in a sector or create an integrated story so that each company can benefit from others in the portfolio.7 For instance, HighJump—purchased by Battery Ventures—fits these criteria. The investors have combined HighJump WMS with EDI, Transportation and MES software8 to create an execution solution in Supply Chain. This is a case in which one clearly can see the portfolio strategy being used. However, it is not at the expense of the customers. Customers benefit from a seamless execution from manufacturing to distribution with the appropriate integrated EDI messaging between trading partners, and integration of mobile within the facility.  

Another example is Epicor’s purchase of Internet Auto Parts (IAP). Epicor had the Vision and Eagle ERPs for auto aftermarket services and distributors. With the acquisition of IAP they have the sourcing and procurement site for auto parts, as well.

Other ERP purchases may be a little harder to grasp. The cases of HighJump and Epicor Vision/IAP look like purchasing the suit, shirt, socks and shoes—a complete solution. Other acquisitions look like just acquiring more suits for the closet.

Besides roll-up strategies, revitalization and ongoing investments in the software do matter. We like the many investments Infor, Epicor, Consona and others have made in new UI, mobile platforms, search and social media. This is state of the art and would not have been possible without those stashes of cash!

Thoughts of Routes to Success

Founded by Chris Heim in the 1990s, HighJump is a case study of many curves in the road, but ultimate success. Even though it changed hands in 2003, passing from Mr. Heim to 3M9 and then to Battery Ventures in 2008, at each stage the new owners added to the company’s value and growth.10  

Sadly, many firms that seemed to be so important in the market faded from view. No doubt the SAP and Oracle onslaught was hard to fight off. But in the ‘90s, their fate as the dominant players was not ensured. At that moment, when investments counted, many ERPs did not pour in the cash for innovation. I saw this firsthand with ERP providers like SSA, MAPICs, and so many others just not making the right moves. It never pays to bet that change won’t happen—that client server, the internet or mobile are just passing fancies and “our customers won’t want these things.”

This is an important point for the PEs: As you acquire companies, you are not just giving those company’s customers a home, but a renovation. Infor is a great case study, with CEO Jim Schaper and now Charles Phillips, both of whom know how to grow a company—not just through shopaholic tendencies—but with sustaining sales of almost $3B. And we shall see a similar case, I am sure, with Epicor.

No doubt there are some pretty bad tales out there about PEs, but it appears in the software market, at least, that there is a more positive picture. In fact, the term growth equity has come into favor, probably better suiting what these firms do. (“Growth” sounds better, at least. And lately the financial sector is clearly in need of some better marketing.) Of course PEs are interested in making sizable profits. They purchase companies to grow and create sustaining enterprises with value. But that doesn’t happen without a healthy company. And a healthy company doesn’t happen without taking care of customers for the long term. That doesn’t happen without innovative technology. And that requires progressive technology leadership for their teams and their customers.

Reference:

ERP Series

________________________________________________________________

1 Francisco Partners also owns RedPrairie. -- Return to article text above
2 Ask’s founder Sandra Kurtzig is now start-up founder of Kenandy with investments underwritten by Mark Benioff, Salesforce.com founder. Recently, additional investment has been made by Kleiner Perkins’ investment partner, Ray Lane, who knows a few things about ERP. -- Return to article text above
3 China.com (i.e. CDC) may not have managed CDC well. Many stories surfaced regarding issues in the company. And in 2010, a jury ruled against CDC Software in a lawsuit in which a customer alleged fraud related to the sale and implementation of a beta Ross ERP system in 2005. The jury awarded a total of $61 million in damages to Sunshine Mills. A final law suit, by investor Evolution CDC SPV Ltd., was the nail in the coffin. -- Return to article text above
4 A consolidated effort  to get focused has payed off for Aspen—the reigning leader in Chemical, Oil and Gas for so many years. Aspen story on Wikipedia. -- Return to article text above
5 At the time of filing Chapter 11, CDC’s assets were worth $377,383,000.00 and debt was $250,182,000.00. I am not a finance person, but it sure looked like a target for a takeover with those numbers, in spite of lingering issues. And thus it was. CDC was sold to Vista for $250M. -- Return to article text above
6 And many a VC has morphed into a long term investor, so the lines between VC and (private equity) PE are somewhat blurred in many cases. For more on VC vs. PE read our article, “Desirable.” -- Return to article text above
7 Battery has a history of VC and PE work—the distinction may be moot—and has a strong position in supply chain. -- Return to article text above
8 True Commerce (EDI); BelTek Systems Design, Inc. (Mobile/Wireless); Pinnacle (transportation) -- Return to article text above
9 It seemed like a good idea at the time, with 3M’s good history at managing diverse businesses and its strong position selling products to distributors. HighJump more than doubled in size while at 3M. -- Return to article text above
10 Both HighJump and RedPrairie had poor CEO interludes, but the boards addressed these issues and have leaders who care about the customers, employees, and the growth of the company. -- Return to article text above


To view other articles from this issue of the brief, click here.





MarketViz powered.