By Tim Reynolds
The ERP software industry has been shaken up recently with a couple of big announcements. In March, Lawson Software Inc. received an unsolicited cash buyout offer from Infor and Golden Gate Capital, a private equity company with $9 billion in capital under management, according to its website.
Its investments have included software maker Infor, restaurant chain Romano’s Macaroni Grill, and network-marketing company Herbalife, according to the website. Brian Sommer of ZDNet’s Software & Services Safari has a good article on what the potential acquisition could mean to prospects and customers.
On April 4th, London based private equity firm Apax Partners announced they were buying Epicor and Activant in a deal that will create one of the world's largest ERP software vendors. The new company will be named Epicor Software Corp and when combined will have 30,000 customers.
I wrote an article for Modern Distribution Management during the last spate of acquisitions on what distributors should expect from the consolidations of software providers. Analyst Ray Wang, CEO of Constellation Research echoes similar sentiments stating that, “Private equity firms focus on squeezing out costs from companies they acquire before selling them at a profit. That being said, we should wait to see what Apax has in mind."
I don’t often speculate on my competitors’ prospects or intentions (at least publicly). However, there has been a lot of discussion on various industry blogs on this particular acquisition, much of it hysterical or misinformed. So, I thought I’d share my thoughts. Hopefully, you would find them neither hysterical or misinformed!
1. “Where are the customers’ boats?”
Early in his career, my father worked in the finance department of a major automotive parts manufacturer. His boss and mentor was a man named Fred Crawford. My father tells the story of accompanying Mr. Crawford on a trip to New York to visit the investment banking community. After a day of meetings, they were entertained on one of the banker’s private yachts. The man regaled them with stories of deals done and explained that the yacht was the result of one of his more recent deals. Mr. Crawford looked around the marina and simply asked, “Where are the customers’ boats?” There was an awkward pause, and then festivities resumed.
Private equity roll-ups can often create value. But despite the platitudes in press releases, rarely does much of that value accrue to the customers.
2. The nitty-gritty of mergers
The two companies seem to have very complementary strengths. Activant is solid in distribution software, Epicor in manufacturing, service and retail. Epicor brings a strong international operation to the table, an area where Activant is lacking. Combined, they should make a formidable competitor in the mid-market ERP space. The devil is in the details, of course. Integrating the companies will involve some very significant decisions with important trade-offs.
Technology platform choices will need to be made. Will the development plan involve moving to one platform? What will that look like and how will it be received by the myriad markets the new company will serve? A big decision needs to be made regarding channel management. Activant goes to market with a direct sales force. Indeed, I feel that Activant’s principle competitive advantage is its sales management. Epicor uses VARs for at least some of its sales. How will they manage channel conflict? Will the best Activant salespeople become independent VARs? Will Epicor move to direct sales? Will they try to go with a hybrid approach? Each has advantages and challenges.
3. The impact on niche players
From my point of view, there are always opportunities for niche players that bring specialized expertise and focus to a narrow market. And, the trade-offs that Epicor will make during their integration will likely create new opportunities for me.
For nearly 20 years, my competitors have said that I don’t have the resources to match their large operations. Nevertheless, Tribute, Inc has consistently shown that we have the capacity to support our customers and to stay current with technological change. We have the necessary resources because we’ve been able to develop very highly expert employees, retain them throughout their career, and apply that expertise to a narrow domain.
Tribute employees have more experience and expertise, are more productive, and more focused on the needs of specific customers. As such, we are able to deliver highly personalized service around very tailored products to a focused group of distributors. I may have smaller ambitions than the shareholders of Epicor. But they can’t beat what we do for the customers we serve.
And, you know, a lot of our customers own boats!