ERP M&A: Do the users win or lose?
By Jonathan Gross
By Jonathan Gross
In my February article, ERP Buyer’s Corner: Making 2011 the Year of Success, I predicted that “some of the bigger ERP vendors [would] go acquisition hunting to quickly fill strategic gaps in their product repertoires.” This prediction has come true.
Here’s a brief recap of the deals that are most relevant to manufacturers and distributors: In early April, private equity firm Apax Partners announced that it was acquiring ERP vendors Epicor and Activant for a combined purchase price of about $2 billion US. In another $2-billion blockbuster deal, GC Software Holdings, Inc. – an affiliate of Golden Gate Capital and Infor – agreed to acquire Lawson, another Tier II ERP vendor. Infor also recently completed its acquisition and integration of SunSystems, a vendor of financial management software.
This recent M&A activity is likely to have both positive and negative effects on the manufacturing community.
In terms of the positive – assuming the vendors can successfully pull off the integrations – the synergies created by the Epicor/Activant and Infor/Lawson/SunSystems acquisitions could create the following benefits:
• Deeper functionality under one roof. Customers can shore up gaps in their systems without having to worry about expensive and difficult integrations of third-party software. The Activant platform will give Epicor customers an opportunity to access deeper distribution functionality – an area in which Epicor had notable gaps. The Lawson acquisition offers Infor customers more depth in human capital management, and the SunSystems acquisition offers them deeper financial management functionality.
• Consistent user interfaces. Users won’t have to worry about learning how to use different systems, since the vendors will probably harmonize the user interfaces. This should lower end-user training and other adoption costs for companies that want the additional functionality.
• Deeper user communities. Companies should benefit from bigger user groups. Companies use the groups to troubleshoot, drive system development and swap best practices. They also use the groups to exert competitive pressures on the vendor. For example, SAP’s worldwide user group, SUGEN, recently pressured SAP to reverse a decision to hike maintenance fees. Expansion of user groups would be particularly good news for users of Infor’s LN and Baan systems, since their user group, Mosaic, recently shut its doors.
• Fewer tradeoffs for prospects. Now that a greater number of systems have broader functionality, prospective buyers won’t have to make nearly as many functionality tradeoffs. Instead of answering the question “Do I want advanced warehouse management or advanced financial management,” they can ask, “Do I need both advanced warehouse management and advanced financial management.”
Though consolidation generates many potential positive outcomes, it also creates potential negative outcomes. Here are a couple:
• Reduced buyer power. ERP customers and prospects will likely see a dwindling of their negotiating power. Until recently, buyers had been able to use the threat of leaving to obtain concessions. With fewer credible players on the market, buyers can expect to see more push-back from vendors.
• Uncertain product future. Users of software supplied by both the target and the acquirer should be worried about what the future may hold. They face increased risks that the vendor will turf the software (particularly if the product integrations fail), change the interface, reduce development efforts and generally divert resources. For example, Infor will likely use the Lawson acquisition to propel itself into new vertical markets, including health care. Since Infor famously runs a Lean operation, its manufacturing and distribution clients have cause to be concerned.
In the final analysis, market consolidation creates both opportunities and risks for users and prospects. Companies should make the effort to understand how M&A activity could impact their software and businesses.
Jonathan Gross is vice-president of Pemeco, Inc. (www.pemeco.com), a consulting firm specializing in ERP selection and implementation. He can be reached at firstname.lastname@example.org. He regularly comments on ERP trends for Manufacturing AUTOMATION.