Tuesday, April 26, 2011

Any other offers? Anyone? Anyone?

Well, looks like Infor is going to get Lawson without a fight.  The Lawson board has accepted their takeover offer, which was apparently the only one that ever surfaced, despite all kinds of rumors (and wishes?) to the contrary.  Too bad.

Monday, April 04, 2011

Epicor, Activant ... last one out, please turn off the lights

Zowie.  Sometimes the initial instinct for snark fails, and you just have to sit back and take another look at the industry.

Today, the private equity firm Apax Partners announced they were coming two steps closer to putting your humble blogger out of business - by taking out both Epicor and Activant in one fell swoop.  The combined price tag is said to be about $2 billion.

(h/t to The 451 Group's Brenon Daly, who said "If nothing else, we now know the clearing price for 'vintage' ERP companies."  He noted that the Apax offer for Epicor, and Infor's offer for Lawson are 2.5x and 2.4x trailing twelve months revenues.)

Here's a quick comparison of some notable numbers (from company filings):

Epicor Activant
Revenues (TTM) $440MM $372MM
Total Debt $244MM $497MM

Five years ago, Activant had already been recapitalized by a group of PE funds that were said to "bring a strong track record of helping software businesses achieve their strategic and financial objectives."  Hmm.

The estimable Ray Wang says it's all about scale:  "There is a race to get to $1 billion [in revenue]. At $1 billion, software companies gain economies of scale that allow the right amount of R&D. It's imperative to get to that size to compete and invest."

Gosh, I don't know.  This is a drum that Ray has been beating for some time, but it feels a bit like these companies are fighting the last war.  My own view, to which I've treated readers of this blog for years, is that it's all about cold hard cash, period.  Specifically, the gazillions in private equity dollars that are sitting relatively idle in funds around the world, looking for something better to do than grow moss in the shade.

Talking with IDG's Chris Kanaracus, Ray does acknowledge that point as well:  "Private equity firms focus on squeezing out costs from companies they acquire before selling them at a profit, Wang said."

Well, yes.  And how many times do we have to see this story before customers wise up, and realize that it's all about the a) the fees on the initial deal, and b) what they make on the flip?

I'd be very curious to know what kind of R&D breakthroughs people have seen from, say, Infor (which claims revenues of TWICE the magic $1 billion cited by Ray, but has turned out a succession of integration and middleware failures that would make a real software company blush).

I think Thomas Wailgum is closer to the truth in his blog for the, ahem, SAP User Group, bemoaning the diminishing amount of choice in the ERP world:  "as the overall number of options dwindles and lock-in becomes more evident, just how much 'free choice' will actually exist? It all may be just one big illusion."

Yes.  Yes!  Yes!!!  Does anybody really think that things will improve for Epicor users and partners?  Let alone those of Activant (whose PE recap five years ago followed a spree of mini-Infor style acquisitions in the distribution space).  And how long will it be until this new Epicorivant decides it needs to acquire another mini-Infor like Consona (and, not inconsequentially, provide an exit for its own PE investors)?  How about the Lawson customers, as they wait to see if Oracle will jump in once the price comes down? And does Infor really have a strategy besides someday, somehow, getting to an IPO and paying off their own PE investors with dumb money from the public?  Because unlike Wailgum, Jim Shepherd, and many others, I just don't see SAP or Oracle ever buying them.  Who's going to buy all that PE debt, except for another PE firm?

Wailgum edges up to a sentiment that I've been hearing from dedicated ERP professionals for years:  "This means something."  He's still talking mainly about the acquired companies being household names, not penny-ante little nobodies, but I'd like to expand the point.  This is serious business, this ERP software.  And with every deal that comes down the pike, I get more and more of a feeling that it's just another financial instrument, with knobs and levers to be jiggled by the geniuses at the PE firms.  Package up the recurring revenue from the customer base that is locked in to the old crappy software, run your discounted five-year cash flow models, work in your fees, and come up with a number - like we're securitizing deadbeat mortgages or something.

God help me, I feel like Martin Sheen in the original Wall Street movie (hold the Charlie jokes, please - that's for another blog).  Don't these people make anything?

Brothers and sisters, there is an answer. The choice that Thomas Wailgum is looking for.  The ongoing R&D investment that Ray Wang is looking for.  The way that business management software users of all shapes and sizes can take control of their destiny, and not wait for it to happen to them.  The answer is open source ERP like xTuple, and it is growing and improving and expanding, literally every day.

If you'd like a personal demonstration of what it can do for you, just drop us a line :)

FAQ response, 4/5:  I will update the Graveyard Scorecard after any deal(s) are finalized, including Epicorivant and Lawson.