Thursday, June 20, 2019

No Collusion, No Financials in Acumatica Rollup

In a cheery piece that reflects much of the coverage I've seen, the analysts at Diginomica report that cloud ERP vendor Acumatica has been acquired by the private equity firm EQT Partners, which also recently bought European-born upmarket vendor IFS:
[T]his is not an acquisition by IFS, per se, but rather a tight affiliation between the two companies. This is a very important distinction given the "acquisition fatigue" that customers are feeling of late, particularly in the cloud ERP market. The first assumption many might have is that this constitutes yet another merger, and the loss of two independent players for customer choice, but that is not the case.
Well, as one of the leading purveyors and cheerleaders of acquisition fatigue, I'd sound a note of caution here.  Left unremarked in any - ANY - of the coverage of this deal, official or otherwise, is the slightest mention of how Acumatica has been performing financially.  At the risk of saying something unpopular again, HAS THIS COMPANY EVER MADE A DIME IN PROFIT?

Of course, lots of people have reported on the $48 million the company raised over five rounds, more than half of which came from a private equity round with Accel-KKR almost exactly one year ago.  It's not hard to see a scenario where an all-out sale was the least unattractive option as the company likely burned through more than $25 million in losses over twelve months.

There's also this, delicately put by Diginomica:
It is important to note that this deal also removes Acumatica's remaining Russian investors from the equation. While I have nothing against Russian investors and Acumatica's leadership was always upfront when we asked about their role, in the current geopolitical environment, this was always an awkward aspect of Acumatica's growth profile. Now any questions about that are settled.
As a well-known Twitter user might say, Complete and Total Exoneration!

But seriously, sooner or later, these PE-funded rollups will have to get serious about solving the basic business model problem of ERP software.  The answer, I humbly submit, is neither of these two currently popular "solutions":

A) Roll up legacy systems, cut costs to the bone, lever up the balance sheet, pay yourself big cash dividends, finally give up and sell to another financial buyer (e.g. most of the Infor acquisitions)

B) Start a new ERP company from scratch, sprinkle with cloud/SAAS pixie dust, burn through mid-eight-figures of capital buying market share and top-line growth, and ... give up and sell to financial buyer (Acumatica, Intacct, Kenandy - arguably even Netsuite).

We have some thoughts about that over at xTuple, if you'd like to come visit.  We're building a profitable, sustainable business by delivering an affordable commercial open platform ERP solution to hundreds of customers, and focusing intently on their success.

Old-fashioned, perhaps.  But we like it.