A Personal Note

Greetings.  Some of you, to the extent that there are people who still come here looking for news, and don't just happen across it from a random Google search, might be wondering what the heck has happened over the past X number of years.  It's a reasonable question.  I'll start with a very personal answer.

In April 2011, my wife was diagnosed with breast cancer.  She was 42.  For the next eight years, this unavoidably dominated our lives.  We had two high-school age girls, and she poured herself into making everything as normal as it could be for them.  She pursued a reasonably successful course of treatment over the next year or so.  I was very fortunate to have a great team at xTuple, who took a lot of burden off me when they could.

Over the following years, things waxed and waned.  It came back, as it all so often does, and then it came back again.  In April of 2019, we lost her.

I won't dwell on the personal toll this took; those of you who have been through similar things can sympathize all too well.  But I will admit that, among many other things, it sharpened my thinking about where my ERP software company xTuple was going, as I was dealing with these massive personal issues.  Like many founders, I had put a lot of my own meager resources into the business - and had invited friends and family into it as well.  Having worked as a corporate VC, I was - shall we say - ambivalent about the idea of bringing in institutional money.  We had come close once or twice, but never pulled the trigger on a big growth investment, opting instead to go it alone.

As all these threads were playing out contemporaneously, I started getting serious about how best to position the company for future growth.  I brought on an outstanding fractional COO to help us get a lot of the day-to-day details of the business in order, and I hired an investment banker to help me explore my options for what that next stage of life could actually look like.

We ran a very successful "process," as they say in the business, and ended up with many serious offers.  The one I liked the best was a company that - brace yourselves, Graveyard readers - was a rollup of ERP and manufacturing-adjacent systems.  (Cue the cries of "sellout!") ... but what I liked about the business (and the very successful private equity group behind them) was that they had a real vision for what the combined company could become.

Longtime readers of this blog know my general point of view on this subject - and it's well-informed by shockingly brazen actions on the part of *much larger* private equity types trying to manage the impossible math of a $500+ million company, say, growing only in the single-digits organically, while still creating generous dividends for themselves (often at the expense of more debt).  I'm not a fan.

But without getting too far in the weeds, I can say that I am a fan of what CAI, the company that bought xTuple, is trying to do.  So much that I rolled a substantial piece of my equity in my company into what is, unavoidably, someone else's bigger company.

Going through this whole process from the seller side was an eye-opening experience for me.  Earlier in my career, I had done the same thing on the buyer/investor side, working as a corporate VC for a mid-sized media company.  Now, a year and a half after selling xTuple, and successfully transitioning the product, the team, and our customers and partners, I found myself thinking about how many other companies were out there wrestling with the same things that I did.

I had long been aware of a group called Corum - an investment bank exclusively focused on technology / software companies.  They did a LOT of market education, not just on tech M&A generally, but by individual sectors, highlighting particular disruptive trends, and generally just laying down breadcrumbs for companies who might be interested in some kind of transaction to be able to find them.  I had talked to them, of course, but ended up going with another firm that was smaller, I thought likely hungrier, and maybe more likely to get us a better result.

So let me be clear - xTuple's shareholders got a great result.  I developed a great relationship with the guy who was the lead on our deal, and we're good friends today.  Who knows if we could have had a different/better result with Corum?  For what it's worth, I will share that the balance of upfront retainer fees versus commission/success fees came out to be about a wash between the two companies.  I've always been fine with generous success fees - I want my banker to be deeply invested in getting me a good result!

All this is prologue for me to announce what you might already know, if you're so limited in fun hobbies that you follow me on LinkedIn.  I recently joined Corum as a VP, and will be working with lots of companies to help them get to a point where they can write rambling blogs like this of their own!  

But seriously, I really enjoy helping other entrepreneurs work through all the challenges that present themselves on a daily basis, and am particularly keen on the idea of helping them (and their shareholders) get rewarded for all their hard work over the years.

Oh, and to close out on a personal note, I'm happy to report that our daughters are both college graduates, out in the world with productive careers, making their father proud.  And I have been fortunate enough to find another wonderful woman with her own fabulous career, who will also abide all my tech geekery, Marvel/Star Trek/etc. background noise, and be my wife.  We celebrate our second anniversary in May.

Another private equity cash-out for Epicor

Well, it's been four years, and they've probably levered up as much as they can, so it will come as no surprise that KKR decided to find yet another new owner for Epicor.  What's a little more of a surprise is the size of the check that CD&R wrote - $4.7 billion.  That's about 13x earnings, according to the Financial Times.

KKR paid $3.3 billion for the company in 2016.  It's worth noting that, as the FT delicately puts it, "Last month Epicor unveiled plans to issue $2.8bn in new debt partly used to pay a dividend to KKR."

Timing is everything, friends.

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.

Sale-forced: Not enough room on the platform for Kenandy

In a mildly interesting bit of consolidation among ERP vendors on the Salesforce cloud platform, Rootstock is acquiring Kenandy, the second act of MANMAN creator Sandra Kurtzig.  As Brian Sommer delicately put it at Diginomica, Sandy "was encouraged to create Kenandy" by Marc Benioff and Ray Lane, back when he was at Kleiner Perkins.

Silly me, I'd always heard that story (the Benioff portion of which, at least, is said to have happened in adjacent beach chairs) and assumed there was an exit payday built in to that encouragement.  Apparently not.  Back to the delicate Sommer:

I asked Pat [Garrehy, Rootstock CEO] if this deal was a long-considered strategic initiative or was it opportunistic. His response: “Opportunistic.” Pat said that a lot of things fell together recently that made this deal possible. 

That leaves Rootstock and Financial Force as the ERP primary players on the Salesforce platform - and as Sommer notes, they sometimes work together too.  In fact, one hears that Rootstock didn't have its own accounting modules - at all - until just a few years ago.

Here's where your humble blogger makes another pitch for the commercial open source xTuple - an enterprise class ERP that has had a full suite of functionality for over 15 years, and is supported not just by one company, but a global community of Graveyard-proof ERP professionals.  

Sage buys cloud customers, more losses; will its balance sheet stay Intacct?

So some eyebrows arched upward yesterday when UK-based Sage, one of the more conservative ERP rollup shops out there, dug deep to pay $850 million for cloud-accounting vendor Intacct.

That works out to almost 10x revenues.  I can't give it to you as an earnings multiple, because like most of its peers in Software-Magic-As-A-Cloud (SMAAC), Intacct doesn't have any earnings.  Not sure it ever has - if anyone knows otherwise, please let me know either via email or in the comments below.

According to the press release, they had losses of $23 million on revenues of $67 million in fiscal 2016 (June).  Those revenues bumped to $88 million for 2017, but they must have spent like crazy to get them, because they didn't release the loss number.

Clearly Sage, with its stable of legacy products, some of which have received more facial reconstruction than others, was feeling a bit like the dowdy spinster at the ball.  But dang!  A good result for Intacct's patient investors, I guess, who have poured at least $130 million into it over the years.

Now it'll be up to Sage to see if they can make any, you know, profit.  I know, I know, that's so old-fashioned.  Maybe I just need a SMAAC upside the head.

You gotta admit, InforPlex would be a pretty cool name

So it appears that Plex Systems is looking to be sold for a third time, as all the phones at Francisco Partners (the PE shop that bought them from fellow travelers Apax Partners) all started vibrating with that five-year, time-to-sell reminder message.

Reuters reports that Plex, with revenues of just $100 million, hopes to be valued at "more than $1 billion, including debt."  Wow.

It's quite a coincidence.  That's the same figure I had in mind for potential acquirers of this blog.  And unlike nearly all of its subjects, The ERP Graveyard has no debt.  Please send offers in confidence to ned@xtuple.com.

What would Tony Stark do?

Random thought that occurred to me today, amid the shareholder grumbling about Oracle's proposed takeover of Netsuite ...

T. Rowe Price, who is the second largest shareholder in Netsuite behind - ahem - Larry Ellison, says it's not so much the fact that Ellison is reaching into one pocket to pay himself in the other... it's just the price that Oracle is offering.  Maybe.

But your humble blogger can't help but think of the similar drama swirling around Elon Musk's proposal to have Tesla (which he controls) merge with Solar City (ditto).

Both Musk and Ellison had cameos in the movie Iron Man 2.  For those sad people who don't follow the Marvel comics universe, Tony Stark is a self-described "genius, billionaire, playboy, philanthropist" who becomes the superhero Iron Man.  Musk and Ellison have both been compared to Stark over the years, and have laid varying claims to those four descriptions in their public and personal lives.

The fictional Tony Stark took over, and grew, the defense contractor started by his father in World War Two - and designed, built and manufactured all kinds of cool stuff, including of course the Iron Man suits.  Now, I've read a lot of comics over the years, but I don't recall ever seeing a story about Stark International using other people's money to fund deals like these two.  So, the question must be asked: What would Tony do?

Oracle-Netsuite is actually happening

Wow, we didn't really believe it, but the WSJ is reporting this morning that Oracle is actually buying Netsuite for $9.3 billion, which is a premium of 19% over yesterday's closing price.

Business articles in the Journal don't usually get a lot of comments (unlike the political ones!) ... but almost as soon as the story was posted, a commenter wrote:

As a long-time JD Edwards/Oracle customer, I was so happy with our decision to migrate to NetSuite for a couple of reasons, not the least of which was not having to be an Oracle customer anymore. I guess I'll have to get used to being treated like garbage again by my ERP vendor.

Yep.  Or, you could try the leading commercial open source ERP, and never have to worry about that kind of thing again!

Epicor back on the block, heavily laden

The WSJ is reporting that Apax Partners has come down with a case of the 5-year-itch, and is going to try again to find a buyer for Epicor.  Longtime Graveyard readers may recall their last attempt resulted in a bout of inspired Poetry from your humble blogger.

It focused on the shocking financial shell games going on in the firm, a theme which returned the following year when their borrowing practices raised eyebrows even at the ratings agencies who saw nothing wrong with the credit default swaps that led to the 2008 meltdown.

Interestingly, the WSJ piece says in 2014, they turned down offers "deemed too low from bidders including CVC Capital Partners ... Some bids were around $3 billion including debt."

Those last two words are pretty darn important.  How much debt would a buyer have to assume, to take this thing off of Apax's troubled-assets sheet?  The Bloomberg story a year ago said they were looking to borrow an additional $2 billion.  What's that money going toward, you might ask.  New product development?  Building out support teams and taking care of their customers?  Err... well, we do know they've paid themselves over $1 billion in dividends since 2012.

They were still losing money when they stopped reporting financials in 2014. Who knows what the income statement looks like today?  But I think we can all be forgiven for expecting a pretty lopsided balance sheet.

So, who wants to buy that?

UPDATE:  Turns out the answer is KKR.  See the comments.

Well, my previous post was about a Swedish ERP firm being taken over by a Swedish private equity fund.  Today's news could be spun as a Norwegian settlers' version of that story, I guess... Minneapolis-based Open Systems, Inc. has acquired Process Pro, just up the road in St. Cloud, yah?

This, just a few weeks after acquiring Auburn-based SouthWare.

IFS taken over by Swedish PE firm

Well, a buyout by Microsoft would have been more fun for us here at the Graveyard, but now we'll never know.  Sweden-based IFS has sold a majority stake to Sweden-based private equity firm EQT Partners.  The deal works out to about 2.7 times TTM revenues of US $330M, and nearly 30x EBIT of $35M.

Epi-junk?

Yowza.  Those who have followed this blog for a while know that I'm constantly aghast at the brazenness of the financial owners of legacy ERP companies - crafting exotic debt instruments, levering up the companies they acquire (and, in a sense, their customers) ... all the while, finding plenty of ways to pay themselves extravagant dividends.

Well, Bloomberg is reporting that Apax Partners, owners of Epicor, had to go hat in hand to Jefferies Group to "arrange" $2 billion in new borrowings - because two big banks "passed on managing the offering because of concerns it would run afoul of regulatory guidelines against excessive leverage":

The debt sale, along with a spinoff the company is doing at the same time, would push Epicor’s debt to 7.5 times a measure of its earnings, Moody’s Investors Service said in a statement on Monday in which it cut the company’s credit ratings. The leverage is beyond the ratio of 6 times earnings that U.S. banking regulators have said raises concern. Jefferies, a New York-based broker-dealer, falls outside the purview of banking regulators.

That's not all:

Moody’s lowered the credit ratings of Epicor to six levels below investment grade to B3 from B2, citing the “material increase” in leverage and the aggressive financial policies.
S&P changed its outlook on the company’s B rated debt to “negative,” according to a report Monday. The $300 million dividend follows the company’s approximately $380 million payment to Apax in June 2013, the report said.

Wow.  For a somewhat more light-hearted take on this topic, see the collection of Epicor-inspired POE-try here.

Does this mean MS is looking to unload Dynamics?

Well, now this is interesting.

As veteran Microsoft tea-leaf readers like Mary Jo Foley help the world to understand Satya Nadella's recently-announced reorg, Diginomica's Phil Wainewright indulges in a bit of speculation:

The other possible outcome is to put the Dynamics sales and partner organizations up for sale. This alternative strategy would allow Microsoft to focus on its core platform and product engineering strategy without the conflict of having a sales team intent on winning business away from its growing army of third-party partner vendors. Some or all of the ERP products would doubtless be part of that transaction, while Microsoft would likely prefer to retain the CRM product because of the tight integration that’s possible to its Office properties. But the ultimate decision may depend on who the buyer will be.... I think it’s more likely that Microsoft would look to sell off some or all of its legacy ERP portfolio to a ‘friendly’ competitor — one that’s committed to the Microsoft stack. 

He mentions Sage and Unit4, a PE-backed European vendor, as possibilities.

(Lest your humble blogger be accused of selectively parsing the speculation, Wainewright also suggests MS may look to acquire other vendors, rather than divest.  But I think the part I've quoted above makes more sense, and seems plausible given Nadella's recent actions and public statements.  We'll see...)

It's also worth noting that Frank Scavo, noted ERP analyst at Strativa, draws the opposite conclusion.

Dynamics IF?

Interesting chatter about Microsoft buying Sweden-based IFS.  Haven't heard much about them as an acquisition target in the past.

Epicor-Exact?

So "funds advised by" Apax Partners, the PE giant who has danced in and out of the ERP graveyard for years (most recently failing to find a buyer for Epicor), will be acquiring Exact Holdings, the Dutch rollup which acquired several Tier 2 and Tier 3 ERPs back in the day.

Here's a detailed announcement from the company.

Haven't seen any discussion anywhere yet about potential combinations with Epicor, which would presumably hinge on the nature of the relationship between Apax and these acquisition funds.  The price tag for Exact is $925 million, a little less than Apax paid for Epicor in 2011 (they were looking for at least $3 billion to flip it this year).

Of course, the most likely scenario is just that the "funds advised by" Apax made Exact an offer that was too good to pass up.  The company announcement notes:

The Offer Price represents a premium of 27% to the closing price of 10 July 2014 and a premium of 40% to the average closing share price of the last 12 months prior to that date.

What it doesn't say is that the stock has been consistently down another 10% or so since July, so the premium is even higher than that.  Perhaps the "funds advised by" Apax are looking for a way to pay themselves some nice dividends, like Apax did for itself when it straddled Epicor with additional debt.

For what it's worth, the Bloomberg report on the deal dispenses with the "funds advised by" fig leaf, and just says Apax.  It also includes this beaut of a quote from a Dutch financial analyst:  "Software providers in general are very attractive for private equity, especially when the stocks are trailing due to macroeconomic developments."

In other words, if you've got to put your money somewhere in a crappy market, buy companies with captive customers.  (Here's where I make my regular pitch for open source ERP, which has the effect of giving those customers real choice and control over their software investment...)

Stay tuned.

Infor: The Appeal of Saleslogix is becoming more selective

Turns out that the Saleslogix CRM package, acquired from Sage by their former partner Swiftpage 18 months ago, got sucked into the Infor slipstream.

Because Infor didn't have enough CRM products in its portfolio.  And Saleslogix was just too darn enterprisey for the small-fry folks at Swiftpage.  And Infor needed something like this to effectively compete against Microsoft and Salesforce (with both of whom, especially the latter, it supposedly has a tight partner/platform technology partnership).  Pour yourself a big glass of something brown and alcoholic, and then sit down with the story they fed to Ray Wang and TechCrunch here.

Brings to mind the famous scene in "This is Spinal Tap," where documentary producer notes that the size of venues the band is playing has diminished from 15,000 to 1,500, and asks, "does this mean the popularity of the group is waning?"  And the manager answers, "No, not at all. I just think that the.. uh.. their appeal is becoming more selective."

But then who would buy Epicor?

As ASUG's Thomas Wailgum rightly calls it, here's the 2014 version of this story...  "8 Reasons Why Microsoft Needs to Buy SAP Right Now."

That would be fun.  Then, to answer the question in the title, maybe Infor buys Epicor, then Oracle buys them both...

So it's a happy ending for all the private equity guys, and the MicroSAP/Epinforacle duopoly plods on, until the valiant open source ERP freedom fighters sneak up on them and turn their market upside down!

Quoth the raven: Epicor

Wow, that didn't take long.  The WSJ reports Apax Partners is putting Epicor on the block, hoping to find a sucker^H^H^H^H  buyer that will give them a 3x return on their investment in as many years.  Not a lot of detail yet, but here's one nugget that Graveyard readers will enjoy:

In 2012 and 2013, Epicor issued $340 million and $350 million of new debt respectively, to fund dividends to its private-equity owner

Again, wow.  They loaded up this already-unwieldly behemoth with MORE DEBT to pay themselves, TWICE.  And now, not halfway through the year, and only seven months after bringing in a quick-flip CEO, they're looking to unload it for good.

I'll start the bidding at one dollar.

p.s. - got a busy day today, but I know I've got at least one stanza of poetry in me that will pay off the title of this post.  Stay tuned...

UPDATE:  OK, here we go, from the perspective of an outside auditor:

Once upon a business dreary, while I pondered, weak and weary,
Over many a curious volume of financial bore — 
  Not completely understanding, in deeper debt ever landing, 
Why the owners keep demanding, dividends, fees, and ever more.
“’Tis some error,” I muttered, “standing the company increasing poor  —
  Only this and nothing more.”

“Profit!” said I, “thing forgotten!—profit still, if books are rotten—
Customers damned, or tempest tossed by greed and ill ashore,
  Business plans of all acquiring, in deeper debt ever miring,
Execs and bankers rarely firing—tell me truly, I implore—
Who is—who is this foul firm?—tell me—tell me, I implore!”
  Quoth the Raven “Epicor.”

Ein Fuß auf dem Friedhof?

That is, of course, German for "one foot in the Graveyard"... much confusion and conflicting information about what SAP is and is not doing with its much-discussed BusinessByDesign offering.

Are they pulling the plug on new development?  Maybe.  But as Cindy Jutras noted in a post last month, rumors have been swirling about the product for many months.  But things have picked up - and it kind of feels like the moment where the President says he's got total confidence in the Secretary of Screwups, right before he throws him/her under the bus.

Has ByDesign been successful?  Well, not by most peoples' definition of success.  Ben Kepes over at Forbes faults the SAP culture, which strikes me as fair.  This is, after all, the company who gave us a product called All-in-One.

Typical of the coverage are these posts by AllThingsD and Accounting Technology, which cite original reporting by the German business mag WirtschaftsWoche.  Among the widely-repeated and uncontested factoids therein:

• 7 years of development work, at a cost of 3 billion Euros (that's $4.1 billion)
• a grand total of 785 customers to date
• annual revenue of 23 million Euros ($31.6 million)

So that works out to $5,257,834.39 cost per customer.  Far from groovin'.

Qureshi out at Epicor, Graveyard veteran takes over

After claiming to have shepherded the combined Activant-Epicor over the $1 billion yard line (has anyone seen this verified anywhere?), CEO Pervez Qureshi is "stepping down to pursue new opportunities," according to the company.  Here's the dynamic young upstart who's going to provide transformational leadership for the next decade at Epicor:

Just kidding!  That's Joseph L. Cowan, who, as the Epicor PR notes, most recently "served as President and CEO of Online Resources, a leading provider of online banking and full-service payment solutions, until its acquisition by ACI Worldwide in March 2013. Previously, he served as CEO of Interwoven, Inc., a global leader in content management software, until its acquisition by Autonomy Corporation plc in 2009."

Here are some other places where he's "served as CEO...until its acquisition" by somebody:

• Manugistics
• EXE Technologies
• Invensys
• Wonderware

Anyone want to guess what his marching orders from his private equity overlords are?  I'm guessing the following "invite" went out in the past 24 hours:

Join my network on LinkedIn

To: Charles Phillips, CEO Infor

Date: October 8, 2013

I'd like to add you to my professional network.

- Joseph L. Cowan