New PE plucks Plex from Apax, no IPO

Interesting... after six years, Apax Partners - a private equity firm that continues to hold an investment in Epicor - has sold its position in Plex Systems to another PE firm, Francisco Partners.  No details on terms, and Plex has never disclosed financial results (although it's talked about year-over-year growth in recent years - no word on profitability).  A Crain's Detroit article reported sales of $26 million in 2009, and a Michigan Tech News blog post last year put 2010 revenues "in the low $30 million range" and that CEO Mark Symonds expected the company "to top $40 million in 2011."  They may have just made that, judging by reports they grew 30% in 2011.

That MITech article, btw, was mainly focused on the possibility of an IPO in 2012 - which was likely Apax's Plan A for an exit.  Not sure if that was ever in the cards for a company of that size.  But anyway, how did Apax do with Plan B - the PE pass-along?

The rather bland press release isn't much help, other than the Francisco boilerplate which describes its investment range as having a floor of $50 million.  The Apax position was said to have been a controlling one, so get out your calculators, and make your best guesses.

Analyst Brian Sommer, blogging at ZDnet, tries to get out in front of skeptics like your humble host here:  "Competitors will likely try to incite FUD (fear, uncertainty, doubt) about the deal. I can already anticipate some vendor will try to spin this in the most negative of fashion."  Well, yes.  He rightly notes that Apax was due for an exit, and Francisco Partners is no Infor, Epicor, or Consona, with Plex "smashed into a massively larger firm with its piece parts put on the shelf or neglected for years to come."

But it's still a flip, and Francisco has a bit of a reputation as a quick flipper itself.  After all, as no less an authority than the President of the United States has observed, private equity guys are just in it for the money - especially on the second time around.  So what will happen next?  Cost-cutting to get the financials in better shape for a (cough, cough) IPO?  Not unless they grow revenues 1000% for the next couple of years.  More likely, Francisco itself will look to dress it up for one of the aforementioned acquisition shops - or maybe even a Tier 1 player - to get its money out.  So yes, Plex customers and partners should still sleep with one eye open.

As a noted industry observer pointed out recently, cloud software vendors - particularly 100% pure plays like Plex - don't always make it easy for customers to walk away.  If Francisco Partners does turn out to be just a way station on the road to a glorious destiny at Epinforacle, it might be prudent to start exploring other options now.

Confirmed: it's not a business plan, it's banking

Kudos to mid-tier vendor IFS and Cindy Jutras' new consultancy for doing some actual hard research on the impact of all this ERP graveyard business.  They surveyed 200+ executives at manufacturing companies, and found some interesting data points on how all this M&A activity is actually playing out with real customers.

IFS' summary here, full PDF here.  Cindy's blog writeup is here.

A lot of the findings tend to reinforce what a lot of us have intuited for some time ... but for me the real takeaway was the weakness of M&A as a long-term business model in ERP.  I think of it as the difference between a short-term banking transaction (i.e. buying generic captive revenue streams for a couple of years) and a long-term customer retention strategy.

To pick on my favorite whipping boy, what is the (latest) long-term product strategy for a company like Infor?  Are they going to make a real effort to rationalize all these disparate products, and provide a go-forward platform for all the customers they've acquired?  Here, to me, is the key data point in the IFS/Jutras study.  Of companies whose software vendor had been acquired, they asked about their software plans after the acquisition:

• 68% were still using the product, and planned to continue doing so.  These are the "banking" customers.
• 14% were still using it, but planned to replace it through a competitive process.
• 10% were no longer using it, and had replaced it with a product from a competing vendor.
• Only 8% had followed, or planned to follow, the acquiring vendor's upgrade recommendation.

That's why the clock is ticking for all these ERP roll-ups.  I would have guessed the number of customers in the first category - the poor saps who just stick with the legacy product and hope for the best, even as support and maintenance continues to fall off in quality every year (another widespread assumption confirmed by the study) - would have been much higher, north of 90%.  But customers are wising up, and starting to take more of an active hand in the future of their mission-critical business systems.

That's why we're seeing such a dramatic uptick in interest in open source ERP at companies like xTuple.  Our users - whether they're community members using the totally free version, or commercial customers using one of its big siblings - are in control of their own destinies.  They don't have to worry about picking up the Wall Street Journal one morning and seeing that their software partner has been gobbled up by EPINFORACLE.  They have the source code, no matter what - and they are members of a thriving global community of users that is bigger than any one company.

Scratch that: PE firm Bain outbids Sage for MYOB

Well, I take back everything nice I said about the deal :)

Looks like Bain Capital, former home of US presidential candidate Mitt Romney, made a more compelling offer to Australia-based MYOB than their British colleagues at Sage.

Somewhere in here there is a perfect joke about Mormons, Brits, and their former penal colonies - but your humble blogger will have to get back to you later on that.  For now, let's content ourselves with chewing over yet another collection of banker's notes on the deal:

Archer Capital was advised by UBS and Bain Capital by Morgan Stanley.

Isn't that grand?  Archer, of course, is the PE firm that previously took over MYOB, and is now cashing out.

The Australian has the real scoop, pegging the deal at $1.2 billion:

The deal is a coup for majority MYOB owner Archer Capital, the local private equity firm that led a consortium buyout of the then-listed MYOB (an acronym for Mind Your Own Business) for $450 million in January 2009.  Sage, a British software supplier, had been in exclusive negotiations with the vendor and was offering about $1.3bn.  It is believed Sage's sharp share price drop last week prompted soul-searching on both sides of the deal.

A coup indeed.  Tripling your money in 2.5 years in the middle of a global economic death spiral.  Attention any UBS bankers involved in this deal:  Please contact me immediately if you would like your car washed, lawn mowed, or babies sat.  Zounds.

What will they call it? Sage Zero?

So Reuters is reporting that Sage Group is looking to buy MYOB.  This on the heels of some grumbling in the Sage partner community about the company's move to give all its already-acquired products a number-name.  Stephen Blythe wrote earlier:

I see no value to a Sage brand by dropping already heavily co-branded names like MAS, Accpac, ACT! or Peachtree and replacing them with numbers (50, 100, 200, 300 etc). This will only add significant confusion to existing clients and prospects and add client expectations that Sage has never been able to deliver.

I'm only half-kidding about calling it Sage Zero.  That's working for Coke, right?

According to the Reuters piece, they're valuing MYOB at $1 billion.  With a "b."  Now, if you're reading this from anywhere besides Australia or New Zealand, you might not be thinking about the same MYOB.  Check out the History section of the Wikipedia listing for all the confusing details.

This is kind of a return to form for Sage, which, as the Reuters article notes, has chosen to pay down its debt over the past three years rather than go out and make new deals.  Hear that, Infor?

Because this is such a market-specific buy, it's hard to work up too much snark on this deal, despite the surprising size.  I would imagine Sage is just buying share in AU/NZ, and probably won't try and make all our friends down there buy MAS 500 or whatever.  And despite the involvement of more private-equity goons before, during, and after this transaction, it's still reasonable to think of Sage as primarily a business software company rather than a debt-oozing money-laundering scheme.

But boy, they do have a lot of scraps on their table.

I'd like 50 seats of MANMAN and a Pear & Gorgonzola on whole wheat

Just a quick note that Golden Gate Capital, the financial titans leading the destruction turnaround of Infor and its 80+ acquired legacy ERP products, is now buying California Pizza Kitchen for $470 million.

I'm breathlessly awaiting the corporate synergies here.