Software vendor acquisitions are a core part of the enterprise software economy and will certainly continue. What most consumers of the top ERP systems want to know, however, is if their particular software package is at risk and if the current environment will increase acquisition risk.
While there are a number of varied thoughts and opinions surrounding software acquisition in general, we now add in factors introduced by a weak global economy and epidemic that may also affect the ERP software M&A market. In other words, nobody without insider information can really answer this question.
For starters, consider that having your software vendor acquired is not generally a bad thing. Infor was acquired by Koch Industries, so they now have the funding to break from its recent market slump and potentially gain significant ground. The key point of interest from an Infor user perspective is that Infor will remain a standalone subsidiary of Koch. This means that the software platform, for the most part, should remain intact.
Understand that there are several criteria that may drive software acquisition, including:
This video interview with one of the leading Infor resellers provides more thoughts on the Koch acquisition:
In regard to the current epidemic and resulting economic recession, all of the above reasons are potentially exaggerated by the first financial opportunity that comes along. This is something we should consider adding to our top predictions for the 2020s in a post-Covid-19 world.
So, let’s look at how the current recession and financial stress could potentially impact software vendors. (To clarify, I am not involved in any M&A activities for software firms currently but have helped run analysis of the potential for software acquisitions in the past.)
Here are some ideas to consider:
ERP software is a critical aspect of most successful businesses, and therefore the need for ERP will continue. In addition, there are plenty of essential businesses that are embarking on digital transformations to condition their organizations for the future.
If anything, the current epidemic will stimulate future need for better technology, so there will be no long-term shortage in the software market. Software vendors strategizing for the future will certainly be looking for opportunities.
It is not clear if single ERP vs. best of breed ERP systems will show signs of stress as a result, but considerations here include:
Point solutions are always a target of larger ERP vendors, and the current environment may increase the desire for acquisition. Solutions servicing industries facing decline may find increasing financial stress. Point-of-Sale (POS) systems, for example may be especially hard hit, as well as solutions servicing hospitality or travel industries. This scenario could create attractive acquisition valuation.
On the other end of the spectrum, companies offering solutions surrounding things like Human Capital Management systems, Transportation Management, or mobile solutions may be increasing in value, also making them potential targets. While they would not be purchased at a discount, they may be grabbed before reaching the height of valuation.
We need to remember that a percentage of software companies have been created for the sole purpose of acquisition. In the face of a changing business world we may start to see more action.
In addition, here are a few more thoughts regarding M&A activity in the space:
In summary, there may very well be some more pending acquisitions, but it is not clear that the degree will be far outside the norm for the enterprise software market. If you are heading into a software evaluation or creating a digital roadmap, ask an independent ERP consultant for guidance in evaluating the longer-term viability of potential software vendors.
Please feel free to contact us to brainstorm ideas regarding your ERP implementation – we are happy to be a sounding board as you continue your journey!