Archive for the ‘Lawson’ Category

Are Activant, Epicor Overpriced, Lawson Undervalued in ERP Buyout Frenzy? By Albert Pang

Monday, April 11th, 2011

The ongoing M&A transactions involving Activant, Epicor, Lawson, and a phalanx of others waiting in the wings are expected to enter a new phase of intense negotiations all in the hopes of securing the best possible deals for their shareholders.

Two of this year’s biggest software deals – the merger between Activant and Epicor bankrolled by UK private equity firm Apax Partners and Infor’s offer to buy Lawson – present striking contrast over the valuation of these ERP applications vendors.

The final outcome could serve as a harbinger for the software sector as the fight over market share intensifies triggering an avalanche of deals for the remainder of 2011.

A closer look at the balance sheets of the ERP vendors being acquired suggested that Apax, or the investors who entrust their money with the private equity firm, could end up paying a lot more than those on the Infor side, which coincidentally is also owned by a private equity firm called Golden Gate Capital.

Between The Lines
It is a telling example of how the two investor groups have placed such different premiums on their targets using common metrics: sales, earnings and long term debt.

As the accompanying chart shows, Apax is paying $976 million, or $12.50 a share, for Epicor, which has not been profitable since 2008. Epicor had about $103 million in cash as of December 31, 2010. Subtracting that, Apax’s offer goes down to $873 million. On the other hand, Epicor’s long-term debt reached $230 million as of the end of last year.

Anatomy of ERP Deals

Despite its recent losses, Epicor 9, its latest flagship ERP release, has been gaining momentum since making its debut in late 2008 with more than 300 live customers and another 600 going live by June of this year. Robust demand for Epicor 9 propelled the vendor’s license sales by 17% to $82 million last year.

Activant is a different story. Apax is paying $890 million plus $69 million cash on hand, totaling $959 million, according to its 8K filing with the SEC. Activant does not have the equivalent of Epicor 9, a go-to-release that its 10,000+ customers could migrate to in droves. Instead Activant offers multiple ERP brands such as Catalyst, Eagle and Prophet 21 that it culled from a series of acquisitions. Despite the purchases, its revenues have barely budged since 2007. For its latest quarter ended Dec. 31, Activant’s systems revenues including license sales rose 5% to $29 million, while services revenues including maintenance were unchanged at $61 million.

What’s astonishing about Apax’s nearly $1 billion offer to buy Activant is the vendor’s sizable debt load, which amounted to $495 million as of the end of 2010. To be fair, Activant has been paring its debt – down from its peak of $633 million in 2007, by selling off assets such as its productivity tools division last year.

It will be interesting to see how the merged company under the Epicor name will fare – specifically whether it can turn a profit – after getting about $2 billion in cash from Apax, whose investors are now saddled with a total debt load of at least $725 million. In 2010 Activant’s annual interest payment topped $31 million, or 8.3% of its revenues, and Epicor’s was $20 million, or 4.5% of its revenues.

By comparison, Constellation Software paid $3.8 million in interest, or 0.06% of its revenues last year after embarking on a series of acquisitions to become a major ERP vendor bigger than Epicor or Activant. Even Oracle’s $754 million in interest payment amounted to only 2.8% of its revenues last year.

Infor’s Offer Is A Steal
If the merger between Activant and Epicor sounds overpriced and it may take years before Apax can get its desired return, Infor’s $1.8-billion offer, or $11.25 a share, to buy Lawson is a steal.

After subtracting Lawson’s $302 million cash on hand, Infor’s offer goes down to $1.5 billion. Lawson’s long-term debt was $230 million and its annual interest was $12 million, or 1.6% of its revenues.

The real gem of Lawson is in its consistent performance, thanks to rising license and maintenance revenues since 2005. In its latest quarter ended Feb. 28, Lawson’s license sales grew 6% to reach $33.7 million, while maintenance revenues rose 9% to $97.4 million. Earnings per share jumped to 13 cents from 1 cent in year-earlier period.

During the quarter Lawson secured 313 deals including six worth more than $1 million and its average selling price spiked 22% to $114,000. The vendor also experienced across-the-board increase in its regions including Lawson EMEA where it advanced 6% in sales as it began to emerge from its doldrums.

What Infor is aiming to purchase is a reliable performer with relatively low debt and considerable traction with its core operations namely healthcare and Human Capital Management, as well as continuous improvement to its M3 product line sold primarily in Europe. By most measures, Lawson, even at its Friday close of $12.37 or 10% premium over the Infor bid, appears to be undervalued and the Infor offer less generous than what Apax is paying for Activant and Epicor.

That brings us back to Constellation Software, which is scouting for a buyer or merger partner after naming BofA Merrill Lynch and BMO Capital Markets as its advisors on the same day Apax announced its purchases.

With a market cap of $1.47 billion, little debt and an eye-popping recurring revenue stream at $337 million in 2010 maintenance sales after jumping 34% from a year ago, Constellation Software could fetch a higher price than Infor’s bid for Lawson, or even the combined purchase of Activant and Epicor.

Then again beauty is in the eye of the beholder and some insanely high or ridiculously low offer could be made and even accepted by Constellation Software, throwing the whole valuation exercise out of whack. Think HP’s bidding war against Dell over 3PAR.

In an increasingly heated buyout environment(16% rise in global M&A activity in first quarter of 2011 by one account), ERP applications vendors, or any software vendor with solid performance, are advised not to jump at the first chance of accepting any seemingly generous offer. Instead they should frame their strong fundamentals to their advantage by harnessing the latest market research resources to buttress their negotiating position.

Feel free to email me at apang@appsruntheworld.com with questions on the latest ERP buyout frenzy and how you can leverage our market research data to help unlock your value.

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Posted in ERP, Infor, Lawson, Oracle, Uncategorized

The Next Great Top 10 ERP Vendor Lineup By Albert Pang

Monday, April 4th, 2011

A series of synchronized moves have rattled the Enterprise Resource Planning(ERP) applications market, challenging the key players in high-growth verticals, while raising the specter of a number of enticing scenarios that could upend the global software marketplace.

Follow The Money
On April 4, Apax Partners, an UK private equity firm, scooped in and paid about $2 billion for two ERP vendors Epicor and Activant to create a powerful bloc in the midmarket as well as strategic verticals such as auto-parts distribution, retail and manufacturing.

The same day Constellation Software, a $630M Toronto-based ERP vendor with more than 20,000 customers in government, construction and transportation verticals, announced that it has hired BofA Merrill Lynch and BMO Capital Markets to act as its advisors for evaluation of strategic alternatives. Whether and how Constellation Software is going to pair up with another ERP vendor, or any buyer for that matter, is unclear. But the handwriting is on the wall that Constellation will assume a different corporate identity.

The above developments followed last month’s unsolicited move by Infor to acquire Lawson for $11.25 a share, or $1.8 billion, a sum that now seems to be woefully inadequate given the trend that Lawson’s share prices have consistently risen above 10% of the Infor bid in recent days.

Meanwhile, TOTVS, one of the fastest-growing ERP vendors in recent years, last Friday paid $6.4 million for the remaining 30% stake of financial software developer TOTALBANCO CONSULTORIA E SISTEMAS S.A., it did not own. The purchase strengthened the hold of TOTVS in the white-hot Latin America enterprise applications market. In 2010 TOTVS added 2,840 customers to reach a total of 25,000 customers throughout the Latin America region.

The Next Great Lineup Of Top 10 ERP Power Players
As the accompanying chart illustrates, all the preemptive moves and interlocking steps will upend the $33.6-billion worldwide ERP market. If the deals go through, the new lineup will look something like this: SAP and Oracle will continue to hold double-digit shares at 19% and 11%, respectively. Both will pursue additional acquisitions in order to sustain their lead. Oracle, for example, acquired ATG for $1 billion in January to shore up its eCommerce capabilities.

Next Great Powerbrokers

The New Top 10 ERP Applications Vendors, Worldwide Software Revenues, $M


On the other hand, the next tier of major ERP vendors Sage, Infor(assuming that it will complete the Lawson deal) and Microsoft own 4.4%, 3.9% and 3.7% shares, respectively. Each of the players will do anything possible to rise above the rest in order to claim the all-important No. 3 spot. Given their industry-specific expertise, they have every intention to close in on the No. 1 ERP leader by marshaling their global resources and ecosystems in any close vendor evaluation process and positioning themselves as the clear alternative to the incumbent.

Then there are Epicor/Activant, UNIT4, TOTVS, Constellation Software, and Intuit finishing the lineup of the top 10 with each securing between 1% and 2% share of the market. With a combination of organic growth and well-timed acquisitions, these five formidable players will continue to excel in their strategic areas(UNIT4 in professional services, for example) while ensuring their supremacy in major theaters and markets(Epicor in Italy, UNIT4 in Benelux, TOTVS in Brazil, Constellation Software in German public transportation market, and Intuit in US accountancy).

Now both Infor and Epicor/Activant have raced ahead in their ranking, throwing into disarray the old list, which includes the following 10 vendors in the descending order:
SAP, Oracle, Sage, Microsoft, Infor, Unit4, Lawson, TOTVS, Constellation Software, and Intuit.

All these mean that the newest top 10 vendors will set their sights on one another or on those that trail behind them. The list includes CDC in Asia Pacific, Cegid in France, Deltek in Washington DC for government contractors, Netsuite in Cloud-based ERP, QAD in automotive, and Visma in the Nordic countries. All these vendors will have extra reasons to be concerned about the rash of mergers and acquisitions among the major vendors.

No doubt ERP, which has been eclipsed by social media and Cloud computing in terms of the buzz level over the past year, will once again be on the minds of a growing list of investors, customers and other key stakeholders all waiting to jump into action, while pondering how they will be able to capitalize on any changes that come their way.

Don’t hesitate to contact me at apang@appsruntheworld.com if you have any questions about ERP market data and how our advisory service can help your business make sense of this string of extraordinary events and prepare for the future.

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Posted in ERP, Infor, Intuit, Lawson, Oracle, SAP

Infor’s Daring Move To Buy Lawson, Shake Up ERP MidMarket By Albert Pang

Sunday, March 13th, 2011

An earthquake of sort jolted the tech world late Friday when Infor made an $1.8 billion bid for Lawson, one of its chief rivals in the Enterprise Resource Planning(ERP) applications market.

The tremor, which is expected to shake up the midmarket space as well as the adjacent software segments, will release considerable seismic activity with competitors scurrying for counter measures and potential bidders joining the fray in the days ahead.

The unsolicited cash offer at $11.25 a share could result in one of the largest ERP buyouts since 2007. With the passing of the ERP consolidation wave that was driven for the sake of filling product gaps and acquiring maintenance revenues, the latest move by Infor suggested a break from the past for a number of reasons.

1. Acquiring similar products – While Lawson and Infor complement each other in many ways, their product lines are strikingly similar. Lawson offers M3 ERP apps for asset intensive industries such as food and apparel manufacturing with functions from costing to supply chain planning, Infor also sells best-of-class applications that address complex factory automation, work order and logistics requirements. On the services side, Lawson S3 ERP product line has been well received because of robust Human Capital Management capabilities including those designed for talent management. Similarly Infor sells core HR applications what used to be known as Infinium, which has been paired with Boniva for strategic HCM projects. Thus the deal is to raise barriers of entry to shut out any potential gatecrasher, while chasing bigger opportunities among existing customers.

2. Winning the midmarket – For companies with between 100 and 5,000 employees, demand for ERP applications is expected to surge past that of XL enterprises with more than 5,000 employees. The aggregated size of the three midmarket segments of the ERP market tops $16.4 billion at a compound annual growth rate of 3.9%, compared with $15.9 billion for the XL segment with a 2.4% CAGR through 2015.

The addition of Lawson, which has an installed base of nearly 5,000 customers with many fitting the midmarket description, will provide Infor, which in itself has more than 70,000 customers(again mostly midmarket organizations), with extensive coverage in key verticals like healthcare, public sector and manufacturing as well as the product breadth needed to dominate the segment.

Moreover the combination of Infor and Lawson could displace the current No. 4 ERP player Microsoft Dynamics, while closing in on the No. 3 Sage, even though it still trails behind the No. 2 Oracle, and the No. 1 SAP in the worldwide ERP market, according to our preliminary estimates.

With combined ERP revenues of about $1.31B in 2010, Infor/Lawson will have 3.9% share of the market, compared with Microsoft’s 3.8%, Sage’s 4.3%, Oracle’s 10.8%, and SAP’s 18.7% based on preliminary estimates. These estimates are preliminary because December 2010 sales from Lawson and Oracle were rolled into their latest quarter ended Feb. 28 with earnings results due out in the coming weeks. Whatever the case, it is fair to assume that Infor, upon the purchase of Lawson, will be considered the frontrunner in the midmarket segment given the majority of ERP revenues for SAP and Oracle is derived from XL enterprises. Sage, on the other hand, excels among companies with fewer than 100 employees.

3. Creating a bigger Cloud – The disruptive power of Cloud Computing has changed the rules of the game and most ERP vendors can no longer rely on maintenance revenues as their cash cow, let alone expanding the recurring revenue stream through tactical acquisitions. While both vendors have not been particularly successful in driving Cloud-based revenues, it is more imperative than ever for the two to leverage the economy of scale in order to define and optimize a common on-demand framework for their existing and future customers. Much of the work will lie in reconciling the differences between Lawson Cloud Services based on the Amazon Elastic Compute Cloud or Amazon EC2 and the Infor Cloud Solutions running on Microsoft Azure platform. The good news is that over the past few years both Lawson and Infor have been aligning their development and portal strategies with Microsoft technologies.

By no means is Infor’s acquisition of Lawson a done deal given the volatility of current economic climate, not to mention the fractious nature of its major shareholders. On one side, its founder Richard Lawson has been keeping his eponymous company independent for years and is revered among long-time employees and customers. On the other side, there are a number of institutional investors namely takeover artist Carl Icahn, who owns 8.3% of Lawson, hankering for their expected returns.

For naysayers, there is the criticism of putting two mediocre players together doesn’t make a winner given the history of their fair but otherwise ineffectual execution(namely the drawn-out integration of Intentia for Lawson that spawned the M3 line, and Infor’s shifting Services Oriented Architecture strategies that undermined the modernization of its legacy systems).

After all, the on-demand strategies at both vendors are a work in progress. The same applies to their challenges in areas such as mobility. For example, because RIM is a customer, Infor has fine-tuned its Expense Management applications for Blackberry, rather than iPhone. The support of iPhone, or lack thereof, underscores Infor’s development limitations. Lawson, on the other hand, is considering bulking up its mobile capabilities in the next release of M3.

In the meantime, the performance of both vendors has been lackluster at best. In 2010 Infor was estimated to post a 9% rise in license revenues following a steep decline in 2009 due to the recession. On the other hand, Lawson’s license revenues fell 6% in the two most recent quarters even though it managed to post a 7% rise for the past 12 months. By comparison, many of their competitors rebounded more quickly with some registering double-digit increases in license and/or subscription revenues in 2010.

If the deal goes through, one can expect the following developments to become more pronounced:

1. Accelerating vertical push – Lawson, which has been making significant inroads into healthcare with its HCM, supply chain and procurement applications, will load up Infor with much ammunition to target integrated delivery networks. Lawson’s recent acquisition of Healthvision added the critical health information exchange component to its already formidable healthcare offerings. Similarly Infor’s Hansen public sector offerings will complement Lawson’s state and local government applications for financial management that comes with best-of-breed features such as encumbrance accounting. Additionally Lawson has carved out a niche in the equipment service management and rental market led by sales into Caterpillar dealers, an advantage that Infor can readily exploit given its experience in the automotive and transportation verticals.

2. Kicking off with HCM duo – When it comes to human capital management applications, the combination of Lawson and Infor could leapfrog many of the niche talent management vendors because of their experiences in selling into a wide swath of verticals from labor-intensive airlines that standardize on Infor Workbrain for workforce management to user-centric organizations in government and healthcare that have been enamored with Lawson’s intuitive features, which have been augmented by its recent acquisition of Enwisen for its popular HR portal.

3. Expanding into emerging markets – Both Infor and Lawson have made great strides selling into emerging markets – the former winning manufacturing and distribution customers in Asia Pacific, while the latter gaining ground in the Middle East. The deal should provide ample opportunity for the combined entity to harness local resources and revamped channel programs, while extending their reach through an extensive product portfolio and rapid implementations for customers of all stripes and regions.

Though it is not possible to predict the outcome of this high-stakes battle, one thing is clear. The aftershocks of a major earthquake could continue for days, but the combination of Infor and Lawson could have lasting impact on the enterprise applications market for years to come.

With a show of brinkmanship and ready capital, Infor, led by its new CEO Charles Phillips who similarly orchestrated a series of acquisitions at Oracle, is aiming to redraw the competitive landscape by asserting control of the ERP midmarket as well as a growing list of verticals. And the proposed deal to buy Lawson may well be the early sign of the main event to come.

Send me an email at apang@appsruntheworld.com and tell me what you think of the proposed acquisition of Lawson by Infor and how it may impact your business. Remember to follow us on Twitter @appsruntheworld for real-time updates on major developments in the ERP market.

Posted in ERP, Infor, Lawson, Oracle, SAP

Business Transformation With BHAG In Mind By Albert Pang

Monday, October 4th, 2010

On the heels of one of the worst recessions in history, large organizations have started investing in business transformation projects that could breathe new life into the enterprise applications market.

If it proves to be a trend, these projects, which often carry big hairy audacious goals(BHAG) to reshape how a company does business from both tactical and strategic standpoints, could have serious ramifications for a cross-section of apps vendors and their implementation partners.

Big business transformation IT projects were cited last week as one of the reasons behind the strong earnings results of Accenture, which posted a 5% rise in sales to $5.4 billion reaching the high-end of its projection while its net income jumped 67%. Because of strong demand for its consulting services in areas such as ERP upgrades and implementations, Accenture went on a hiring spree to take its headcount above 200,000 for the first time.

Bill Green, chief executive of Accenture, attributed the stellar performance to increased business transformation projects including SAP ERP upgrades from older versions of R2 as well as implementations designed to bring greater insights to SAP business users with the use of advanced analytics and the latest apps technologies.

In addition to Accenture, a number of large systems integrators such as Deloitte have benefited from such business transformation projects. Some of the most heavily attended sessions at the recent Oracle Open World had to do with helping Oracle E-Business Suite customers prepare for and better execute their planned upgrades to achieve high return on their technology investment as well as realize significant business value.

Nowhere is the BHAG more apparent than the on-going implementation of SAP Business Suite and SAP BusinessObjects business intelligence solutions at Sysco, a $37-billion food service distributor. Led by Deloitte Consulting, the SAP implementation will have cost Sysco, more than $50 million as part of its business transformation project.

Slated to run from 2009 to 2012, the four-year project carries a stupendous price tag of $900 million because of the size of the company that entails the decommissioning of numerous home grown and third-party systems after years of acquisitions, the involvement of more than 300 Sysco executives and their associated costs, and the creation of a shared service structure that consolidates all major business areas from finance to supply chain.

Central to the project is the use of SAP Customer Relationship Management application to enable Sysco’s sales and marketing team to access the customer information they need to manage accounts better. What Sysco hopes to accomplish is to use the fully integrated SAP systems to better serve its customers through careful analysis of their purchase history as well as improved order management and execution capabilities including customer self-service, rich media experience like streaming food preparation video online and supplier collaboration especially in the area of category management.

In order to satisfy its shareholders, Sysco has already projected the payoff from the project to kick in starting with a positive impact of $136 million to its 2014 earnings and $201 million the following year. The expected benefits will manifest themselves through reduced inventory and supplier receivables, and higher customer retention and improved profitability in serving new customer segments.

Although the expected outcome is years away, such business transformation projects could be the wave of the future because of the confluence of powerful market forces from globalization to customer intimacy, which will only strengthen within verticals like distribution where tremendous consolidation has ushered in a number of megaplayers.

In fact more of these ambitious and transformative applications projects could be coming from the distribution vertical in the coming years because of the increasing concentration of power within segments that are beginning to converge. In addition to selling to restaurant chains, Sysco also serves hospitals, schools and hotels. And it makes strategic sense for Sysco to not just ship them food and consumer products, but also hard goods like furniture or soft goods like uniforms. Many distributors are adding product lines not just to meet their customer requirements, but also the cumulative effects of proliferation of SKUs and assortments from the suppliers.

All these line extensions will mean an explosion of data, creating a greater demand for role-based information with a specific set of buyers and users in mind, something that cannot be easily reproduced or presented using an inflexible legacy system.

Business transformation projects with BHAG in mind are not limited to the distribution vertical. Last week Lawson announced a $1 million+ license deal to sell a full suite of HCM, talent management, and payroll applications to Fairview Health Services, an integrated delivery network with seven hospitals, 48 clinics and 22,000 employees in Minnesota. In its latest quarter, Lawson experienced a 21% rise in software contracting with robust performance for its S3 and HCM sales to customers in healthcare and public sector verticals.

These big projects are considered the tip of an iceberg with the potential of jumpstarting the entire enterprise applications market. One big reason has to do with the increased conviction that putting off these projects is no longer feasible because of brutal market forces from rising commodity prices to changing customer lifestyles as a result of the online revolution. Companies could choose to engage in big or small business transformation projects, but doing nothing is no longer an option for any organization wanting to transform itself in order to better compete in the future.

Tell me what BHAGs you have in mind and how our research can be of help at apang@appsruntheworld.com and follow me on Twitter @appsruntheworld with our continuous updates on these business transformation projects.

Posted in Accenture, BPO, Distribution, Lawson, Oracle, Oracle Open World, SAP, Sysco