M&A fever hits ERP mid-market

Consolidation, globalisation and Microsoft: those are the three forces that are currently reshaping the mid-market for enterprise resource planning (ERP) systems.

Companies that historically have been regionally focused and simply too small to have the development cash to build a broad ERP suite have realised that if they do not form stronger bonds now, then they have no change of surviving Microsoft’s entry into the market with the fruits of its acquisitions of Navision and Great Plains.

The latest two to react are Irvine, California-based Epicor Software and Amsterdam-headquartered Scala Business Solutions.

As part of an $87 million deal in which Epicor will swallow Scala, the two firms are hoping to establish the kind of global presence that will be required to take on Microsoft and more traditional mid-market vendors such as Lawson Software and SSA. They will also be bracing themselves for the increasingly aggressive push downwards into the mid-market by Oracle and SAP. In late November, Oracle said it would start giving away free manufacturing, sales and services software to small and mid-sized companies that invest in its E-business Suite of ERP applications.

Emphasising its new momentum, Epicor said that the combined company will have 20,000 customers and $250 million in annual revenue, with a global presence that spans the US, Europe, Australia, Scandinavia, Russia and China.

After a weak 2002, in which revenues shrunk 22%, Epicor has slowly returned to growth. In its most recent quarter to 30 September revenues rose 19% to $40.3 million; for the same period Scala’s revenues dropped 8% to $16.6 million.

Scala is Epicor’s second largest acquisition this year. Back in July, it bought ROI Systems, a privately held ERP provider in the manufacturing sector, for about $20.7 million in cash. However, Epicor started bulking up before that, when it added web-based supplier relationship management and e-procurement software in December 2002 with its bargain $1m acquisition of Clarus.

Another company seeking to be the centre (rather than the focus) of consolidaton is UK -based financial software vendor Cedar. Its most recent acquisition – of HR and payroll software firm Goldenhill – is designed to make its suite a more alluring prospect for public sector customers – especially those dissatisfied with the cost and complexity of Oracle and SAP systems.

Cedar managing director Mark Thompson suggests that 60% of local authorities are looking for integrated financial, HR and payroll packages.

Many local authorities using SAP or Oracle feel they have chosen software that is too unwieldy, with features they do not require such as multi-currency and internationalisation, says Thompson. “They are coming back to basics,” he adds. One recent example was London’s Hackney Council, which kicked out Oracle in favour of a Cedar-based managed service.

Privately held Cedar, which reported revenues up 30% to £15 million in its latest half-year, is no stranger to consolidation. A year ago it snapped up financial software specialist Arelon (formerly Walker Interactive) which itself absorbed mainframe accounting software company QSP in November 2001. Thompson says Cedar will be looking for further acquisitions in the accounting sector over the coming year.

Acquirer   Activity   HQ   Target   Activity   HQ   Price  
Adobe Systems Document s/w US Yellow Dragon Software XML &metadata mgmt s/w Canada n/a
Blue Coat Systems Web/IM security appliances US Ositis Software Email antivirus appliances US $7.1m
Ciber IT services US SCB Computer Technology Public sector consultancy US $90.0m
Cisco Systems Networking products US Latitude Communications Web conferencing s/w US $80.0m
CommScope Telecoms calling products US Avaya Connectivity Solns Telecoms cabling products US $263.0m
CyberGuard Internet security s/w US SnapGear Linux security s/w Austral $16.0m
Epicor Software Accounting s/w US Scala Business Solutions Business application s/w Neth’ds $87.0m
Hewlett-Packard Systems, svcs &s/w US Persist Technologies Info lifecycle mgmt s/w US n/a
Instant Technologies Instant messaging s/w US Imtegrity Chat archiving s/w US n/a
LogicaCMG IT services UK/Neth Experian BPO (Netherlands) BPO svcs Neth’ds n/a
Network Appliance Network attached storage sys US Spinnaker Networks Networked storage systems US $300.0m
Novell Network &web svcs s/w US Suse Linux Linux distributor US $210.0m
Polycom Video/voice conference s/w US Voyant Technologies Network conference s/w US $143.7m
Quovadx Appln dev s/w &vertical apps US Rogue Wave Software Re-usable s/w components US $71,0m
SPSS Business intelligence s/w US DataDistilleries Analytical CRM s/w Neth’ds $10.5m
Sun Microsystems Workstations, servers, web s/w US Waveset Technologies Secure identity mgmt s/w US n/a
Symantec Enterprise security s/w US ON Technology S/w distrib/config mgmt s/w US $100.0m

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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