FSN: Infor to become 3rd largest ERP vendor

Infor to become 3rd largest ERP vendor

22nd May 2006
Can such a rapidly assembled group really become a worthy competitor to SAP and Oracle?

The announcement last week that Infor, a four year old company, is to become the world's third largest ERP player, if it successfully completes its planned acquisition of SSA Global, has caused quite a stir in the applications software industry - not just because of the scale of the undertaking but also because of the breathtaking speed with which companies have been taken over. “With this acquisition, Infor will become the third largest enterprise software provider in the industry with approximately $1.6 billion in revenue,” said Jim Schaper, Infor's chairman and CEO. But the key question is, can such a rapidly assembled group behave and compete as a cohesive ERP supplier?

The rise of Infor has indeed been breathtaking. The company was founded in 2002 as Agilisys --when SCT's Process Manufacturing & Distribution Solutions Division became a privately owned, independent organisation. In February 2004, Agilisys acquired Infor Business Solutions AG, a long-established German company providing ERP solutions to mid-sized firms. The move made Agilisys one of the world's largest providers of software solutions focused exclusively on the manufacturing and distribution industries. Then Agilisys changed its name to Infor in 2004.

Since that time acquisitions have included Geac's ERP software, System21, in early 2006 and Mapics in 2005 added to which SSA Global itself brings a further seven acquisitions in the last three years, including Baan, Marcam and Epiphany.

Whilst Golden Gate Capital has funded a sizeable part of Infor's acquisition spree Keith Deane, VP Operations for Infor in the EMEA region, is keen to dismiss the notion that Infor is a portfolio of related companies being packaged up for re-sale or flotation. He told FSN, “Infor has always had a consistent strategy focussed on the ERP space in manufacturing and distribution. The SSA transaction provides good complementary applications in project manufacturing, warehouse management and transportation as well as enabling further technology solutions. With the acquisition we can also address much larger companies, with for example, the Baan solutions, and get much better geographical coverage, with new offices in S.Korea , Brazil and Italy . There are also good technology platform synergies around the IBM iSeries. We are in this market for the long term and the SSA transaction, for example, is being funded by debt not venture capital but, yes, Golden Gate remains a major shareholder.”

Nevertheless, three of Infor's four board directors listed on their web site as of last week are Golden Gate Capital Directors or employees - the remaining director is Infor's CEO, Jim Schaper.

According to Deane, customers have nothing to fear from the transaction. “Our track record speaks for itself and we have never retired or sun-setted a product. We will invest around 18% of revenues in R & D, which in some cases is considerably more than the companies we have acquired. The savings will come through back office management, services, administration and infrastructure.”

However, other industry watchers are sceptical about Infor's ability to deliver a cohesive and undisrupted customer experience. Jeremy Roche , CEO of Coda plc, told FSN, “If I were a customer I would be very worried about future development and investment in products,” whilst others pointed out the organisational challenges of merging all of these acquired companies.

Microsoft's Paul White, UK head of Microsoft Business Solutions, told FSN, “Under any circumstances, acquisitions present a number of challenges around integration of organisations and cultures as well as more basic aspects such as streamlining employee benefits. Inevitably, some things get broken on the way. But in the software industry there are a whole range of additional matters that have to be dealt with, such as different code bases and systems architectures. You have to find ways of bringing these things together in order to get the synergies out of the acquisition. Afterall, it is the huge cost of software development that is driving the rapid consolidation of the software market.”

Microsoft has faced these challenges in its own acquisitions. “Post acquisition we found ourselves with three or four web portals but now all of them use Microsoft SharePoint which means we can point developers at more interesting work or save money. I'm guessing that Infor will need to make similar decisions,” added White.

Clearly challenges such as these raise the question of whether products will be merged and which customers may be affected. Deane however was unphased. “What we are doing with these products is offering greater choice to customers. We can offer fully integrated applications or best of class applications. It's the customers' choice.”

Although newly positioned as a competitor to Oracle and SAP neither organisation is likely to feel threatened by Infor's acquisition punctuated rise. In the short term Infor is likely to have its hands full trying to manage a sprawling empire and it will take outstanding management to settle the acquisitions and deliver on its strategy without upsetting customers and employees. In the longer term it will be interesting to see, (if the SSA deal proceeds), whether the newly merged group can build its brand equity as successfully as its balance sheet.

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