In my February article, ERP Buyer’s Corner: Making 2011 the Year of Success, I predicted that “some of the bigger ERP vendors [would] go acquisition hunting to quickly fill strategic gaps in their product repertoires.” This prediction has come true in spades.
A few days ago, GC Software Holdings, Inc. – an affiliate of Golden Gate Capital and Infor – agreed to acquire Lawson, another Tier II ERP vendor for about $2 billion (U.S.). The intention is to integrate the Lawson ERP suite (M3 and S3) into Infor's software suite. This acquisition follows Infor's recent integration of SunSystems, financial management software.
This recent M&A activity is likely to have both positive and negative effects on Infor's ERP LN and Baan users.
In terms of the positive – and assuming that Infor/GC Software can successfully pull off the integration – Infor's ERP LN and Baan users could achieve the following benefits:
- Deeper functionality under one roof. Customers can shore up gaps in their systems without having to worry about expensive and difficult integrations of third-party software. The Lawson acquisition offers Infor's customers more depth in human capital management, and the SunSystems acquisition offers them deeper financial management functionality.
- Consistent User Interfaces. Users won’t have to worry about learning how to use different systems, since the vendors will probably harmonize the user interfaces. This should lower end-user training and other adoption costs for companies that want the additional functionality.
- Deeper User Communities. Mosaic, the ERP LN and Baan user group recently shut its doors. These users are now part of SUN - Infor's Syteline User Network. Consolidation of the various user groups (including the Lawson user group) should benefit the users. Companies use the groups to troubleshoot, drive system development and swap best-practices. They also use the groups to exert competitive pressures on the vendor. For example, SAP’s worldwide user group, SUGEN, recently pressured SAP to reverse a decision to hike maintenance fees.
- Fewer Tradeoffs for Prospects. Now that a greater number of systems has broader functionality, prospective buyers won’t have to make nearly as many functionality tradeoffs. Instead of answering the question “Do I WANT advanced warehouse management OR advanced human capital management”, they can ask “do I NEED BOTH advanced warehouse management AND advanced human capital management”.
Though consolidation generates many potential positive outcomes, it also creates potential negative outcomes. Here are a couple:
- Reduced buyer power. ERP customers and prospects will likely see a dwindling of their negotiating power. Until recently, buyers had been able to use the threat of leaving to obtain concessions. With fewer credible players on the market, buyers can expect to see more push-back from vendors.
- Uncertain product future. Users of software supplied by both the target and the acquirer should be worried about what the future may hold. They face increased risks that the vendor will turf the software (particularly if the product integrations fail), change the interface, reduce development efforts and generally divert resources. For example, Infor will likely use the Lawson acquisition to propel itself into new vertical markets, including healthcare. Since Infor famously runs a lean operation, its manufacturing and distribution clients have cause to be concerned.
In the final analysis, market consolidation creates both opportunities and risks for users and prospects. Companies should make the effort to understand how M&A activity could impact their software and businesses.
Does the deal benefit Lawson or Infor customers more?
Is it a good thing for these companies to be owned by private equity?
If you are a customer, does the idea of an eventual IPO scare you?