Infor Solutions Buys MAPICS, Takes It Private
by Timothy Prickett Morgan
There's a certain gravity in the application software market these days. The tough marketing conditions, the long sales cycles, and the expense of keeping up with the bigger ERP software suppliers have forced just about all mid-tier ERP players to rethink their strategies. Gravity is a good word for the conditions, too, since the big players are reaching out and absorbing smaller niche players, or companies of similar size are attracted to each other and are merging.
It is with that metaphor in mind that privately held Infor Global Solutions, a midrange ERP software provider that was created two and a half years ago, and has since been on an acquisitions spree, announced that it has acquired publicly held MAPICS, which is itself an amalgam of the venerable OS/400 manufacturing ERP specialist by that name and another Windows-based ERP supplier in the manufacturing market.
MAPICS is probably one of the best known brand names in the OS/400 software business, since that was the name of the Manufacturing Resource Planning (MRP) application suite created by IBM's midrange software development organization more than three decades ago in Atlanta. (That's when IBM understood that it needed to be in the application business.) The MAPICS ERP suite was created for discrete manufacturers and their distributors. In 1992, a few years after the AS/400 was launched and IBM wanted other software developers to push its platforms, IBM decided to get out of the application software business and to set MAPICS free. The company was merged with Marcam, an OS/400 ERP application specialist focused on the process manufacturing businesses. The hoped-for synergies between MAPICS and Marcam never materialized, and, in the summer of 1997, Marcam spun off MAPICS as a separate public company. Marcam fell on hard times itself, and was passed around among a few different buyers and is now part of the constellation of products offered by SSA Global, which, like Infor, has been on an acquisitions binge. (However, there is one difference: SSA wants to go public, and Infor, for the moment at least, has no intention of doing so.) In late 2002, MAPICS acquired FrontStep, a maker of Windows-based ERP solutions for manufacturers, for about $25 million in stock and the assumption of $21.5 million in debt; a few years early, it had acquired PivotPoint, another provider of ERP software (this one for Windows and Unix platforms), for $48 million. Those acquisitions and the roll out of a very respectable SyteLine ERP package did not really help MAPICS to expand its markets as much as it had hoped.
Dick Cook, president and CEO of MAPICS, said in a conference call with Wall Street analysts today that he and the board of directors at the company have been watching the massive consolidation in the ERP software industry, and had concluded that size matters. The MAPICS-FrontStep merger was supposed to give MAPICS about $200 million in annual sales, and that has almost happened. The current MAPICS had 4,500 customers in about 10,000 sites worldwide, and had sales of $172.8 million in its fiscal 2004 year ended in September. While MAPICS had been planning to grow organically to get larger, the MAPICS board had concluded that it needed to grow to $500 million or so in annual sales in order to remain competitive in the cut-throat ERP software market. MAPICS new it had to do some sort of deal, and began talking to other ERP players about merging. While Cook characterized the deal as having an "immediate and attractive return" for shareholders, it is hard to call paying $12.75 a share for a company that was trading at $11.62 per share at the market close on Wednesday a big return. That's only a 10 percent premium, and the fact that this is called attractive by Cook shows just how tough it is out there in ERP land.
You may not know Infor by its current name or by its former name, Agilisys. The company was spun out of Systems & Computer Technology, in June 2002. SCT, which was based in Malvern, Pennsylvania, focused on selling hardware and software solutions to educational institutions, and had 1,300 customers in this area. (SCT was subsequently acquired in February 2004 for $590 million in cash by Sungard, a $3 billion disaster recovery and application software provider based in Wayne, Pennsylvania.)
Since being spun out in June 2002, with backing from venture capitalists Golden Gate Partners (still Infor's lead shareholder) and Summit Partners, Infor has been on an acquisitions binge to get larger and lock in more support revenue streams and customer bases. Last fall, Infor acquired Mercia Software, a wholly owned subsidiary of Finmatica that developed supply chain planning software, and then Lilly Software Associates, a privately held developer of the VISUAL ERP suite, which is used by 3,000 customers on a variety of computer platforms, including OS/400 and Windows platforms. Earlier in 2004, when it was still called Agilisys, the company bought Infor Business Solutions, a midmarket German ERP provider, and took its name. At about that same time, the company acquired OS/400 ERP developer Daly.commerce. Its automotive ERP acquisitions included BRAIN, in December 2002, and Future 3, in June 2003. Over the past few years, it also bought relatively unknown software players Incodev, Aperum, NxTrend, and Varial.
With the acquisition of MAPICS, Infor now has 1,600 employees and 17,500 customers (about 4,500 of those are from MAPICS). Both MAPICS and Infor are headquartered in Alpharetta, Georgia, which should make the merger a little bit less difficult and undoubtedly made MAPICS look a bit more attractive as a takeover target. Infor, being privately held, does not release sales information, so it is hard to say whether it is at that $500 million critical mass with the MAPICS deal. If not, the ERP applications from American Software and its SCM applications from wholly owned subsidiary Logility, both based in Atlanta, probably would also fit nicely into the Infor fold.
Infor says that it will finance the $346.8 million acquisition of MAPICS, which will take MAPICS private, through additional investments from Golden Gate and Summit. Infor also says that it will refinance its debts through a syndication of banks, with the refinancing led by Lehman Brothers, which acted as the advisor for Infor on the MAPICS deal. (SunTrust Robinson Humphrey was the advisor to MAPICS on the deal.) A special acquisitions committee and the board of directors at MAPICS have approved the deal, and the two companies hope to close the deal early in the second quarter of 2005. MAPICS, being a public company, has an obligation to file a proxy statement with the Securities and Exchange Commission explaining the deal in great detail, and Cook says that MAPICS will do that sometime in early February.
Cook said that there were other offers on the table, some offering cash or cash and stock to acquire MAPICS, but that the board liked this one best. However, there is still a remote possibility that another bidder will come from the outside and make a higher offer, and Cook conceded that this might be possible. However, he said that, after talking to other players, looking at how they all might fit together, MAPICS doesn't think this will happen. "I think that it will be very unlikely that there is another offer," he said.