Infor Closes SSA Buy and Acquires Remaining GEAC Bits
August 7, 2006 Timothy Prickett Morgan
Midrange ERP powerhouse Infor announced last week that it had finalized its acquisition of rival software maker and similarly venture-capital backed SSA Global, and said further that it had acquired Extensity, the piece of Canadian ERP software supplier GEAC that was not originally acquired back in November 2005 when Infor started to bulk up in a big way. And, for good measure, Extensity had just finished doing an acquisition of its own, a software company called Systems Union, which nearly doubled the size of the resulting Infor customer base.
Infor is a privately held company–with 73 percent of its shares owned by venture capitalist Golden Gate Capital–and has no need to divulge the details of its acquisitions. Still, Jim Schaper, who has been chairman and chief executive officer of Infor since it was constituted through acquisitions by Golden Gate and Summit partners in June 2002, took the time to brief analysts and journalists about the closing of the SSA acquisition and to explain what the Extensity and Software Union deals meant for Infor.
Infor has a complex history for a company that is only a few years old. It was originally called Agilisys, and was spun out of Systems & Computer Technology, a Malvern, Pennsylvania, company that sold hardware and software solutions to educational institutions. It had 1,300 customers, which was a tiny customer base compared to the 70,000 customers it boasts of today after closing its latest deals. It then acquired automotive ERP suppliers BRAIN, in December 2002, and Future 3, in June 2003. In early 2004, Agilisys bought Infor Business Solutions, a mid-market German ERP provider, and took its name, and then acquired OS/400 ERP developer Daly.commerce. Then it snapped up 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. Over the years, it also bought relatively unknown software players Incodev, Aperum, NxTrend, and Varial. In February 2005, Infor went for a serious deal and bought MAPICS, which itself was the combination of the old MAPICS manufacturing ERP suite (which has a history going back into IBM, which originally created MAPICS for its midrange machines) and FrontStep, a Windows-based ERP supplier. The MAPICS acquisition cost nearly $347 million, but added around 4,500 customers and around $200 million in sales to Infor. After all these deals, Infor had 1,600 employees and 17,500 customers.
But Infor was just getting started. In November 2005, Infor ponied up $1 billion to acquire Canadian ERP software supplier GEAC, which had a mix of mainframe and midrange ERP stacks, but it did not acquire the business analytics and reporting pieces of GEAC (which were dominated by the Comshare executive dashboard application that was the pioneer of this idea). Golden Gate decided to spin these applications out into a separate company called Extensity, and did so because the relatively high-end customers who use these applications–chief financial officers at companies with billions of dollars in sales, typically–did not match with the customer set of the Infor product lines, which were very typical midrange shops with tens to hundreds of millions of dollars in sales.
However, Extensity knew it needed to go down-scale and chase midrange customers if it was to grow its business, so it recently acquired a British company called Systems Union, which offers similar business analytics, reporting, and business intelligence applications, but those aimed at small and midrange businesses. While Systems Union only added about $210 million to Infor’s annual revenues of $2.1 billion (counting all of these acquisitions), the deal essentially doubled its customer base and gave it a stronger footing in Europe and Asia/Pacific. Perhaps equally significantly, if Software Union is a good match for the midrange businesses that Infor has historically chased (or rather, the companies that now make up Infor chased), the $1.5 billion acquisition of SSA Global (itself a combination of SSA, Baan, and a host of other software companies) gave it a high-end ERP set that was a better match for the Extensity applications. (Incidentally, Schaper said the deal closed at around $1.5 billion, not $1.36 billion as it was estimated when the deal was announced, and he did not explain why it cost more.)
Now that Infor closed the SSA acquisition on July 28, it can claim to be the third largest ERP software supplier in the world in terms of revenues, and with 70,000 customers, it is one of the largest suppliers of software in terms of customer base, and even based on revenues, at a $2.1 billion annual run rate, Infor is big enough to rank tenth in the world. And when it comes to the midrange–by which Schaper says he means companies that have from $25 million to $2 billion in sales–Infor gets 90 percent of its revenues in this part of the market, and Schaper boasts, in fact, that Infor has more midrange customers than SAP and Oracle put together. These two companies are ranking first and second, respectively, in the ERP and related application software market.
So what does the new Infor look like, after all these deals? And how will Infor sell its many, many wares? Prior to the SSA deal, Infor had an annual revenue run rate of about $800 million, according to Schaper. About 40 percent of this part of the company’s software license sales came from channel partners, who almost exclusively sell one of the Infor solutions to target customers based on specific platforms. The SSA business, thanks to many acquisitions, was also running in the range of $800 million in annual sales. But only about a quarter of its sales went through the channel, according to Schaper. Extensity added about $340 million to the pie, and has no channel, while Systems Union had sales in the range of $210 million when adjusted for U.S. dollars and gets about half of its sales through its channel partners. When you add it all up, Infor now has over 500 channel partners and will get about 20 percent of its software license revenues from the channel, and as it broadens the channel and does cross selling, Schaper expects that percentage to rise. Perhaps more importantly, this iteration of Infor–one hesitates to say it won’t make other acquisitions–has an annual software maintenance run rate of about $1.1 billion, with a 95 percent renewal rate on maintenance contracts.
In September, Infor plans to roll out a three-year product roadmap to tell customers where it is going. And while Infor “competes with SAP and Oracle every day,” Schaper said that Infor is going to compete on its terms and on its midrange turf. “You will not see Infor attempt to build or acquire a financial package to compete directly against SAP or Oracle at the DaimlerChryslers or Nestles of the world,” he said. “We will pick the markets where we choose to compete.” And as for future acquisitions, Schaper just laughed and said, as for an acquisition strategy, “we will continue to have one.”
The real issue for midrange customers is that Infor is big enough, with enough product breadth and depth, with deep enough pockets, and with a large maintenance revenue stream that companies know Infor is going to be one of the survivors as the application software market continues to consolidate.
Schaper said that Infor has 8,100 employees, and he expects to be able to remove some redundancies in back office and other functions among the various companies that have just been glued together. But he was adamant that the employees who interface with customers–either writing, selling, or supporting the myriad applications in the Infor portfolio–would be retained.