ERP Vendors CMS Software and XKO Software to Merge
April 9, 2007 Timothy Prickett Morgan
Consolidation is not just happening at bigger software companies. It’s also happening, perhaps under the radar, at smaller software firms. For example, last week, two mid-tier ERP software providers, CMS Software and XKO Software were merged together, and like so many other deals done in the IT industry of late, the deal was financed with private equity capital.
XKO’s software operations were acquired by Marlin Equity Partners, a private equity firm based in Los Angeles for an estimated $28 million back in October 2006. XKO was publicly traded in the United Kingdom, where it is located, on the AIM exchange. At the time, the software business portion of XKO generated about $36 million in sales for its fiscal 2006, which ended in March of that year. That business has about 1,000 customers today, who use its Windows-based ERP software.
CMS Software is a provider of ERP software for midrange companies, and it has a set of code that runs on the i5/OS and OS/400 platform, appropriately called CMS i5, and another newer set of code developed using C# and related .NET technologies for Windows platforms, called CMS m5. That Windows-based ERP suite was delivered in October 2004. CMS has stated in its company profile that it has over 2,500 customers; it is a privately held firm and, as such, has not divulged its annual revenue.
But Marlin Equity did say in its announcement that the combined firm would have some 1,400 customers and around $50 million in sales (that’s U.S. dollars). This implies two things. One or both companies have overstated the number of customers they have–perhaps they were counting sites or licenses, not customers, which is a common “mistake” in the software racket. It also implies that XKO contributes about two-third of the merged company’s sales and CMS Software contributes about one-third. The combined companies have 300 employees. Marlin Equity says the two entities will continue to operate under their own names, pending a review, and the private equity firm did not disclose how much it paid for CMS Software.
Rudy Joss, who was CMS Software’s president, will chair the combined boards of directors of the two ERP software providers. Shawn McMorran, formerly chief executive officer at XKO, will continue in that role for the combined firms. It is unclear what role David McGovern, the managing director at Marlin Equity, will have in the company, but he cited scale as the main reason for doing the merger in the statement that the companies put out about the merger.