Massive $74 Billion Consolidation in the ERP Space
April 16, 2007 Timothy Prickett Morgan
That giant sucking sound you have been hearing for the past several years has been identified by the analysts at IDC. No, there is not a black hole in the clouds above Kansas. No, it is not the sound of all of the money in the Western world heading toward China or our jobs heading to India. That sound is the massive consolidation that has swept the enterprise application space in the past two years.
By IDC’s count, from January 2004 through December 2006, a stunning 550 mergers and acquisitions in the ERP and related applications software arena, and accounting for at least $74 billion in acquisitions, swept the IT industry. IDC says at least because some of these deals are among privately held companies who do not make their financial figures public.
“Like a wild fire, the consolidation engulfed the core of the U.S. market with deals like Oracle’s purchases of PeopleSoft and Siebel and quickly spread worldwide by redistributing vendor shares, forcing customers to remap their software strategies, and finally throwing investor expectations into a feeding frenzy,” explains Albert Pang, research director of enterprise applications at IDC. “And the best is yet to come as the deal value could soar over the next three years because of favorable economic conditions and increased optimism of professional investors, as well as the underlying strengths of vendor fundamentals from rising recurring revenue streams to irreplaceable vertical-industry expertise and dominance.”
IDC is projecting that software deal volumes and company valuations will increase in the next three years as ERP players and their investors dominate market segments and then cash out, going public or flipping to another set of investors. IDC is also projecting that consolidation will reach around the world, producing a number of global players than can span countries, languages, business practices, and currencies. IDC is also projecting that mergers and acquisitions in the North American market will not slow down, given the fragmented nature of this market, which is the largest geographical market for enterprise software in the world and which has thousands of software vendors with untold tens of thousands of applications even after all the consolidation the industry has endured.