Fresche Takes $60 Million To Fuel Growth, Consolidate Market
June 4, 2018 Alex Woodie
Fresche Solutions is making big moves, and readying itself to make even bigger ones. With $60 million in the bank – and a line of eager equity firms willing to invest millions more – the IBM i software and services firm is poised to significantly expand operations in a bid to capture what executives foresee as a loosening of budgets and uptick in demand around application modernization.
Fresche Solutions had just announced the $60 million financing round at the COMMON PowerUp conference two weeks ago, and its CFO was itching to get out on the expo floor. That’s where the prospects could be found on a suddenly stormy Sunday evening in San Antonio, Texas.
“We just finalized that round, and we’re already talking about the next round,” said Patrick Thibault, Fresche’s CFO, during a PowerUp press conference at the show. “I’m trying really to allocate that capital very rapidly to a couple of important things that we’re working on. And obviously one of the reasons why I’m here is to meet some of the folks on the floor and see if there’s an important piece.”
The “important piece” that Thibault talked about wasn’t IBM i professionals or IBM i prospects that could become Fresche customers, but other IBM i vendors that Fresche could acquire to flesh out its modernization offerings and strategy. About 70 IBM i vendors made the trip to Texas, and the Fresche crew were looking to see which ones would fit well into the Fresche scheme of things.
“When you think about this industry being around for the last 30 years, it’s ripe for consolidation,” Thibault said. “We are seen by these financial institutions as a platform to consolidate that market, and grow it.”
Fresche has grown rapidly through acquisition over the past few years. The Montreal, Quebec-based company kicked it all off in 2013, with its acquisition of Databorough and its X-Analysis product, then followed that up in 2014 when it bought looksoftware, the Australian developer of modernization solutions for IBM i and System z. Fresche received a $5 million investment in late 2015, and then six months later acquired Quadrant Software, which previously had acquired BCD Software and its well-respected line of IBM i modernization tools.
The acquisitions have helped to grow the company across a number of metrics, including personnel (it has double the number of employees) and revenue. According to Thibault, in its fiscal year ended March 31, 2017, Fresche doubled its revenues from the prior year. Then it doubled its revenues again for the 2018 fiscal year, Thibault said. The acquisitions played a big part, but Thibault assures IT Jungle there’s growth of the organic variety, too.
“The financial institutions that are backing us are really impressed on what we’ve done and the results. We’ve got 70 percent of recurring revenue, 70 percent software revenue. We have limited churn. The industry standard is probably around 10 percent to 15 percent. We’re at 1 percent per year, if that,” Thibault said. “So the financial institutions are looking at that and saying, ‘Ok you’ve done that on a sample of less than 3,000 clients. There are so many IBM i’s that still exist. Go and get more.'”
As it looks for more acquisition targets, Fresche doesn’t intend to move far beyond its core strength, which is application modernization for IBM i, said Andy Kulakowski, the president and CEO at Fresche.
“What the mission for Fresche is, why I come into work every day and why we all come into work every day, it’s to protect the decades and multi-millions of dollars that our customers have invested in their IBM i applications, and to leverage them into modern paradigms so it can support in turn their growing business and growing needs,” Kulakowski said. “So true to that mission, we will continue to look for complementary skills and technology solutions to upgrade that value proposition back to the IBM i community.”
Modernization’s Day In The Sun
Besides the market need for consolidation, there is another aspect of the Fresche story that investors seem to like: Something just has to be done about the older applications and systems that are out there, and they view companies like Fresche as poised to become leaders in the modernization space.
Even before it buys another IBM i vendor, Fresche already offers a wide range of modernization offerings. That starts off with understanding customers’ current environments and providing strategic guidance to develop and design a modernization roadmap, to developing and selling the modernization software for at the UI, APIs, and database levels and actually providing the professional services to implement the modernization strategy.
The Fresche approach is to engage with IBM i customers no matter where they are on the spectrum, said Brendan Kay, Fresche’s CTO.
“Too much of the message in the past has been ‘Here’s what you should do. Now go and figure it out yourselves,'” Kay said. “Our strategy very much is to work with our customers through the entire lifecycle of modernization, which can be as simple as having a mobile interface to start, all the way through to transforming the underlying database at the end, and scaling across all of that in the meantime.”
There’s a positive feedback mechanism helping Fresche to grow, too. The bigger Fresche gets, the more business it lands with larger clients, and the more complex modernization deals it gets.
“We’ve become bigger,” said Marcel Sarrasin, vice president of corporate marketing and business development. “We have the expertise and process – it’s being recognized now – so we’re able to work with larger companies on larger type projects. It ties it all together.”
Is Modernization Sexy?
There are alternatives to modernizing legacy IBM i applications, of course. Plenty of companies have decided to ditch the platform and the applications that run on them in favor of applications that are perceived as more up to date, such as SAP Business Suite or Oracle E-Business Suite. Some have successfully made the move. Many have not.
According to the Fresche folks, the smart money people in equity capital are keen to make a bet that more companies will choose to improve what they already have and protect their highly customized business logic – their “secret sauce” – instead of embarking upon a time-intensive and operationally risky plan to migrate to SAP or Oracle.
It just comes down to dollars and sense, Thibault said. “Just imagine you’re going to see your CFO, and those people are not very nice,” he deadpans. “And you’re saying, ‘Hey I’ve got two choices: I can modernize, or spend three to six times the money on SAP and take three times more time to deliver it, and after that I’m going to come back for another bucket of money to customize it. You know, that’s not a good value proposition.”
Equity firms “see the modernization transformation as a very big market that has the potential to grow rapidly,” Thibault said. “Even Andy and I – it doesn’t happen often – but we were called sexy by some of these investors. We were proud of that!”