Infor Raises $1.5 Billion, Teases An IPO
January 21, 2019 Alex Woodie
When will Infor go public? For years, the company has hinted that an initial public offering (IPO) of stock is in its future, but has remained mum on the exact timing. Last week, as part of an announcement regarding a $1.5 billion investment by private equity firms, the ERP software company finally came clean and solidified its public stock offering plans to the world.
The IPO will come in 2019, the New York company says. Or maybe 2020. It all depends, according to Infor, on “market conditions.”
With stocks last week, major indices are still flirting with correction territory, and talk of a global economic slowdown continuing to weigh on equities. So it could take a while for the right market conditions to emerge. It could happen next month, or it may never line up to the complete liking of Infor executives. Only the folks in the company’s Manhattan headquarters know exactly when they will pull the trigger.
Ostensibly, the need to raise cash on the open market has been stemmed, to some extent, by the $1.5 billion infusion by Koch Equity Development (KED) and Golden Gate Capital. KED, the investment arm of Koch Industries (and a big user of Infor’s ERP software), invested something over $2 billion in Infor just over two years ago to pay down debt – including, it was said, debt held by Golden Gate Capital, which has been Infor’s majority shareholder since it was called Agilisys.
Infor currently holds $6.1 billion in debt and plans to use $1.25 billion of the new investment to pay down its debt obligations that are coming due. The remainder, about $250 million, will provide “liquidity” for certain minority shareholders, the company says.
Infor is keen to shed debt before presenting itself to Wall Street. Infor currently has a debt load of 6X (debt compared to earnings before interest, tax, depreciation, and amortization), which is somewhat high for a public company. According to this CNBC story, the average public IT company has no debt, although companies across all industries average around 2X debt to EBITDA. Utilities averaged about 4.5X and energy companies 2.5X.
Just the same, 6X is down from the 7X debt load that Infor had previously. During a conference call last week, Infor executives didn’t want to put an exact number on what they view the ideal debt load to be. Suffice it to say, it’s less than 6X.
“We’re always looking at the market and thinking about where we’re headed and what might be most advantageous,” CEO Charles Phillips said. “Obviously we’re still generating quite bit of cash. We would generate cash from an IPO, which we would use for debt pay down as well. And earnings continue to grow. Our perspective is that we’d be public with a leverage of less than six times.”
The company generated $3.1 billion in revenue for fiscal year 2018 ended April 30 against total operating expenses of $2.7 billion. However, it had $317 million in interest payments, which ate into earnings. All told, the company recorded a net loss of $137.3 million, an increase of about 40 percent from the previous year.
The company hopes that being public will give it a competitive boost across a range of areas. “We have spoken for some time about the many advantages that we believe Infor will receive if the company goes public, including improved brand recognition, broader employee equity program, additional currency for M&A, and more financial clarity for our customer and prospects,” Infor CFO Kevin Samuelson said during the conference call.
Infor has 68,000 customers in 170 countries, making it one of the biggest software companies in the world. About 18,000 customers run Infor software on IBM i servers, making Infor the biggest provider of software to the IBM i platform.
Infor has acquired over a dozen IBM i ERP software vendors over the years, including once-prominent names like SSA, Geac, MAPICS, Infinium, Lawson Software, Intentia, TDCI, Daly.commerce, Lilly Software Associates, and BRAIN. The company has kept its promise never to sunset any acquired product, but it also has not made enhancements to many of its products for years. Today, it’s go-forward strategy for IBM i customers largely hinges on three products, LX, XA, and System 21 (not to mention the former Lawson M3 products), which the company has continued to develop and to extend with mobile, cloud, and analytic solutions.
The attention (and resources) that Infor spends on its IBM i products and IBM i customers has been a source of some debate. While the company seems more focused on migrating customers to the cloud and developing AI solutions that only run in the cloud — like its Hodges chatbot – those solutions don’t readily tie into the day-to-day operations and needs of traditional IBM i customers.
In any event, reading the company’s’ S-1 filing, if it ever gets to that point, should be revealing. The company will have to be honest with potential investors about its considerable IBM i holdings, and give clarity on whether it views its IBM i product suite as a strategic asset or a legacy albatross.