ERP Vendor Mergers and Acquisitions

Consolidation within a mature industry is common and is considered normal in a healthy market. Mergers and acquisitions are nothing new in the Enterprise Resource Planning (ERP) business; it has been an ongoing phenomenon for more than twenty years, with a few big-name vendors gobbling up smaller rivals, consolidating the market into 4 or 5 mega vendors, and a relative handful of smaller contenders. After a few years, new vendors emerge and the consolidation continues. 

In the context of free-market economics, this is ideal. The young upstarts can only be successful if they bring a competitive edge to the marketplace, something new or unique, and not just in lower pricing, although that is sometimes a part of the appeal. Often, the new vendor starts with a vastly improved solution or functionality that is sold as a third-party add-on to current ERP users. Some will grow their offerings into full-blown ERP systems. Still, the immature systems lack functional depth outside of their ​“killer app” that takes years to evolve into genuinely competitive ERP products. 

As companies install new systems or interfaces to their existing ERP system, they gain the attention of the more prominent, established vendors.

If enough customers begin to buy and implement the new or improved function, the established vendors must either develop their own version, which takes time and costs a lot, or they can buy the company and have a proven functional solution immediately available that can easily migrate into the mainline product. 

In some cases, a functionally rich, full-fledged ERP system might be acquired because it better serves a particular vertical market (niche) wherein the acquirer has found it difficult to serve. Or the acquirer might simply want to add to their user base and, at the same time, reduce the competition.

ERP system users are understandably concerned when their ERP vendor is acquired or when they merge with another vendor. What will happen to their current system, its support, and future development? Will their package be supported and enhanced, or will it disappear as the acquirer buries it within the larger organization?

The sad truth is that there is no way to know what the future holds for your beloved system. The acquiring company will indeed offer assurances about future support and continued development, and they might mean it at the time, but there are no guarantees. They could change their minds and shift the focus back to their original product or a different product.

Don’t panic. There’s time. The first thing to consider is that the acquiring vendor saw value in the acquisition. Perhaps the software had some unique capabilities that the acquirer wanted to add to their portfolio. Even if that were the case, the main thing that the acquirer is after is the installed base – current users of the acquired system. They are counting on the continuing revenue from the annual maintenance fees. They are also relying on a captive audience – users of a competitive solution that can be (relatively) easily won over to their flagship ERP system at some point.

Therefore, it is in the acquirer’s best interest to treat current users well, collect the maintenance dollars, and either support and enhance the system into the future or build a conversion toolset to bring users over to their central system. The best strategy would be to wait and see which road the acquiring vendor will take before converting to new ERP software.

The acquiring vendor may have more resources to apply toward maintenance and upgrades to the current ERP software. And if not, they will likely provide incentives to convert to a more successful system. Either way, the acquisition is an acknowledgment that the system has value.

It can be aggravating to have an ERP system acquired by an unfamiliar company or perhaps by a company whose software has been previously determined not to be a good fit. 

Above all, do not change systems simply because of an acquisition. If the current system is working well, providing the functionality and utility to support business needs, stay the course. Continue to maintain, monitor, and enhance the solution as necessary to continue until that is no longer the case. In other words, as long as the current system is working well, the change in ownership itself is no reason to go through an expensive and disruptive conversion.

If, however, moving to another ERP system is necessary for business growth, the acquisition may not matter except that the acquiring vendor may offer some attractive incentives to stay, including price reductions, conversion assistance, and more. And other vendors may also offer incentives as you shop for new ERP software.

If the current system serves business needs, continue as-is until a clearer picture of what the future holds for the newly-acquired solution is revealed. If you were already in the market for a change or upgrade, you will have new options and incentives to consider; do some research and figure out how the market has changed in the wake of the consolidation.

Either way, be sure to update a strategic IT plan to reflect the changing realities of the marketplace as well as any changing business needs moving forward.