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November 9, 2005

Infor: Geac deal suggests ERP market consolidation

The Enterprise Resource Planning (ERP) market continues to consolidate, with the announcement on 8 November that the venture capital parent of Infor Global, Golden Gate Capital, has agreed in principle to buy Geac. The deal, which will see Infor move into the middle tier of the ERP market, could now precipitate further merger and acquisition activity across the sector.

By CBR Staff Writer

Golden Gate Capital has agreed to acquire financial-software maker Geac Computer Corp for $1bn

Golden Gate Capital has already taken at least five companies private in the last two years, and overall has probably brought some 14 vendors together. It is an aggressive consolidator, but to date has tried to keep a solid vertical focus. All of its ERP products are being grouped under the Infor Global branding, which includes applications such as Lilly Software, MAPICS, and Agilisys.

As an example of Infor’s existing vertical strengths, it claims that some 73% of tier 1 and 2 automotive suppliers already use Infor solutions. Additional areas that it focuses on are distribution and the make-to-order manufacturing business, as well as process manufacturing such as brewing.

The terms of the deal are US$11.10 per share, valuing Geac at US$1 billion, and this is certainly a premium on the share price, both today and over the last year. The pressure has been on the medium-sized ERP vendors for some time now, with maintenance revenues essential for ongoing product development being squeezed. Size matters in the ERP market, which is changing in that prospective customers are starting to look at financial viability of vendors as being at least as important as the fit of the product to their requirements.

While SAP and Oracle currently fight at the very top end of the market, in the middle we now have SSA (another consolidator, with Baan probably one of the better known players to have been brought into its stable), Lawson (still in the throes of acquiring Sweden’s Intentia), Microsoft Business Solutions, and now Infor plus Geac. Lower down the ERP market there are still a large number of niche players, many of whom are still perfectly viable in terms of continuing customer support and product development.

Spending on ERP is starting to rise again, as organizations review the applications that were deployed to meet the Y2K deadline, and the market is on the rise. Further M&A activity can be expected over the coming year as the participants work out the optimal combination of brain and brawn to succeed.

Source: OpinionWire by Butler Group (www.butlergroup.com)

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