A Quiet ERP Vendor Merger That’s Worth a Closer Look

Mergers and acquisitions (M&As) among enterprise resource planning (ERP) providers are hardly uncommon, but by now the market has become accustomed to witnessing either “mega-mergers” or those involving at least one participant with a global presence. Thus, not many heads turned in April 2007 when two low-profile (or even obscure) vendors from Canada and the UK respectively announced their merger to create a more notable international ERP entity, if not a true force in the global enterprise applications arena.

One of the merging parties was privately held, Toronto (Canada)-based CMS Software (http://www.cmssoftware.com), which had, since 1986, been a respected supplier of ERP systems to midsize manufacturers, distributors, and wholesalers in the US and Canada. In the last two decades, the vendor had built a good reputation within certain market segments for its vertical industry savvy and software engineering, which is reflected in the standing of its flagship IBM iSeries-based ERP product CMSi5, and the much newer CMSm5, built using the latest Microsoft .NET Framework technologies.

The other merging party was XKO Software Limited (http://www.xko.co.uk), which had, since 1981 (albeit not always under same name, shape, and form) been a supplier of midrange ERP systems to over 1,000 manufacturers, distributors, and merchants in the UK and Europe. XKO offers applications that cater to the needs of specific vertical markets, and since 1999, the vendor has been growing by force of its own offerings and through several acquisitions. XKO's products and services thus have a number of brand names, such as Concerto, K-Open, Varius, X3, Xeres, XKO1, and others.

Marlin Equity Partners (http://www.marlinequity.com), a Los Angeles, California (US)-based private investment firm with the mandate to help corporations and stakeholders meet their business development and cash flow needs, has provided financing for the transaction. Prior to this event, Marlin Equity Partners had bought XKO, the formerly London Alternative Investment Market (AIM)-listed business, in 2006.

The merged business is expected to have sales of over $50 million (USD), and with its employee base of 300, will provide service to more than 1,400 clients from offices in Europe, North America, and Asia. Initially, the business continued to trade separately as CMS and XKO, though further financial details of the merger agreement were not disclosed. As announced in early November 2007, CMS Software re-branded as Solarsoft Business Systems (http://www.solarsoft.com), and is planning further vendor acquisitions. XKO will continue to do business in the UK under its new name, Solarsoft Business Systems Limited.

Market Impact

Especially in view of a slew of ERP providers that have merged, been acquired, or gone out of business in the last several years (many of which were former ERP leaders and market favorites; see Rapidly Consolidating Enterprise Applications Market: The Worlds of “Organic Growers” and “Aggressive Consolidators”), one logically wonders about the sustainability of many of the remaining smaller and “under-the-radar” (low key) players.

This merger between the former CMS and XKO too could be one way for the two cash-depleted (or at least cash-stretched), smaller, and lesser-known regional vendors (which have admirably survived the Y2K conundrum, dot-com's en-masse demise, and repeated economic up-and-down crunches) to keep themselves abreast of the growing demands on the underlying collaborative product architecture and functionality breadth. Customers remain understandably cautious about the vendors' viability. Attaining these goals under their own steam would likely have been a tall order since—until lately—many remaining independent vendors have also been keeping staffing levels constant (or in tune with their modest growth) in order to curb costs, while at the same time introducing ambitious new product developments. Needless to say, such cash outlays continue to come at a time of heavy product discounting and similar competitive sales practices of many competitors that are much more well-known and on financially better footing.

After the “top ten,” the next biggest players in the ERP market have a market share well less than a few percentiles, and although even 1 percent of the market, estimated at $20 billion (USD) or so, still represents significant value, this is only valid from a business perspective when there is an abundance of new sales opportunities. Therefore, for the vast majority of smaller vendors (apart from a few niche specialists in some vertical segments), it really becomes a case of fighting for the “crumbs.” Although during a blossoming market this is less of a problem (and high levels of consistent growth throughout the 1990s saw many of these vendors grow to a significant size), it is no longer the case. Therefore, growth and market expansion through acquisition seems to be the most viable option lately. One should note, however, that for the formerly named CMS and XKO, there has not been any apparent disappointment, as has been the case for many other peer vendors' “shotgun” (out of financial necessity) mergers and acquisitions. Quite the contrary: 2006 and 2007 were years of notably more aggressive growth and product research and development (R&D) achievements for CMS. Most recently, in April 2007, the company announced its entrance into the Turkish market. To that end, EEE, a long-standing CMS partner in Europe, has partnered with Byte, a leading IBM business partner in Turkey, to provide the CMSi5 ERP to the Turkish manufacturing market.

Turkey is a strategic manufacturing market in Europe and has long been regarded as the gateway to the Middle East. Byte and EEE have already secured the first CMS customer in Turkey, Mega Polietilen, a manufacturer of foam products for a variety of industries, including automotive, electronics, and consumer goods. With the reportedly high level of interest exhibited thus far, the vendor expects several more new CMSi5 customers in Turkey by the end of the year.

This follows on the heels of CMS's establishing, in mid-2005, a foothold in the expanding market for ERP solutions in the Asia-Pacific region, and the associated opening of its operations for the People's Republic of China, in Shanghai. CMS-Shanghai has since been tasked with expanding CMS Software's market share in China, where several CMSi5 systems had already been implemented in plants owned by North America-based CMS customers. By virtue of these established CMSi5 “footprints,” and because the ERP solution has been fully translated into Chinese, CMS has since been positioned to exploit the opportunities presented by the Chinese economy as it continues to evolve.

Moreover, CMS's Asia-Pacific regional headquarters is now located in Hong Kong. Through this office, the vendor has extended the market reach for CMSi5 beyond mainland China to manufacturing and distribution enterprises in established economies, like Japan's and Australia's, as well as to emerging markets, such as India's.

This concludes part one of the three-part series A Quiet ERP Vendor Merger That's Worth a Closer Look. Part two discusses how CMS's (now Solarsoft) ERP software solutions provide electronic data interchange (EDI), traceability with its Bar Code Labeling/Serialization module, as well as warehousing, distribution, and other supply chain features and functions.

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