Is Enterprise Market Consolidating? Exactly!
Written By: Predrag Jakovljevic
Published On: June 14 2002
Is Enterprise Market Consolidating? Exactly!
On May 29, Exact Software (AEX: EXACT), a Dutch-based provider
of accounting, payroll, CRM, ERP and e-Business software solutions, continues
its aggressive growth and expansion in North America by announcing its
intention to acquire Kewill ERP Inc., a manufacturing and distribution
software division of Kewill Systems PLC (LSE: KWL). Kewill Systems
is a UK-based provider of supply chain management (SCM) software for small-to-medium
enterprises (SMEs). This, only 15 months since it acquired Macola Software,
formerly a privately held mid-market ERP vendor based in Marion, OH, adds
to an ongoing enterprise applications market consolidation.
will pay $19 million cash for the division, according to Bert Groenewegen,
Exact's CFO and president of Exact Software's North American division.
The sale is contingent on approval of such at a June shareholders meeting
of Kewill Systems PLC. In the year ending March 31, 2002, Kewill ERP reportedly
generated revenues of approximately $28 million and a profit before interest
and tax (EBITA) of $1.2 million, but Exact expects that this acquisition
will have a neutral effect on profitability for 2002.
Kewill ERP Division has long has been recognized as one of the leading
providers of ERP software for small to mid-size manufacturers. Based in
Minneapolis with smaller operations in San Francisco and Santa Barbara,
the division also has an operation in the UK. The Kewill ERP Division
provides a scaleable suite of Microsoft Windows-based manufacturing software
solutions under the JobBOSS, MAX and Alliance/MFG
product names. JobBOSS, a make-to-order (MTO) ERP solution, is one of
the leading Job Shop software solutions in the small to mid-size marketplace.
MAX and Alliance/MFG are solutions that cater to the needs of discrete
manufacturers and should therefore complement Exact's Macola ES
manufacturing and distribution offerings.
Kewill ERP will operate as a separate business unit of Exact Software
North America selling, supporting and maintaining JobBOSS, Max and AllianceMFG
product lines. As a result of this acquisition, Kewill ERP should reportedly
leverage the resources of Exact, a larger, more global organization, thus
strengthening the marketing and product strategies of Kewill ERP. Exact's
research and development effort will reportedly include the realignment
of the product lines and integration with Exact's e-Business product,
e-Synergy. As a result, R&D resources will be shared and integrated
with the entire Exact Group, thus increasing the total product development
budgets and expanding Exact's support and services to existing JobBOSS,
MAX and Alliance/MFG customers. Such support services will be provided
through regional offices Exact already has opened in North America as
well as others it plans to open throughout the US.
latest acquisition announcement comes on the heels of Exact Software North
America's announcement several weeks ago that it is opening regional offices
in the San Francisco Bay area, Greater Los Angeles area and Boston area.
In addition to these new facilities, Exact Software North America has
offices in Central Ohio, Orlando, FL, Fort Lauderdale, FL; Toronto, Canada
and Vancouver, Canada.
the latest quarterly reports have largely seen disappointments even from
many leaders and market darlings, one is to wonder about the sustainability
of many of the smaller players. The renewed flurry of mergers and/or acquisitions
could be one way for the cash-depleted smaller vendors, which have admirably
survived both the Y2K conundrum, dotcom's en mass demise, and protracted
economic slowdown crunches, to keep themselves abreast of the growing
demands on the underlying collaborative product architecture and functionality
breadth, with customers remaining vendor viability cautious. Attaining
these goals under its own steam will likely be a tall order since many
vendors have also lately been reducing staffing levels in order to cut
costs, whilst at the same time introducing heavy product discounting and
competitive sales practices.
one goes beyond the top ten in the ERP market, the next biggest players
have a market share less than 5%, and although even 1% of the market estimated
at ~$20 billion still represents significant value, this is only valid
from a business perspective when there are many new sales opportunities
available. 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 therefore high levels of consistent growth
throughout the 90s has seen many of these vendors grow to a significant
size, it is no longer the case. Therefore, growth and market expansion
through acquisition has lately been the most viable option.
the case of Exact and Kewill, it is a logical move to counteract recent
Microsoft expansion in the applications market (see Microsoft
'The Great' Poised To Conquer Mid-Market, Once and Again) and to remain
in the game at least in terms of the company size and infrastructure.
Consequently, the parent Exact Holding N.V., which has over 50 subsidiaries
and 20 distributors in over 50 countries worldwide, has customers in 100
countries, and potentially with close to $250 million in revenues and
over 2,000 employees worldwide should still be placed among the leaders
in the SME market segment. Its experience with Macola has so far been
a case of a successful merger effort. While many competitors have recently
reported declining revenues and scaled-back R&D efforts, Macola has gone
in the opposite direction. Despite the tough economic climate, the company
has closed a number of deals partly because of being a bigger organization
with a broader geographic sales and support coverage. The company marked
its complete integration with its parent organization earlier this year
when it adopted the name Exact Software North America.
the combined organizations offer an expanded solution footprint with the
recently unveiled extended-ERP suite renamed Macola ES (formerly
Progression Series ERP). The Exact's contribution to the partnership
was the above-mentioned e-Synergy, a suite of Web-based customer
relationship management (CRM) solutions, human resources (HR) management
functions, project management, and extensive workflow management functionality.
Although it may not be as deep as some of the best-of-breed CRM products
in the market, it offers most of the functionality a small and/or medium
enterprise may need without the superfluous integration headaches. Owing
to its inherent workflow, e-Synergy furthermore often becomes bigger than
the sum of its parts, since by being able to manage the customer's Web
site and by including the buy side and the sell side of e-business, document
management, and logistics functionality, it borders on the capabilities
of knowledge management (KM) and business process management (BPM) systems.
The successful and quick integration of e-Synergy with former Macola's
back-office solution to get Macola ES was impressive, resulting with delivering
more information to the desktop and across the enterprise, and with catering
for better management of customer service for an organization.
in the parties' corporate cultures and product development philosophies
has certainly played its part. Even before the acquisition, Macola was
striving for an expanded global presence, and to that end, its product
featured the multi-currency and multi-language capabilities of a global
product. Both companies' products' open architecture, flexibility and
adoption of Microsoft technology have also made it easier for products
to be blended and for customers or consultants to localize the product
further. Furthermore, in 2000, well before being purchased, Macola introduced
Web.Orders, a module that provides on-line product configuration
capabilities and order management, and it also rolled out its new, higher-performance
Microsoft SQL Server-based product.
The acquisition should have a great meaning for smaller and not very vocal
Kewill too, which should gain access to Exact's sizable resources and
avail itself with large investments in e-business, product technology/architecture,
globalization and verticalization. One should expect Exact to apply its
practice of using a common object repository to simplify development across
all the products in this acquisition too. The merger should also boost
Kewill's sales and marketing capabilities, as it has so far conducted
a lot of business only over the phone and over the Internet. The Minneapolis-based
division has long offered two flagship ERP solutions aimed at SME manufacturers:
MAX and JobBOSS. Additionally, Kewill recently bolstered
its product portfolio with its recent acquisition of Alliance Manufacturing
Software, a provider of ERP solutions to fledgling manufacturers with
annual revenues of $1 million to $15 million.
ERP products exhibit different strengths. While JobBOSS is a suite of
shop management applications for job shops and make-to-order (MTO) manufacturers
that place high priority on the ability to track actual cost and labor,
MAX and Alliance/MFG are ERP product suites tailored for repetitive and
mixed-mode manufacturers. MAX has a broader-based appeal, by offering
integrated applications that include material requirements planning (MRP),
advanced planning & scheduling (APS), product configuration, and customer
relationship management (CRM).
the above it appears that Kewill has some material management functionality
overlap with Macola ES product, but the products' respective strongholds
in manufacturing (Kewill) and services, distribution, and financials (Exact
Software) could bode well for the merger. Also, both companies' reliance
on the Microsoft's technology, and Kewill's stability and profitability
owing to a lean operating business model, must have also played the part
in Exact opting for this acquisition. Still, in addition to always-inevitable
integration effort, and despite the complementary nature and somewhat
different target markets of the product lines, the pain in appropriate
positioning of these cannot be discounted. It is always quite likely that
the direct sales forces and/or channel partners will face conflict in
terms of market overlaps, as well as traditional association with a certain
product line regardless whether it is the best fit for a certain opportunity.
Not to mention the effort of cross-training in case of VARs willing to
forsake their attachments to certain product lines. In addition to Microsoft
Great Plains/Navision and Best Software archrivals, an array
of peer competitors like, e.g., Frontstep, Epicor, Syspro,
Made2Manage, Lilly Software Associates, Scala, or
ACCPAC will cite their more unified products that cover many bases
natively as well.
we believe that the above merger should be synergistic in the long run,
some growing pains, integration issues, and positioning of possibly redundant
products are always to be expected. Still, Kewill ERP customers should
consider this event as a move toward a more viable position for their
IT investment, given a likely growth in Kewill's R&D and sustained support
for the ongoing development of its products, likely by integrating it
with e-Synergy. Enterprises should nevertheless monitor the consistency
between the announced strategy and Exact's actions in continuing to support
Kewill ERP strategically.
until the merger is consummated, users evaluating the above individual
products should exercise moderate caution, keep themselves informed, and
consider generally available (GA) functionality only. Existing Kewill
ERP users should urgently clarify their support status and the long-term
product development and migration strategy with the new management. Customers
adopting the first integrated product should anticipate significant changes
in later versions of the product after first users' experiences and product
refinement requirements. Current Kewill users should also query the partnership
with Microsoft Great Plains' Dynamics modules as it functionally
overlaps and competes with Macola ES.
generally, Exact Software North America should be attractive to small
to midsize growth-oriented businesses in various industries with a need
to integrate Back-Office ERP (manufacturing, distribution, HR/Payroll
and accounting), CRM and e-Commerce applications. If a manufacturing organization,
your operations should be quick-turn, material and operation intensive,
with heavy work-in-process management needs and strict control of both
material and labor contribution to the bottom line.