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"Once Bitten” Vendor Is Not “Twice Shy” about New Acquisition

Written By: Predrag Jakovljevic
Published On: April 16 2008

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Much has been said lately by Technology Evaluation Centers (TEC) and other market observers about the ongoing turnaround success of IFS (OMX STO: IFS), the global enterprise applications company. Founded in 1983 in Sweden, the company can now boast approximately $300 million (USD) in revenues and 2,650 employees worldwide.

The vendor pioneered component-based enterprise resource planning (ERP) software with IFS Applications—now in its seventh generation—whose component architecture provides solutions that are easier than most to implement, run, and upgrade. IFS Applications is available in 54 countries and 22 languages, and the vendor has over 600,000 users across seven key vertical sectors: manufacturing; automotive; process industries; utilities and telecommunications; construction, contracting, and service management; aerospace and defense (A&D); and retail and wholesale. For information on IFS’s more recent state of affairs, see Two Stalwart Vendors Discuss Mid-market Issues

One of many reasons for the vendor’s stumbling and poor financial performance of yesteryear was its ill-advised acquisitions of several enterprise software companies in the late 1990s. Namely, IFS expanded into the customer relationship management (CRM) arena by acquiring former Israel-based CRM vendor Exactium for its product configuration module. The subsequent sell-off move to Pivotal (now part of CDC Software) in 2000 (see What Is IFS Up To in the CRM Arena?! ) represented IFS’s tacit concession that it had gone beyond its means with its too-ambitious product scope and geographic expansion.

IFS aimed at further expansion in the 1990s: hoping to gain a fast US beachhead by converting its customer base from the Time-Critical Manufacturing (TCM) product to its own enterprise applications, IFS bought US-based ERP vendor Effective Management Systems (EMS). However, customer satisfaction with TCM was (unexpectedly to IFS) high and, therefore, customer loyalty made it difficult to move customers away from TCM. With the majority of TCM customers reluctant to make the transition, and with IFS reluctant to maintain two separate ERP product lines, IFS then agreed to spin off the TCM product line in November 2001. Thus, the current WorkWise organization was created of former EMS staff, and has since focused solely on the TCM product line and its customer base (for more information, see A User-centric WorkWise Customer Conference).

Yet the sell-off at the end of 2004 of IFS’s Brazilian subsidiary; of tangential computer-aided design (CAD) applications for process, electrical, piping, and instrumentation design; and of applications for payroll (see IFS Continues Its Reinvention through Pruning) was a harbinger of today’s stabilized—even “upbeat”—company. After careful soul searching, IFS's then-management decided to stay focused on core competencies instead of extending painstaking efforts to develop peripheral applications for a small fraction of customers in Scandinavia, where the payback would have been highly unlikely.

Although creating a differentiating trait might have been tempting (no other ERP vendor has ever had native CAD applications for piping design), IFS’s CAD customer base was too small for the vendor to justify developing its own CAD applications in the long term, and the company did not have enough specialists outside the Nordic region to sell and support CAD applications globally. Again, this was possibly the best proof that IFS was getting rid of its erstwhile “not invented here” attitude.

Back to the Future?

Consequently, some might not have expected the vendor to consider acquisitions for some time to come. And yet, in July 2007, IFS’s joint venture with BAE Systems, IFS Defence Ltd., bought Information Science Consultants Ltd. (iSC). A privately held company based in Cirencester, UK, iSC specializes in naval maintenance management applications and services; the UK Royal Navy fleet uses iSC’s onboard and onshore unit maintenance management system (UMMS). The company also provides leading expertise in reliability-centered maintenance (RCM) processes and tool sets to a wide range of defense and commercial organizations. At the end of 2006, iSC (in British pounds) generated revenue of £2.4 million, with earnings before interest and tax (EBIT) of £0.5 million on gross assets of £1.8 million. Following the acquisition, iSC will operate as a business unit of IFS Defence.

Market Impact

Before jumping to a “not again!” conclusion, perhaps one should note that this acquisition might be of a somewhat different nature than IFS’s previous unsuccessful ones. Acquisitions of niche specialist companies, done to fill some functional gaps or to assert leadership in a certain vertical or geographic segment, usually make sense or justify themselves quickly. To that end, having originated from the realm of computer maintenance management systems (CMMS) for utilities in the 1980s, IFS has since become one of the leading suppliers of enterprise asset management (EAM) solutions, with a leading market share in the Europe, Middle East and Africa (EMEA) region.

In a nutshell, with iSC, IFS hopes to bolster its reliability-centered maintenance (RCM) capabilities in addition to its already strong EAM; maintenance, repair, and overhaul (MRO); and project-centric manufacturing solutions for the A&D sector. IFS’s A&D customers include the British, the Norwegian, and the US defense organizations, whereas its commercial MRO shops and operators include Finnair, Bristow Helicopters, Aero-Dienst, Hawker Pacific, and Jet Turbine Services, to name a few. IFS also provides solutions to original equipment manufacturers (OEMs), such as General Dynamics, Lockheed Martin, Eurofighter, BAE Systems, Saab, and General Electric (GE) Transportation.

Further along the lines of a different acquisition tack, strong joint ventures that go well beyond the usual press release (PR) announcements and joint marketing and financial arrangements (such as those with BAE and NEC), have recently become the norm for IFS. However, acquisitions are usually done directly by IFS, whereas the iSC acquisition is unusual for its being conducted by the IFS Defence joint venture. This route was apparently chosen owing to IFS Defence’s specialization in the A&D sector.

Historically, iSC has been mainly involved in consulting (the company is a custom software developer and consulting firm, and it supports customers' implementations of its software solutions), whereas IFS has primarily been a software product provider. Though conducting the acquisition via IFS Defence mitigates the financial risk for IFS and provides a better, consulting-oriented, cultural fit, some concerns might involve the ownership of the product and whether it will be rolled out globally to IFS’s customers beyond the defense sector.

New Asset Maintenance Appeal?

EAM and MRO seem to be of increasing interest to customers, and consequently to vendors, as can be seen by many vendors’ and venture capitalists’ (VCs’) deliberate investments in these areas. For instance, IBM recently invested a good chunk of change to acquire the former MRO software, despite the giant’s reluctance to be an enterprise application provider per se (in that it has long preferred and continues to partner for applications, providing mainly the underlying platform and infrastructure).

Also recently, Vista Equity Partners combined its individual EAM and field service investments, the formerly public Indus International, with the former Mobile Data Solutions Incorporated (MDSI) to create the new company Ventyx. The investment of Francisco Partners in the formerly public Mincom; Infor’s acquisition of the formerly public Datastream (see The Impact of the “Assembler Strategy” in the Enterprise Applications Field); Consona’s acquisition of Relevant Business Systems (see Smaller Vendors Can Still Provide Relevant Business Systems; Part Four: MRO and Spare Parts Management); and Lawson Software’s merger with Intentia (a former Swedish competitor of IFS with strong EAM and MRO offerings; see EAM versus CMMS: What's Right for Your Company?) should all speak volumes about the maintenance market’s attractiveness.

The enterprise applications leaders SAP and Oracle have also been extending their own EAM offerings. While Oracle has such capabilities in both its original Oracle E-Business Suite (EBS) and JD Edwards lines, SAP recently (at its EAM-centric user event) explained how SAP Enterprise Services Architecture (SAP ESA) should enable it to weave together native product enhancements and third-party partner solutions to satisfy two critical user needs: 1) innovation through composite applications to enable revenue growth, and 2) productivity and efficiency improvement through platform consolidation and standardization to drive bottom-line (profit) growth. User enterprises seem to have been interested lately in certain areas of asset management, including EAM process efficiency improvement; maintenance effectiveness and reliability; EAM applications usability and information access; and improvement in return on investment (ROI) from EAM projects.

In fact, Lawson Software recently conducted an internal global online study on nearly 200 companies (representing the utilities, manufacturing, mining, process manufacturing, and transportation sectors). The study concluded that concerns about plant safety, demand for asset availability, and environmental awareness or corporate social responsibility (CSR) and legislation (see "Evergreen”—Environmental Regulations for High-tech and Electronics, Chemical, and Oil and Gas Industries) are encouraging manufacturers to move to preventive and predictive maintenance strategies.

In other words, in the past, plant uptime and safety have primarily been internal plant issues (concerns about keeping the plant running and operators safe). But now, however, because of the CSR and environmental issues (for example, improving energy management and emission-reduction monitoring), such issues are more a strategic and external business matter. That is, an integrated EAM solution should ensure that a company’s assets operate efficiently within environmental guidelines.

For instance, a preventive maintenance program can help to lengthen the life span of spare parts and assets, save natural resources, and reduce waste. Some really advanced EAM adopters are now even viewing maintenance as a profit opportunity, and not just as a cost burden (or a necessary evil). Indeed, these users have begun to understand that RCM methods might increase the reliability and availability of a plant, which in turn might lead to more throughput (see Reliability-driven Maintenance—Closing the CMMS “Value Gap”?). Additionally, preventive maintenance and condition-monitoring techniques also extend the lives of the assets, thereby saving on capital expenditure.

Also, EAM extended beyond individual maintenance work orders improves spare part inventory management and procurement, enabling the purchasing department to negotiate better volume discounts, component call-offs, and consignments, among other advantages. And, there are benefits on the planning side that mean manufacturers are less likely to need “emergency” (rush) orders and the costs that come with expediting, which are typically associated with traditional “break-fix” tactical and reactive maintenance approaches.

This concludes part one of the two-part series "Once Bitten” Vendor Is Not “Twice Shy” about New Acquisition. Part two discusses further benefits IFS can offer current and prospective clients through its acquisition of iSC.

 
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