At the recent Progress Revolution 2011 user and partner conference by Progress Software (see TEC’s related article) I had the chance to reconnect with Epicor Software. For those few that might still not be familiar with the vendor, Epicor is a global provider of business software solutions to upper midsize companies in the manufacturing, distribution, retail, hospitality, and services industries. Founded in 1984 and publicly traded until recently (with 2010 revenue of about $450 million [USD]), Epicor had 20,000 customers in more than 150 countries that use its integrated enterprise resource planning (ERP), customer relationship management (CRM), supply chain management (SCM, see blog post), human capital management (HCM, see blog post), and enterprise retail software solutions (see blog post).
In April 2011, Apax Partners, which happens to have Plex Systems in its portfolio, decided to fork out $2 billion (USD) to merge Epicor with Activant Solutions Inc., a privately held vendor of similar size. The lesser-known Activant is a provider of business management solutions serving mid-market retailers and distributors primarily in North America. The company provides customers with industry-specific software, professional services, content, supply chain connectivity, and analytics. Founded in 1972, Activant had established itself as a provider in the automotive aftermarket, hard goods retailing, lumber and building materials, and industrial, electrical, and plumbing supply houses. In addition, the company had recently become a major force in the broader spectrum of specialty retailing with its Eagle solution. Activant has operations in California, Texas, Colorado, Illinois, Pennsylvania, South Carolina, Canada, Ireland, and the United Kingdom (UK).
At the time of the merger announcement (see the official press release [PR]), Apax stated its intentions to combine Activant and Epicor to create one of the largest global providers of enterprise applications focused on the manufacturing, distribution, services, and retail sectors. Following completion of the merger, the combined company was named Epicor Software Corporation and is no longer a publicly traded company. It now has more than 20,000 customer sites and approximately $825 million (USD) in annual revenue.
The State of Affairs Several Months Later
For this matrimony of two equals, Apax acquired Epicor as a global platform and growth-oriented company. The rationale for this is Epicor’s recent technical developments such as Epicor Productivity Pyramid (see blog post) and Epicor ICE (Internet Component Environment) architecture (see blog post).
Epicor 9 (a.k.a., Epicor ERP), the converged product from Vantage, Enterprise, Clientele, Avanté, Manage 2000, and some other Epicor legacy products, received a hefty research and development (R&D) investment during tough times (compared with Oracle Fusion, Epicor 9 was much faster to market, see blog post). The flagship next-generation offering has been growing nicely across the world. Its software-as-a-service (SaaS) edition, Epicor Express, is now used by over 100 customers; which puts Epicor 9 at more than 2,500 customers in total. The vendor continues to sell the Epicor iScala offering to new customers, besides Epicor 9, but only in some regions and verticals (e.g., hospitality). iScala will also eventually be incorporated into Epicor 9 (see TEC’s certification report on the product).
Some folks might recall that in late 2008, the equity company Elliott Associates, which had a minority ownership stake in Epicor, tried to organize a coup d'état with an unsolicited offer and potential shareholder, which ultimately was rejected. Epicor and Elliot reached a “standstill” agreement by appointing two outside board members, but while it was Epicor’s tea party–there was drag as these types of hedge funds can be disruptive, obstructionist, only caring about short-term shareholder value at the expense of further R&D investment and innovation. Epicor was successfully working to resolve that difficult and tenuous relationship with Elliot, when Apax came in to the picture.
Where the Synergy Might Come From
On the other hand, Activant Solutions had acquired several distribution and retail-oriented products, primarily in North America (Prophet21 and Eclipse) that were similar to Epicor’s pre-Epicor 9 legacy products (client-server and Microsoft-centric). Logically, these products should benefit from Epicor's experience in rejuvenating its own products. While still reviewing product convergence strategies, integration and cross-sell initiatives are already planned (e.g., Spectrum HR), with various product lines from Activant, as well as some particular Epicor ICE stand-alone technology pieces (Productivity Pyramid, the Enterprise 2.0 stack, Mobile, Enterprise Search, etc.).
While Epicor has had its distribution product within the Enterprise product line and now in Epicor 9, it hasn't really had the experts and infrastructure, and that is where the company hopes that Activant’s resources and products like Prophet 21 can help. The Epicor Retail division is doing fine and has been integrated with Epicor 9’s global financials modules. Epicor Retail is the market share leader in point-of-sale (POS) systems (both the large and small to medium business [SMB] markets), and the company claims that its multi-channel inventory visibility (across all of the retail stores and warehouses) and loss prevention (its complex event processing [CEP]–based module for store audit and operations) differentiate it from other retail ERP players. Now, the idea is to position Activant’s aforementioned Eagle product for small retailers.
All in all, the merged company is now private, but it continues to issue investor PRs and the US Securities and Exchange Commission (SEC) financial reports. Pervez Qureshi and Kathy Crusco, formerly Activant chief executive officer (CEO) and chief financial officer (CFO), respectively, are now the CEO and CFO of the new Epicor. For its part, the old Epicor has contributed to the senior executives team with John Hiraoka and Paul Farrell as the chief marketing officer (CMO) and executive vice president (EVP) of Global R&D, respectively. As mentioned earlier, Epicor is now well over $800 million (USD) in annual revenue. The first joint user conference for both Epicor and Activant customers, Epicor Insights 2012, is slated for early May in Las Vegas.
What to Watch For
While on paper this strategy looks sound, not many companies can really grow a wide range of products and industries. In reality, one often witnesses cannibalization, a neglect of some of the competing (overlapping) products, and/or the loss of specialized staff—all phenomena that impact growth. In general, after a merger, there are fewer people and there is shelving of products, and though the company may be more profitable, there is no real (double-digit) growth, at least initially. JD Edwards is a great example of this. The stalling company was acquired by Oracle (shortly after being acquired by PeopleSoft first), and the JD Edwards ERP offerings were expected to have a huge upside, at least the open systems EnterpriseOne line. But for a number of years, Oracle JD Edwards’ sales were flat or declining. After a period of neglect, product sales are growing nicely again.
While the merger provides a wide set of solutions, does the new Epicor have enough economy of scale and the ability to complete with SAP, Oracle, and Microsoft Dynamics? Spreading a limited set of quality resources across a broader set of solutions or industries sounds great, but it really just dilutes the expertise, at least initially. In addition, these giant vendors can also enrich their ERP offerings with their own platform products, and even hardware in Oracle’s case.
As seen with Infor and Sage, for example, rather than achieving high growth across the broad set of solutions, as hoped, all too often only a few solutions grow, with many stagnating, and with the company not experiencing the same growth as SAP or Oracle. Without high growth rates, there is a danger of becoming just another ERP rollup vendor. While a refresh of the Activant products sounds good in theory, one would hope that Epicor can afford many more R&D people proportionally than Infor previously committed to (before Charles Phillips’ tenure as CEO).
Epicor Executive Talks About Opportunities and Challenges
What follows now is our candid discussion with John Hiraoka, CMO. Our questions and Hiraoka’s answers are as follows:
PJ: What is markedly new at Epicor in the few months after the merger?
JH: Excitement. In a merger of this scale, even when the fit is so complementary—the markets, the technology, the customer-centric focus—there is still a huge amount of time spent on integration and basic administration. It’s great to now have the majority of this integration work complete, and to be able to focus on executing as a combined team on our strategy to drive market leadership.
PJ: Has your market and competitive landscape changed of late and how? What trends have you noticed in the market?
JH: Overall, we are now able to more fully address the entire value chain—manufacturing and distribution, services and operations, wholesale and retail—across a wider range of verticals. With our broader suite of offerings, we also can address the needs of both larger and smaller organizations. We have continued to expand our global capabilities, both in our software, as well as services, so we are better able to meet the country-specific requirements of our global customers.
With ongoing economic pressure and tight budgets, all companies need to do more with less. Companies buying enterprise solutions today want flexible, rich applications that perform like their social, Web, and mobile applications—graphically rich, intuitively obvious, connected, and fast. As such, mobility, native Web access, embedded analytics, collaboration, Web 2.0, and cloud—all the fundamental capabilities of Epicor ERP, in particular—are now much more critical in software evaluations.
In the markets we serve, the competition hasn’t really changed. Consolidation in some cases has taken products out of the market and reduced competition. We are seeing more companies considering cloud applications and SaaS, which is demonstrated by the success we are having with our SaaS (Epicor Express) solutions for manufacturers and distributors—Epicor Manufacturing Express Edition and Epicor Distribution Express Edition. Other players are touting on-demand applications, but no one that we know of can provide a single solution that can address on-demand, on-premise, and the cloud the way Epicor 9 can with its true service-oriented architecture (SOA) and multitenant platform.
Looking ahead, we certainly intend to change the competitive balance in the markets we serve by leveraging our increased resources, broader/deeper product portfolio, flexible delivery, and expanded financial scale.
PJ: What is your ideal customer profile now on both the Epicor and Activant side?
JH: A company that understands the value of leveraging information technology, automation, and operational excellence in driving business performance. It doesn’t matter whether it’s a large global manufacturer, a national distributor, a multi-billion dollar department store, or a regional retailer. The companies that are ideal for Epicor are those that want to use technology and process automation strategically, not only to increase productivity and efficiency, but also to gain a competitive advantage.
PJ: What is the current state of affairs of Epicor 9 and Epicor Express in terms of customers, new enhancements, etc.?
JH: We have now shipped Epicor 9 to more than 2,500 customers, almost half of which are new name customers.
On the SaaS side, we now have over 100 manufacturing customers subscribed to Epicor Manufacturing Express Edition as their solution to run their business on demand. Because Epicor ERP was written as a multitenant application and is 100% SOA, we are able to provide customers access to the solution however they want it—on premise, on demand, or in the cloud. While we have thus far been focusing Epicor Express on smaller manufacturers, we have just released a version for distributors. Again, these are just templates of Epicor ERP, so changes and enhancements we are making to Epicor 9 for the more than 2,500 customers are also directly benefitting the customers using these on-demand versions (and vice versa).
Many of the recent enhancements to Epicor ERP have been focused on our supply chain suite, business intelligence and analytics, and new industry suites including Epicor for Printing and Packaging.
Human Capital Management (HCM) has been a significant focus area for us since integrating our acquisition of Spectrum—a leading human resource management system (HRMS) provider at the end of last year. In addition to integrating it to Epicor ERP, we’ve enhanced Epicor HCM in on-boarding, talent management, and timesheet/time tracking capabilities.
We also have a very strong focus on usability, performance, and scalability to make sure that the product not only has the best features in the markets we serve, but also is easiest to use and has the best performance.
PJ: What social and mobile apps are generally available (GA) now (under which exact name) and what is coming out soon?
JH: Of course enterprise search, our portal, and Epicor Everywhere Framework are GA.
We plan to launch Activity Stream Management (product name pending) early next year, delivering the first true ERP-aware social media solution. Activity Stream Management will deliver business value by enabling all users to subscribe to ERP data notifications and follow business entities as well as provide a framework for threaded conversations and drive collaboration.
We have a portfolio of mobile ERP solutions to suit the needs of different user populations—Epicor-connected local solutions and onsite applications for tasks on the move, such as handheld devices and manufacturing execution system (MES). Epicor mobile solutions are robust field applications for wireless remote access, such as Epicor Mobile Field Service and Epicor Mobile Sales Assistant. Epicor Everywhere solutions provide Web access and updates on the go, powered by the Epicor Everywhere Framework and delivered by Epicor Mobile Access.
PJ: Given a lesser-known nature of Activant’s solutions globally, can you please describe the major functionality and install bases of Prophet21, Eclipse, and Eagle?
JH: Prophet 21 is a complete, end-to-end solution for wholesale distributors, particularly in the electrical, fastener, heating, ventilation, and air conditioning (HVAC), industrial, plumbing, and janitorial industries. Prophet 21 includes modules for quote and order management, CRM, inventory management, warehouse management, purchasing, financial management, strategic pricing, electronic data interchange (EDI), reporting, and analysis. We have more than 1,200 companies running their businesses on Prophet 21.
Eclipse is a fully integrated, real-time solution for wholesalers and distributors in the plumbing, HVAC, electrical, and pipe, valve & fitting (PVF) industries. Eclipse is designed to assist both single-site and large multi-branch distributors. Eclipse includes modules to support counter, showroom, and inside sales, inventory management, forecasting, purchasing, accounting, warehousing, order fulfillment, transportation, EDI, credit, pricing, and branch management. We have more than 700 customers actively running Eclipse, including a number of the largest wholesale distributors in the world.
Eagle is a complete retail and business management solution designed for small and midsize retailers in a broad range of industries including lumber & building materials, lawn & garden, farm-home, pharmacy & drug, and the automotive aftermarket. Eagle includes POS, scanning, inventory, pricing, purchasing, quote, bid and special order processing, vendor and manufacturer communications, financials, document management, electronic parts catalog, mobility, and e-commerce. We have more than 6,000 customers running their retail operations on Eagle.
PJ: How are your major system integrator (SI), independent software vendor (ISV), resellers, and other partnerships going (have they been affected by the merger in any way)?
JH: Our partner programs have never been stronger or more important following the merger. In the past 18 months, we’ve added more than 125 new reseller partners. And these partners are not small companies or start-ups, but rather established enterprise software sales and services organizations that bring deep vertical domain or regional expertise to Epicor. Many of them have been resellers for other enterprise software products, but have joined us based on the capability and opportunity of the Epicor ERP platform.
As you might know, we announced the signing of HCL Technologies and Defiance, two preeminent global SI firms to provide additional services and integration resources—particularly to support large global multinationals that require multiple options and high care-and-feed. HCL is one of the most well-known global SIs with more than 60,000 employees and vast experience in providing resources to support global IT services. Defiance has already set up an Epicor Centre of Excellence (CoE) in Chennai, India, as a part of its strategic partnership with Epicor and is a key partner in our recent India launch.
PJ: Which products, regions, and verticals have been most active of late? What do you foresee in 12–18 months—more of the same or not?
JH: As we announced on our recent quarterly conference call, despite the difficult economy, we saw very strong growth in our ERP business, where our license software increased 20.7% year over year. The increase was driven by the strong performance of Epicor 9 and Prophet 21 new business, including some larger strategic transactions. Retail software was down slightly as the ongoing concern over the global economy has continued to weigh on consumer spending. The Americas was the strongest growth region for us—particularly Latin America, but Asia-Pacific (APAC) was also very strong.
Looking ahead, I do think that for at least the next 6 months, we can expect more of the same—continued conservative spending and investment by business with a lot of “wait and see.” At the same time, leading companies are continuing to take this time to invest in automating their businesses—not just to reduce cost through automation, but also to be in a stronger position once the economy does recover. Certainly, the sooner this European debt crisis is resolved, the sooner we can expect to see the recovery get back on track and companies that are sitting on cash begin to invest again in growth.
PJ: What is the current state of affairs and differentiation traits of Epicor Retail? What enhancements are slated for future releases?
JH:The “Inspired Customer” motto and Inspired Retailer magazine reflect both our key message and the intense focus on the customer experience in retail. This focus on the customer is shaping our overall retail strategy particularly in the areas of customer engagement, mobility, cross-channel integration, globalization, and the cloud. Upcoming releases and enhancements for Epicor Retail include Mobile Store (Apple iOS and Microsoft Windows Mobile POS), CRM Clienteling, BI Mobile, Enterprise Store Central, Enterprise Selling and Multi-Channel Transaction Adaptor (cross-channel transactions), and CRM 7 (major new release of CRM). By the way, our focus on mobility isn’t just on the large store chains—our Epicor Eagle product line will see the release of a suite of mobile POS and enterprise apps for phones this fall.
PJ: Is there anything that you are at liberty to volunteer on the company's future moves (that we should look for at your upcoming user conference Insights 2012), i.e., new functional scope, verticals, intra-company product integrations (cross-selling), etc.?
JH: You can absolutely expect a number of announcements in this regard. We have teams already working on cross-product line integration. As you know, the EXTEND pillar of our “Protect, Extend, Converge” strategy is about delivering ongoing value to our customers’ investment in maintenance by enabling us to deliver, where possible, state-of-the-art applications that work across product lines—delivering next-generation capabilities and features that can enhance existing solutions.
PJ: How do you plan to ensure 1+1=2.5 (or 3), since much more often it turns out that 1+1=1.5 (at best)?
JH: I think the key difference here is the foundation: two highly complementary companies, with very similar cultures, that focused on adjacent, not overlapping markets. To your point that often we have seen 1+1 = 1.5 (or maybe even 1), because so many of the acquisitions in our space have just been “land grabs”—rollups of companies for their customers or to fill in “white space.”
None of these “consolidators” had a corporate or next-generation product strategy that they were really executing on and that could provide long-term investment protection for the customers, while also providing a realistic roadmap to leverage the latest products and technologies. We have that, and both companies have been delivering on their respective strategies for decades. With the two companies combined, we are uniquely positioned to accelerate the delivery of products, technologies, and services that really make a difference in helping our customers achieve their goals.