Event Summary
On
June 5, Made2Manage Systems Inc., a provider of broad enterprise
business systems for small and mid-market manufacturers, announced a definitive
agreement to be acquired by an affiliate of Battery Ventures VI, L.P.
Battery Ventures, one of the leading venture capital firms focused
on technology investments, which manages nearly $2 billion in committed capital
and has a 20-year history in successfully making investments in software companies.
Under the terms of the agreement, an affiliate of Battery Ventures acquired
Made2Manage Systems for cash of roughly $30 million , which was at significant
premium over the market price at the time of the announcement (i.e., a 36% premium).
The
company would originally continue to operate as Made2Manage Systems Inc., with
employees and operations remaining headquartered in Indianapolis, IN and lead
by its existing management team, who supported the acquisition of Made2Manage
Systems as the most effective way to enhance its position as a notable player
in the small and midsize enterprise (SME) software market. Upon completion of
the acquisition, Made2Manage Systems was to be a wholly owned subsidiary of
Battery Ventures' affiliate, BV Holding Company, Inc.
However,
the first shockwave happened mid August, when Made2Manage announced the departure
of several members of the executive team. Jeff Tognoni of Battery replaced Dave
Wortman as CEO effective immediately, while Tom Millay, also of Battery Ventures,
assumed the role of VP, marketing, sales and services. Wortman left Made2Manage
Systems after 10 years of service. Under his leadership the company grew from
$3.9 million to $30 million in revenue, expanded its user base from 244 to 1,700
customers, and developed a single, Microsoft DOS-based product
into a fully integrated, Microsoft .NET-based extended enterprise
business system. Moreover, Gary Rush, VP of sales; Scott Heil, VP of development;
Joe Swern, VP of services and support; and Sam Amore, VP of marketing, also
left Made2Manage Systems. Only Traci Dolan, CFO and VP of finance; and Ray Vallillo,
VP of support and technical services, remain in their roles.
This
is Part Two of a two-part note.
Part
One detailed the event and began a discussion of the Market Impact.
Challenges
However, one would be too ignorant (or arrogant) to think that there is no need for even more serious development endeavor in order to remain competitive, and that the new Made2Manage can simply ride on its former incarnation's coattails. First of all, M2M EBS' functionality across the board, although broad and well balanced, has not been recognized as a differentiator in the market as the company does not exhibit much of a vertical focus in a manner depicted by many competitors. It basically exhibits a generic ATO, ETO, MTO, MTS and mixed-mode discrete manufacturing chunks of functionality. Given that tight focus is the order of the day, and given the fact that some of its peers offer a sharp vertical focus even to the precision of four- or even six-digit Standard Industrial Classification (SIC) codes within an industry, Made2Manage's above-mentioned technological advantages will soon be emulated and it will lose their differentiation value, particularly given recent harsh restructuring and a likely loss of direction in the interim.
Although the vendor has not promoted its vertical focus/strengths in the past, it has still guided its marketing, sales and product development strategy vertically to a degree. Specifically, it has chosen to maintain a flexible, but single version (i.e., code base) of the Made2Manage Enterprise Business System in order to cater to the needs and challenges of manufacturers and distributors across certain industries. As a result, it delivers an extensible, flexible solution that can be modified to support a specific operation, as well as meet the needs of an organization as it grows. And, although it does not offer specific versions of the M2M EBS suite developed for specific verticals per se, more than 50% of its customer base falls within the following three SIC groups: 3500's (Industrial and Commercial Machinery), 3400's (Fabricated Metals) and 3600's (Electronics).
Indeed, Made2Manage has plans to further develop its solutions to cater to specific vertical markets. There is a strong indication that the future direction for Made2Manage will be to focus on functionality. While the .NET initiative is still underway, the vendor has become aware that the customers in its market are not asking for it in the near term. Therefore, the vendor pledges not to build technology for the sake of technology, which is justifiable. Instead, it plans to focus in on the true needs of its customers and those of the prospective buyers in the target market, while applying forward-looking technology enhancements that protect its customers' investment in business solutions.
The
likely new owners' focus on targeting only these industries will hinge on reducing
the need for customization. The product is completely Microsoft Visual
Basic for Applications (VBA) enabled and the vendor's developers used
to write VBA scripts to extend the functionality of the package to work in markets
adjacent to its sweet spot, while there was a separate development group that
used to do the core system's customizations if the requirements were extensive
and very complex. Time will only tell what the Made2Manage R&D strategy in the
future will be, given its R&D department has born a real brunt of downsizing,
and is yet to have another VP appointed.
Further,
Made2Manage global market awareness and presence remain quite insignificant
in spite of the recent embryonic expansion in the UK via a sole value-added
reseller (VAR) agreement with MacroScope Ltd, where the company
has localized the functionality for the market. It remains to be seen whether
and how the new management team will provide incentives to attract new VARs
(and to not alienate the existing ones).
This is further aggravated by the fact that the product continues to exhibit minimal multi-national capabilities and to support only the English language. While this narrow focus has resulted in the delivery of the capabilities within the compact single product line depicted above, it may still result in missed opportunities as companies are increasingly seeking true global providers for their supply chain management and collaboration requirements. Although in the past Made2Manage has intentionally focused on small and midsize manufacturers and distributors in the US, Canada and the UK, the vendor had recently showed an interest in expanding to global markets after the time of the acquisition. In fact, development might still be underway for converting the user interface to Spanish and French (within a few months time bracket), which should have been bolstered with its recent financial backing. The new management maintains that the key to product development will be making the functionality needs of its customers and target prospects a first priority, which includes providing support for multiple languages. This requirement exists in North America as well as global opportunities.
However,
the example of former ROI Systems might illustrate how daunting
task the product's multi-national capabilities bolstering can be. As a result,
its former owners have resorted to a buyout by Epicor, which
remains committed to direct marketing and the product's enhancements for its
sweet spot, but the multi-national enhancements and global expansion will only
be pursued opportunistically (see Epicor
Conducts Its Own ROI Acquisition Rationale).
Hence, the recent events might be indicating that the new owners have a somewhat different agenda than the one espoused at the time of the acquisition after all, primarily focusing on profitability and not necessarily on growth opportunities. The vendor had (and maybe still has if it acts fast) a chance to parlay the recent investment to expand its multi-national capabilities and indirect channel, and particularly to interest its VARs into localization, industry specialization and provision of vertical extensions. The vendor even had the privilege of not wasting any time on multiple products' rationalization like is the case of many impending and/or lengthy ongoing mergers.
Consequently, at this rate, M2M will likely become a niche marginalized player in the global enterprise applications marketplace. This should not necessarily be bad for its owners, remaining employees and the users within that sweet spot, but the new management, having likely been done with shedding workforce, should even more quickly, energetically and unequivocally articulate what they will have selected for their sweet spot. Until then, competitors will prey on its disconcerted exiting users as well as on prospective customers. During this time of soul-searching, competitors will not "miss" this former unavoidable nemesis in selection contests. In any case, many still independent small vendors may point out that mergers and acquisitions are a cry far from being panaceas to any current difficulties many smaller vendor might be undergoing.
User Recommendations
The time for existing Made2Manage customers and partners to act is now, given your account executive or an equivalent point of contact might likely not be there any longer. While the acquisition might still mean a more viable position for your IT investment, unless you know for sure that you will remain within the vendor's core competencies and unless you do neither foresee much growth nor the need for enhancements on your side any time soon, you cannot treat the above events exactly in a business as usual manner'. Still, the new owners' motivation in buying the product and vendor must have been the install base and that is you. Showing interest and being vocal about your needs is your part in keeping the relationship the way you want it.
As new management analyzes the business, customer input is of critical importance, and the vendor cites some customers have been supporting its recent business decisions. Namely, in that the reorganization was so significant, some customers have interpreted that the vendor has simply recognized that it needed such a change.
Existing customers contemplating future investments in Made2Manage's solutions need to meet with vendors' executives and understand the management team, the respective company's financial picture and how the vendors' plans fit with customers' future. They should clarify and enforce their support status and the long-term product alliances, product development and migration strategy with the new management. Users will also benefit from approaching the vendor and informing themselves about the company plans for future service & support of its older product releases and what would the ramifications of migrating (or not) to its new product offering be. Talk with new management and make certain they know your expectations and plans. Measure their commitment to support your technology for a specified time. Keep a close eye on their actions, given that product enhancement and service & support strategy can apparently sharply change as early as three months after the acquisition.
Until the new product strategy is crystal clear and publicly committed to by the new owner, we advise potential users to warily evaluate the product even within their vertical sweet spot. Of course, learning about new features and attractive pricing would be beneficial, at least for information and for leverage with other vendors. We suggest evaluating the bells-and-whistles, price, reference sites within your industry, and corporate viability of other vendors as well, before making a selection. Made2Manage's offering should have an appeal to SMEs that are discrete manufacturers operating in mixed-mode, as well as with less complex projects and repetitive manufacturing functional requirements.
Its sweet spot so far has been manufacturers with revenues from $5-50 million (50 to 250 employees, although the system has recently been tested to even 500 users). Preferably but not necessarily, single-site North America and UK-based discrete ETO, MTO, MTS and ATO manufacturing companies and their divisions with up to $250 million-a-year revenue range and up to 200 concurrent users per site, should still evaluate the company's value proposition, bearing in mind the competitive landscape and the vendor's current state of affairs.
Although Made2Manage essentially operates across many industries with no vertical focus per se, over 75% of its customer base falls into the following SIC groups: 1) 3500's - (Industrial & Commercial Machinery/Equipment Manufacturers), 2) 3400's - (Fabricated Metal Products), 3) 3600's - (Electronic and other Electronic Equipment), 4) 3800's - (Instruments and Related Equipment), 5) 3000's - (Rubber/Miscellaneous Plastics Products), 6) 3700's - (Transportation Equipment), and 7) 2500's - (Furniture Fixtures), and the vendor will likely continue to focus on most of these. Further, the organizations from these industries seeking a Web-based solution and out-of-box functionality with little or no re-engineering effort may want to inquire about the M2M's hosted offering. Fast expanding, multi-national and companies looking for a cross-platform support and deeper vertical functionality may benefit from evaluating other products at this stage.
Nevertheless,
at the end of the day, users will have to undergo a thorough what if' scenarios'
assessment such as migrating onto newer Made2Manage product releases, keeping
the status quo, migrating to another product from another ERP provider, etc.
Identifying and approaching your local sales representative and vigorously negotiating
assurances and firm commitment to future product roadmap, and service and support
would be the best course of action at this stage. For those that might end up
outside Made2Manage's future sweet spot, more rationale on what to do about
your legacy-approaching application in place, see The
"Old ERP" Dilemma: Replace or Add-on, The
Old ERP Dilemma: How Long Should You Pay Maintenance?
Generally speaking, potential and existing users should be aware of the fact that it is a long journey from any grandiose or not vision to execution notwithstanding. More on a general note, existing customers of both once-troubled and stable vendors alike should address their concerns directly to the management and put contingency plans in place for ongoing support. Potential customers should proceed cautiously, buying components in a tactical manner and with a tangible, quick return on investment (ROI) rationale. Stick to a series of smaller projects targeted at streamlining a specific business process. Keep it simple and smart, and be aggressive while negotiating risk allocations, price parity and general terms and conditions. Fixed project prices (as opposed to time and material pricing), milestone payment schedules linked to deliverables, and a penalty clause for late deliveries (as well as a profit sharing incentive for early completions) should be a matter of course.
Very
detailed functional & technical information about the Made2Manage Enterprise
Business System is contained in the ERP Evaluation Center
at http://www.erpevaluation.com/