Looking to strengthen their platforms, midmarket ERP vendors have recently snapped up smaller tech companies that add industry-specific functionality and advanced technologies.
Mid-level ERP vendors such as Epicor and IFS have been on an acquisitive streak, with several snapping up small technology companies in the last few months.
The vendors leading the M&A trend tend to specialize in manufacturing and are looking to acquire industry-specific elements and advanced technology such as AI. For the most part, industry observers characterize the acquisitions as ways that vendors can strengthen their manufacturing ERP platforms.
Epicor -- a midmarket vendor that focuses on ERP systems for manufacturing, distribution and retail -- acquired product information management vendor Kyklo in June and Smart Software, an AI-centered inventory planning provider, in May.
IFS, which offers ERP and field service management for asset-heavy industries, deepened its product portfolio with the acquisition of EmpowerMX -- a provider of airframe maintenance, repair and overhaul (MRO) software -- in July and Copperleaf Technologies, which provides AI-centered industrial asset management capabilities, in June.
These deals are characteristic of an evolving manufacturing ERP market, where established vendors are keen to add innovative technologies, according to analyst Brian Sommer, founder and CEO of TechVentive.
"I still see a number of tuck-in deals that are quickly accretive as the acquired firm is small and the products integrate easily," Sommer said. "But there's one reason that probably drives most deals: A smaller, innovative firm has amazing solutions that would make an old-school vendor's solution appear more modern and relevant."
Making industry-specific more specific
Epicor wants to add functionality to its cloud ERP platform that helps its customers in manufacturing, distribution and retail make better decisions and improve processes, said Vaibhav Vohra, chief product and technology officer at Epicor. Ideally, the capabilities it looks for can be applied across its customer base in all three industry segments, but Epicor is also looking to deepen functionality with these core industries.
"We're not just looking at verticals, like manufacturing, distribution or retail, but are looking at sub-verticals, like metal fabrication in manufacturing or fluid pump distribution in HVAC distribution," Vohra said. "We look at the applicability of what these customers are looking to do, and then applying the technologies that will help them the most."
The recent acquisitions of Smart Software and Kyklo fit in with this strategy, he said. Kyklo's portfolio of product information management applications enables Epicor customers in manufacturing and distribution to syndicate content across various channels, such as e-commerce sites, catalogs and marketplaces. Smart Software's AI capabilities can be more broadly applied for inventory planning and optimization.
Mid-level ERP vendor acquisitions in 2024.
IFS is also looking to focus its acquisitions on adding depth to the functionality of the industries it serves, according to Travis Johnstone, chief operating officer of the global aerospace and defense business unit at IFS.
"If you look at the commonality in all of our acquisitions, it's about providing industry-specific depth of capability, now through an AI-empowered platform, to those organizations," Johnstone said.
This platform-deepening is part of the strategy behind IFS' July acquisition of EmpowerMX, even as IFS has existing MRO capabilities in its IFS Cloud ERP platform, according to Scott Helmer, president of aerospace and defense at IFS.
EmpowerMX brings fit-for-purpose capabilities for airframe-based maintenance for MRO, Helmer said. The airframe is the mechanical structure of an aircraft, excluding its power plant and instrumentation, which have separate MRO processes and systems.
"[EmpowerMX] are fit for purpose in the heavy maintenance space, and it fits right within our portfolio and augments the depth of capability we have around that heavy airframe maintenance," he said. "We can extend the capability of the integrated offering from end to end around the full ERP capabilities and specific airline capabilities around engineering, maintenance planning and maintenance execution."
Customer demand drives IFS' M&A strategy, and the company is not looking to add a new technology such as AI just to have a newly hyped capability, Johnstone said. IFS is trying to balance its portfolio with early-stage, fast-growing companies that are on the edge of a technology wave along with well-established companies such as Copperleaf, which it acquired in June and offers AI-centered industrial asset management capabilities.
"If you're buying every fast mover or startup, you're not acquiring that industry expertise and customer base," he said. "But if you're not innovating on the platform or looking to add new and hot capabilities, you're missing the boat there."
Infor is another manufacturing-focused ERP vendor that recently snapped up smaller technology companies.
Infor's July acquisition of Acumen, which supplies trade promotion software and services for the consumer packaged goods industry, is also intended to deepen industry-specific capabilities in the Infor Cloud ERP platform. The ERP vendor acquired Albanero earlier this month for its broad data management platform, according to Kevin Samuelson, CEO at Infor.
Acumen focuses on trade promotions management that is particularly valuable for Infor's customers in the food and beverage industry, Samuelson said.
"We've partnered with Acumen there, but we want to make sure that we have products and experiences that are fully integrated, easy to deploy, so we felt like we needed to expand into that area," he said.
The acquisition of Albanero, on the other hand, provides Infor with a data platform that's intended to help customers deal with complex problems such as managing data in an ERP migration, Samuelson said. Poor data management can sink an ERP implementation project or lead to unsatisfactory value after a project goes live, and having clean and standardized data has become critical for analytics and AI.
"In partnering with Albanero, we found there was big customer demand," he said. "And the outcome of customers that use their technology about ease of data migration, quality of data migration and then ongoing data cleanliness was pretty extraordinary."
Some common threads in deals
For the most part, industry observers believe that each deal is unique, but there are common characteristics around the acquisitions.
The deals tend to be tuck-in acquisitions that the vendors are using to fill in gaps in their product portfolios or to get applications that they can develop for cross-product sales, according to Predrag Jakovljevic, an analyst at Technology Evaluation Centers.
It is all about having more focus and being ahead of the competition.
Predrag JakovljevicAnalyst, Technology Evaluation Centers
"There's nothing earth-shattering here -- they're just adding useful technologies for more stickiness of the existing solutions," he said.
For example, at first glance, IFS' acquisition of EmpowerMX wasn't clear, given that it already has an MRO application, Jakovljevic said. But companies have different types of MRO needs, such as for airframe or engine maintenance, he added.
"It is all about having more focus and being ahead of the competition," Jakovljevic said.
One trend is that advanced technology is now being sought by enterprises that had been ignoring it for years, so ERP vendors had ignored it as well, said Holger Mueller, an analyst and vice president at Constellation Research.
Manufacturers are bringing new technologies to the shop floor, often through equipment refreshes, and the ERP vendors are buying the smaller technology companies to meet these needs, he said.
"There's a generational shift of manufacturing leaders, with the ability to enable mass customization, and the machinery upgrade cycle are all triggering a modernization of the shop floor, which needs a different ERP or supply chain management system to manage them," Mueller said.
The ERP vendors are also in a race to "bulk up" to the next tier in the ERP market, he added.
"These vendors are now in a situation where scale matters," Mueller said.
Both the ERP vendors and the smaller companies that they acquire might be getting something that each needs, TechVentive's Sommer said.
The smaller companies getting acquired are looking at gaining the skills and capital they need to evolve their products, while some of the larger but more generic ERP vendors are aggressively looking to acquire industry-specific capabilities to help them better penetrate key verticals, he said.
"With one well-chosen deal, they can acquire customers or subscribers and get needed vertical functionality," Sommer said.
Some of the smaller but more established vendors have solid vertical functionality, but it resides in an antiquated platform, he said. The ERP vendor such as Epicor can then acquire the technology for a reasonable price and replatform it on a modern cloud system over time.
Sam Hamway, an analyst at Nucleus Research, agreed that the recent M&A activity highlights a move toward full-suite offerings, especially for the upper-midmarket and enterprise-level ERPs.
"Vendors aim to reduce IT complexity by consolidating functionalities under one provider," Hamway said. "Epicor's acquisition of Smart Software, for example, specifically enhances their supply chain management capabilities, catering to the customer expectations for broader functionality, particularly upmarket."
This trend of acquiring specialized companies to quickly fill functionality gaps is likely to continue as vendors aim to offer integrated applications that meet customer demands more efficiently, he said.
Jim O'Donnell is a senior news writer for TechTarget Editorial who covers ERP and other enterprise applications.
