In the End, Infor Gets Lawson. What it means for customers of the new Infor

Exactly 6 weeks ago today (March 15^th) I posted an entry highlighting Infor’s bid to acquire Lawson. At the time and for several weeks afterwards, there was much speculation about the price, whether or not there would be additional bidders, as well as the probability of Lawson staying independent. Shortly after this announcement, Harry Debes (CEO of Lawson) addressed a large flock of Lawson customers at CUE 2011 (CUE stands for customer user event) and acknowledged all the speculation as the “elephant in the room.” He said the company was considering all possible options, including staying independent.

I don’t think a lot of people put money on independence as the future outcome, but there did seem to be a lot that counted on other bids popping up… maybe not a real bidding war, but at least a second bid that might drive the proposed price higher. Why do I think this? Quite simply, the stock price went up. At the close on the Friday just before the weekend when the initial offer for $11.25 per share was made, the stock price had been $11.55. Instead of going down as a result of the bid, it continued to go up. Someone was betting they could turn a profit on prices between $11.55 and over $12 a share. I don’t profess to be a trading whiz, but I do know $11.25 is less than $12. And $11.25 will be what they get when the deal is sealed. There won’t be an opportunity to watch the stock go back up because it will no longer be on the market. Infor, at least for now, is a privately owned company. Indeed the offer is really being executed by GGC Software Holdings, Inc., an affiliate of Golden Gate Capital, which is one of Infor’s investors.

So, now that the deal is really going down, what does this mean to the customers and employees of both companies?

There is always a certain level of uncertainty concerning the workforce of any acquired company. Those in Lawson’s development organization should take heart in knowing that Infor already announced its intention to hire 400 additional software developers. So my guess would be that good developers are safe. Poor performers in any department should probably be looking over their shoulders as an acquisition is the perfect opportunity to clean house. Let’s just hope Infor is able to distinguish the good employees from the underperformers. No offense intended, but that distinction is often much harder to make than it would appear to be. And in any acquisition, there will be some level of redundancy, particularly in the back office.

What about the impact on customers? My initial take is that the customers from both camps will benefit directly from this move. There will be more innovation and I hope this provides some impetus for some rationalization and cross fertilization of product lines because Infor’s reputation and brand has suffered as a result of having too many.

 In an open letter to Infor and Lawson customers, partners and employees, Charles Phillips, newly appointed CEO of Infor, highlighted several benefits to the deal, which also imply some plans. In fact he even starts out by saying, “Lawson customers can rest assured:  Product investment, innovation and customer success will be our key areas of focus” and references Infor’s previously announced plans for accelerated innovation, including those 400 developers he intends to add.

In this letter he highlights the following points:

4  Complete ERP suite: As the boundaries of ERP continue to be stretched, the top ERP contenders continue to expand their footprints.  Mr Phillips references Lawson’s enterprise financials and human resources products as standalone products, across multiple industries and the intent to integrate them with Infor’s manufacturing, supply chain, workforce, and asset management products. I “get” the reference to human resources as Lawson has developed this area further than Infor has, but Infor has financial management products that are available as stand-alone products as well, so the implication I see might be a rationalization of products, with Lawson’s S3 forming the basis over the SunSystems or Masterpiece product lines?  But just cross-selling independent extensions to ERP without truly integrating them doesn’t get you a “complete suite.”  So there is some real work to be done here.

4  Complementary products: Mr Phillips states, “The product lines are complementary, not overlapping.”  Complementary yes, but I diagree...they are also overlapping. Consider the financial product I mention above and Lawson M3 competes directly with several of the Infor ERP solutions for manufacturing. But I will say that Lawson has stuck to its knitting in terms of declared verticals. This means there is less overlap, but there is still a lot. However, the example Mr Phillips uses: ”… Lawson’s expertise in the healthcare industry will be enhanced by Infor’s Enterprise Asset Management which will be targeted for large hospitals and Time & Attendance product, complementing Lawson’s Nurse Scheduling application.  This is truly a scenario where 1+1=3.” But don’t forget Lawson also has an EAM solution.

4  Standards-based integration:  Infor’s underlying architectural strategy has undergone some changes over the past year, and appears to still be transforming itself somewhat, but the path seems to be towards openness and a commitment to stay out of the middleware market. This will pave the way for integrating the two new product lines with other Infor product lines.

4  Re-inventing the applications experience:  Both Infor Workspace and Lawson Mashup Designer have similar goals here. It will be interesting to see if and how these two separate products are rationalized.

The remaining points refer to expertise in key industries (of which neither company lacks in both complementary and overlapping industries), innovation and investment (as evidenced by prior announcements and growth plans for R&D) and scale. In terms of scale, Mr Phillips makes reference to 75,000 customers and concludes with, “Having more customers allows us to invest more, identify more requirements and develop a large partner ecosystem.” I agree with the premise, but Infor already claimed to have 70,000 customers, so I am a little puzzled by such a small (7%) increment.

I do believe Lawson customers in particular will benefit from the increased focus on innovation. While Lawson has indeed brought innovation to the table, even as revenues were down during the recession, its profitability stayed strong, which was commendable for a public company with an obligation to its shareholders. But it also limited its investment.

My conclusion… while I hate to see the number of distinct and competing ERP vendors shrink once again, I believe that if the combined companies are not afraid to make some bold steps to consolidate strategies, perhaps rationalizing product sets, the customers will be the clear winners.

The Case for ERP Consolidation

Today I was reading Bruce Richardson’s View From the Inside. Bruce was one of the longest tenured analysts with AMR Research (and its Chief Research Officer) before AMR was acquired by Gartner at the end of 2009/beginning of 2010. Bruce and I really moved in opposite directions. While I spent 30 years working for software companies before joining the analyst ranks, at the time of the AMR acquisition by Gartner, Bruce moved to Infor and is now on the software side. So we’ve both seen the view from both sides now.

The subject of Bruce’s “View” today was “A Tour of the Distribution ERP Market with Infor’s Andy Berry.” It talked about roadmaps and growth of sales to this market. But what specifically caught my eye was the announcement that Infor would be consolidating its multiple distribution products down to two and eventually to one offering. This is definitely a new approach for Infor. Throughout its history of over 35 acquisitions, Infor has avoided the consolidation or rationalization of products, sometimes in sharp contrast to companies it acquired.

The one merger in particular that comes to mind is Infor’s acquisition of SSA Global (August 2006), which itself had been a product of serial acquisitions and had defined a path of rationalization. Having just left SSA myself about 6 months prior to the acquisition, I was intimately familiar with its consolidation strategy. With somewhere around 10 different product lines at the time, SSA’s plan had been to consolidate down to two ERP solutions (LX and LN) and one financial management product, which ultimately would provide the basis of the financial modules in the two ERP solutions. But the company wasn’t too far down the path of execution when the merger happened, and the consolidation message, quite frankly, had not been very well received by its customer base. So abandoning that strategy seemed like a no-brainer at the time.

Add to this a couple other similar situations in the ERP market. Oracle had acquired Peoplesoft and JD Edwards, and also had its own business suite. But its announcement of its Fusion product as a single consolidated product line also met with resistance from its installed base. This was also about the time of Microsoft’s Project Green, which was meant to rationalize the four acquired ERP products (AX, NAV, GP, SL) down to one. Same reaction. Boos from the crowd.

So the case seemed to be pretty solid against rationalization unless you wanted to seriously tick off your customers. And maintenance revenue streams are way too important to an ERP solution provider to risk. So why was one ERP that also grew by acquisition – Epicor - successful in doing exactly the opposite?

On October 21, 2008, Epicor Software Corporation announced Epicor 9, the culmination of an eight year effort to converge its nine different product lines. And along the way, it didn’t seem to alienate its customer base. In fact over the years I have spoken with numerous Epicor customers that perceived a reimplementation as an opportunity, rather than a hardship. What was the difference?

Of course there are a myriad of differences, but I think the one that really mattered was that Epicor made the new destination different enough to really matter. Many installed base customers faced with a reimplementation perceive it as a “rip and replace” only to spend lots of time and effort to get back to exactly where they started.  Epicor took a staged approach to delivering on its goal of convergence and did not lose sight of its promise to protect investments along the way. But it also knew that it had to bite the bullet and do a complete re-write of its underlying base architecture. So first it built its Internet Component Environment (ICE) 2.0, a second-generation Service-Oriented Architecture (SOA) and Web 2.0 technologies. Then over the course of several years it converged from nine to four and then to one. Customers weren’t re-implementing on the promise of something new and different in the future. It was already there and they knew if they just tried to re-create their existing environment they would be cementing in place any restrictions they currently faced.

Oracle Fusion and Microsoft Green promised new architectures but they weren’t “there” yet. SSA had no new architecture to promise.

Infor always had the vision, but for several years got side-tracked through attempts to architect its own middleware. Infor has now decided to stick to what it does best – enterprise applications. By 2013 the two “destination” distribution products will share the same functional code base. Infor is already working on building identical user interfaces based on its new Infor Workspace and it is also working on integration with Infor ION, which it describes as “a new generation of business middleware that is lighter weight, less technically demanding to implement, and built on open standards.” I believe Infor ION will be a key factor if Infor is now successful in implementing a rationalization strategy here on the distribution side … and perhaps among its different ERP solutions for manufacturing? For its multiple financial management solutions? There are lots of opportunities for consolidation here and lots of work to be done. But then remember the 400 new developers Infor intends to hire?

And also don’t forget the two major acquisition announcements that emerged recently – that Infor intends to acquire Lawson and that APAX Partners intends to merge Epicor with Activant (ERP  for distribution). Fortunately Lawson Mashup Designer and Infor Workspace have a lot in common, at least conceptually. This could help. And time will tell if Epicor 9 becomes Epicor 10.

Lawson Mashup Designer – Getting M3 Customers Excited

What got customers excited earlier this week at CUE 2011 (Lawson’s annual Customer User Event)? The announcement that seemed to cause the biggest stir amongst the M3 customers was Lawson Mashup Designer. It is a new tool that helps Lawson customers build their own composite applications from multiple data sources, on-screen views and business intelligence reports – all without having to write software code. Only having one (quite full and busy) day at CUE this year, I didn’t have a chance to see all I wanted to see. So for now this will be some initial observations, with more to follow.

Lawson Mashup Designer is based on Lawson Smart Office (LSO), which was released back in March 2008. The original goal of LSO was along the same lines of thought as Mashup Designer is today. It was meant to be an intuitive, personalized user interface that allows users to directly access Lawson and Microsoft applications and update data pervasively and instantly across the applications. But while the emphasis of LSO initially was on those Microsoft productivity tools such as Microsoft Excel, Outlook, Word and PowerPoint, Mashup Designer builds upon LSO and extends beyond the realm of Microsoft and has customers fired up about the possibilities. In fact in talking with the COO and CFO of JR Watkins, a Lawson M3 customer, the pair commented that Mashups were “what lit our fire. We can definitely visualize how they could be used in our environment.”

Matthew Allbee, product management director for Lawson describes Lawson Mashup Designer as, “a new way for our customers to build better applications that they can use every day. By combining forms, process flows, data views, reports and business intelligence content into a single user-created application, we're now offering a new level of user customization. But most important, this does not require advanced programming skills. Instead, people who use Lawson every day can quickly start to create their own task- or process-specific applications."

But the keyword here might be “advanced” programming skills. While the intent is to be a tool for line of business versus IT, it is primarily for Lawson power users, system administrators and programmers, not your casual user or users that spend their entire time performing one specific function using M3.

LSO, being the foundation for Mashup Designer, is a prerequisite. Although the Mashup Designer is only available with M3, Lawson also plans to make it available for S3. In the meantime, for a limited time (until the end of August) LSO is available at no charge to any S3 customer with Lawson System Foundation (LSF). Those that take the deal do have to pay maintenance on LSO. For those S3 customers that have already purchased LSO – contact your customer service rep. Sounds like you could get some added incentives.

Details aside, what struck me first and foremost about Lawson Mashup Designer was the similarity in concept to Infor’s recently announced Infor Workspace. This is particularly relevant if in fact the proposed acquisition of Lawson by Infor goes through. You’ve got two companies thinking very much along the same lines in terms of a role based user experience that blurs the boundaries between disparate enterprise applications and web-based tools and applications. It would be great to see this kind of synergy accelerate the feature/function and technology innovation that the combined company could deliver to its customers.

Infor announces hiring plans along with Q3 software license growth of 17%

This morning  Infor announced it will expand its engineering organization by hiring approximately 400 additional software developers and plans to add significantly more new features and releases this year than ever before.  Reinforcing, the strategy shift away from building middleware, all these new hires will be focused on building business applications.

This signals an increase in investment in product development under the leadership of the new management team put in place by Charles Phillips who took over as CEO, bumping Jim Schaper to chairman of the board.  Infor also announced license growth of 17% and increased cash operating margins of 24% (which includes Infor and Softbrands Q3FY11 results over Q3 of Fiscal Year 2010). Infor added 400 net new customers last quarter. This is an important statistic since we have witnessed slowed growth of ERP solution providers, coupled with the downturn in the economy over the last two plus years. Indeed, Infor’s customer count has hovered around 70,000 for the past five years, ever since the acquisition of SSA Global, Systems Union and Extensity in August 2006. Since then, new customer growth has compensated for attrition, but has not moved the needle significantly.

New releases, standards based integration through Infor’s new ION platform, and planned changes to a new and universal user interface are all necessary components in order for Infor to break out this year and grow that number, especially if it wants to grow organically, as well as through acquisition. This announcement comes just days after the new of the proposed bid to acquire Lawson by Infor and its major investor Golden Gate Capital. Clearly Infor management wants to send the message that while acquisitions are likely in the near future, organic growth is also important.  

Infor and Golden Gate make a bid for Lawson

Over the weekend (or on Monday if you really “turn off” over the weekend), we all saw the news that Infor and Golden Gate Capital had made a $1.84b bid for Lawson. I watched all the Tweeting and chatter yesterday with interest. Prior to venturing into the analyst/research community about five years ago, I spent over 30 years in the enterprise applications world, the last 22 of which I never officially changed jobs. But during those 22 years, the company name on my business card changed five times. Also during those 22 years, I “experienced” first-hand 14 different acquisitions, sometimes being the acquirer, sometimes being the acquiree. Sometimes I was intimately involved and sometimes I was a casual observer on the periphery.  So I consider myself quite experienced, if not an expert, on mergers and acquisitions of software companies.  While all this chatter is interesting, one thing I can say with certainty is this: at this point it all boils down to speculation and gossip.

I know both of these ERP companies very well, both from the context of their products, as well as their history of software acquisitions. Within my first few months of joining Aberdeen back in March 2006, I wrote about acquisitions by Infor and Lawson that were quite momentous. About that time, three companies were approximately the same size in terms of revenue: Infor, SSA Global and Lawson. Shortly thereafter, in part in a bid to outdistance Infor and SSA, Lawson acquired Intentia in May 2006, only to be one-upped by Infor , which not only acquired SSA Global but also Systems Union and Extensity in August.

Lawson and Infor are both similar and different. They are similar in that both are primarily ERP solution providers that have grown by acquisition, and have stretched the boundaries of traditional ERP with complementary solutions such as Human Capital Management, Asset Management, Performance Management and Business Intelligence, etc. Also, neither has grown very significantly since those major acquisitions back in 2006.

However, there are some glaring differences. Lawson essentially has two major (largely non-overlapping) product lines:

·         S3 (which stands for Staff, Source and Serve) targets healthcare, retail, government, education, financial services, general service

·         M3 (which stands for Make, Move and Maintain) targets fashion, food and beverage, wholesale distribution, asset intensive industries and general manufacturing

Infor has many different ERP solutions as well as stand-alone complementary solutions. Here’s the latest list I have of just its ERP solutions alone:

• Infor ERP Adage
• Infor ERP SX.enterprise
• Infor ERP SyteLine
• Infor ERP VISUAL
• Infor ERP COM
• Infor ERP FACTS
• Infor ERP LN 6.1
• Infor ERP LX
• Infor ERP Baan5.x
• Infor ERP BaanIV
• Infor ERP BPCS
• Infor ERP Xpert
• Infor ERP Blending
• Infor ERP XA
• Infor ERP TRANS4M
• Infor ERP AS
• Infor ERP System 21
• Infor ERP VISUAL Jobshop
• Infor ERP A+
• Infor ERP TakeStock
• Infor ERP Enspire
• Infor ERP commerce@work
• Infor ERP CAS
• Infor ERP Infinium MM/PM
• Infor ERP MK
• Infor ERP MANMAN
• Infor ERP MAX + TM
• Infor ERP MAXCIM
• Infor ERP PRISM
• Infor ERP Protean
• Infor ERP KBM
• Infor ERP Leanware
• Infor ERP PRMS

Some of these are strategic to Infor’s growth, while others must be viewed as legacy or “heritage” products (a “heritage” product is a legacy application you are proud of.) Although Infor has decried a rationalization strategy and maintained all acquired products, not all get equal share of the marketing or development budgets. Unlike Lawson’s two product lines, which have little overlap, many of Infor’s product lines do indeed overlap with each other and this has presented a challenge to Infor in the past, both in product maintenance and development, as well as market presence. If this acquisition does go through, M3 will compete with several of Infor’s existing ERP solutions. There is less similarity with S3, but it will compete with the Masterpiece and Infinium product lines, but will position Infor better in competing in the Human Capital space and also in Healthcare.

But, as I mentioned earlier, this is all just speculation. Will Infor raise its bid? Will others start to bid? If so, who? There are only questions right now, no answers. But some of the questions that must indeed be answered before this is all played out are similar to the questions that must be asked in most any acquisition. Questions like:

·         If there is a merger between Lawson and Infor (or any other competing vendor) will Lawson remain relatively autonomous or will it be entirely integrated? This will impact both its brand as well as the possible reduction in force that generally follows any acquisition.

·         What will be the impact on product roadmaps of all the products owned by the combined companies, regardless of whether additional bids emerge and who wins?

·         Will technology infrastructures be merged, or kept a separate? Consider for example very different cloud strategies, Lawson on the Elastic Compute Cloud (EC2) platform (Amazon and other partners provide the infrastructure; Lawson provides the application.)  The two key components of Infor’s cloud strategy and its infrastructure: Microsoft's Windows Azure and Infor ION.

One thing that should be a “given” is the continued support to Lawson’s existing customer base. In any acquisition of this magnitude, growth (and not attrition of) the installed base is always a goal. Existing customers should rest assured this will be a primary goal of Infor, or any other player that joins the fray. Exactly what that means remains to be seen.