Published on the 15/09/2020 | Written by Heather Wright

CD&R buys in to SaaS challenges…

A renewed cloud focus may be on the cards for Epicor after the ERP vendor was acquired by private equity firm Clayton, Dubilier & Rice (CD&R) in a deal valued at US$4.7 billion.

Epicor and CD&R say the deal will enable the software company to build on its recent cloud releases, building offerings with a SaaS model, accelerate its growth in the cloud – and make more strategic acquisitions.

The deal marks the third private equity owner for Epicor in less than 10 years, coming four years after KKR acquired the company from Apax Partners in a deal reportedly worth $3.3 billion. The $4.7 billion price tags provides a significant profit for the four-year investment.

“This will allow Epicor to develop a focused set of products in an SaaS model.”

It also comes six months after ERP vendor Infor was bought by customer and investor Koch Industries, which bills itself as a ‘mutually beneficial collection of businesses working in ‘virtuous cycles’ with their customers, rather than a conglomerate. That deal was reportedly worth close to US$13 billion.

Koch Industries chief executive Charles Koch is the author of Good Profit: How Creating Value for Others Built one of the World’s Most Successful Companies, which espouses Koch’s guiding principles – also dubbed market-based management or the virtuous cycle of business – including stewardship, transformation and integrity.

Koch may have virtuous cycles but Clayton, Dubilier & Rice (CD&R) also comes with solid synergies. The company has a strong focus on industry, with significant investments in the sector, which is home to many of Epicor’s 20,000-strong customer base. Indeed, many of the companies in CD&R’s portfolio have been Epicor customers.

KKR attempted to divest Epicor last year, but failed to find a suitable buyer.

For CD&R the deal marks a move into software. In January the company appointed EQT Partners Harsh Agarwal and former Quest Software, Vertafore and Attachmate CEO Jeff Hawn (pictured) as it turned its focus on the software market for potential acquisitions.

Hawn, who will take on the role of chairman of the Epicor board, says the company will be looking to further expand Epicor’s product portfolio as well as ‘make strategic acquisitions to meet customers’ evolving digital transformation needs’.

“Epicor’s reputation for quality and performance, and its impressive portfolio of next-generation cloud products, position the company well to accelerate growth in the coming years,” Hawn, now CD&R operating partner, says. “We look forward to partnering with the Epicor management team to further expand Epicor’s product portfolio as well as make strategic acquisitions to meet customers’ evolving digital transformation needs.”

While the company has a range of deployment models, and is bullish about its SaaS offering, its cloud functionality has plenty of room for growth. Panorama Consulting Group says it expects to see increasingly advanced functionality from Epicor in the wake of the CD&R deal, with the likely addition of embedded EDI and advanced warehouse management courtesy of Epicor’s own recent acquisitions.

“This will allow Epicor to develop a focused set of products in an SaaS model,” Panorama Consulting says. “Epicor will most likely continue to consolidate products and put more focus on developing and expanding into their successful verticals.”

Modernising to be a true SaaS offering, while costly, will be necessary for Epicor to remain competitive in a market increasingly cloud-focused.

Epicor president Himanshu Palsule told the Financial Times there are several companies Epicor has been looking at to grow market share. “We feel that we are at the right size, neither too small nor to big, to be able to drive these acquisitions at a very granular level.”

Over the past four years under KKR’s ownership, Epicor’s executive team, led by CEO Steve Murphy, has driven growth through a combination of organic investments and strategic acquisitions. It has snapped up three smaller companies in the past 18 months, including the October 2019 purchase of EDI solutions and business visibility software provider EDI Source, and July 2019’s acquisition of warehouse management solution provider Majure Data.

Epicor says a series of new product releases has led to a revenue mix comprising 73 percent recurring revenue, which includes an ‘industry-leading’ SaaS business growth rate of 60 percent year-to-date.

Companies such as Epicor have been attractive targets for the private equity industry, keen to capitalise on the reliable recurring revenues offered.

The CD&R acquisition of Epicor is expected to close this year.