The big news in ERP this week is that the private Swedish equity company EQT aims to buy out ERP developer Industrial and Financial Systems (IFS), thereby removing it from the stock exchange.
IFS is best known for its enterprise IT software suite IFS Applications which includes ERP and PLM solutions. The company has had a good run lately:
- It recently passed the one million user milestone for its ERP Suite Applications.
- Analyst firms Gartner and ARC Advisory have positioned the solution as a market leader.
- Its latest version called Applications 9 received much praise for its ease of use and configuration.
CEO Alastair Sorbie recently announced that the Applications software was ready to be launched in the Cloud. IFS also revealed its plans for an in-memory database solution that is designed to speed up the analytics of big data.
“IFS is a strong independent player in the global ERP market. It has developed unique positions in industry verticals such as Oil & Gas, Aerospace & Defense and Field Service Management. In order to achieve the company’s strategic objectives, we believe significant, immediate and long-term investments are necessary,” said Per Franzén, a partner at EQT Partners which is acting as investment advisor to EQT funds.
“EQT will continue to support IFS in developing and strengthening these positions by providing the necessary financial resources, investing in IFS’s customer offering and its global organization. We place great value on IFS’s management team and employees and are convinced that EQT with its unique global network, its software expertise and governance framework is very well positioned to support IFS in further accelerating its growth,” Franzén contined.
IFS is Aiming to Quickly Scale Up its Business
Expanding into the global arena is costly.
For IFS, which has ambitions in this direction, this is an important reason as to why it’s looking to strengthen its resources. The company wants to scale up operations quickly in order to be able to ride on the wave of interest generated by their latest version, Applications 9. This interest comes not only from analysts, but also from a rapidly growing stream of customers who want to invest in “the ninth”.
However, riding on this wave of success in an industry such fierce competition requires quick action, and an owner with the financial muscle to pull it off. It is also true that the quick scale-up that Sorbie has in mind can be more expensive than a slower one.
This, in turn, is an important part of the explanation for the takeover bid from EQT landing at nearly $42 a share, a premium of about $2.30. The total transaction for the whole company will cost around $1 billion.
“We have performed well in recent years and established a strong position in our chosen sectors with a highly competitive product of the highest quality, a strong customer base, as well as dedicated and efficient employees”, said the IFS chief, who also notes that EQT, with its expertise and its investment resources, will make it possible to quickly scale up operations to reach its true potential.
He adds that, "The IFS management team and I look forward to taking this step in the company's history of growth, and we are confident that it will be beneficial for our customers, employees and partners."Impressed with IFS's Development
There are more reasons for EQT's interest in IFS. A press release states that, "IFS is engaged in the development, sale and implementation of business solutions for fully integrated business software (ERP). The company was founded in 1983 and currently has 2,700 employees supporting more than 2400 customers worldwide through local offices and a growing ecosystem of partners."
EQT adds, "The company has established an attractive position in the specific areas of the ERP market in manufacturing and engineering, including the Enterprise Asset Management segment (EAM)."
In addition, EQT is impressed by IFS’s focus on specific industry verticals.
Behind the motto, "Better to be the best in some key areas than mediocre at all," there is unique knowledge about the focused segments of energy, aerospace and defense and Field Services. Field Service Management with mobility solutions has developed into a very successful venture for the company.
Another important point is that IFS’s expertise goes beyond being able to deliver IT software. In-depth knowledge of business processes in its focus areas is an important asset that adds value to their software that goes beyond IT-performance.
"They also have the opportunity to be the market leader," stated Per Franzén, adding, ”The future will bring further investments in the development of industry specific product ranges”.
Responsive to Customer Needs
IFS is in a good competitive position. Gartner has placed IFS in the most advanced position in the ”Magic Quadrant” several years in a row. This puts them in competition with the market's undisputed number one, SAP. But Sorbie is not one who fears to challenge this giant.
Here is what he had to say in a TV report that PLM TV News Team published on ENGINEERING.com:
“Looking at some of the surveys conducted in markets like the German, shows that users often express that the message that SAP now drums out - such as the memory technology platform HANA - does not match what the user base demands. And this is information from surveys published in the German press.
“For me it is an indication that SAP does things that their customers are not demanding, which means that it is not in "sync" with the market and customer needs.”
Sorbie adds that this contrasts to IFS’s approach, ”We try to be responsive to customer needs and wants. We are always close to our users.”
The IFS chief is critical to competitor SAP, the global ERP leader. They are producing solutions which are not demanded by their user comunity, he claims, and adds that ”They are not in sync here”. On the pictur SAP’s CEO, Bill McDermott.
In the TV report, the IFS chief says that the success brought to the company's ecosystem is growing rapidly.
“With a million users you also become an interesting player from a global perspective,” he says, and points to partnerships with major global consultants such as Accenture, Tech Mahindra, Capgemini and others.
The Financial Muscles of EQT
As a result of this transaction, IFS will have a sole owner with strong financial muscles; EQT manages capital in the order of 20 billion Euro. Regarding the IFS venture and on the topic of what EQT can bring to the table, Per Franzén said,
“We will continue to support IFS to develop and strengthen its market position by providing the company with the necessary financial resources and by investing in IFS's customer offering and global organization."
Furthermore, EQT wants to:
- capitalize on IFS’s knowledge of selected industrial sectors to deliver differentiated customer solutions that other competitors can not deliver
- take advantage of its strong position in the enterprise asset management segment to increase the focus on "Internet of Things" solutions
- focus on M & A to supplement its product range
Adding the Value of a Vast Global Network
Franzén believes that IFS's strategic objectives are well positioned to achieve strong growth. But with EQT's resources, IFS will be able to do even more.
“IFS could benefit from additional investments in sales and marketing, partner network and product development to fully achieve their strategic goals. These investments are typically of a strategic and long-term nature, and although it can lead to benefits in the long term, it will have an adverse effect on the financial results in the short to medium term,” said Franzén.
The advantage to being taken out of the stock market is that IFS in a private environment can have a more efficient distributed granting of ambitions.
“By taking advantage of our unique global network, EQT is also able to support IFS by increasing awareness of the company's global brand and thereby gain access to new customers.”
For IFS, it sounds like they’ve pulled a winning ticket.