As it moves forward with one challenging acquisition, enterprise software consolidator Made2Manage Software Inc. revealed today that it has closed another deal: an all cash purchase of SMB-focused ERP software player Intuitive Manufacturing Systems, whose backers recently launched a roll-up strategy of their own. The value of the deal was not disclosed.
In acquiring 11-year-old Intuitive of Kirkland, WA, Made2Manage gains an ERP architecture built from the ground up on Microsoft's .NET architecture, a platform on which all of its recently acquired ERP software lines will be standardized over the next few years. .NET-based applications are becoming increasingly attractive to smaller and medium-sized manufacturers due to their perceived lower cost of ownership and ease-of-use advantages, driven by the familiar Microsoft Windows interface.
Intuitive, which counts 600-plus customers primarily in the electronics, industrial machinery and equipment, and fabricated metal products markets, generated approximately $12 million in revenue last year, the privately held company previously told Managing Automation.
For Made2Manage (Indianapolis), which has acquired five micro-vertical ERP software vendors over the last 22 months, the deal also delivers two of Intuitive's sister companies. Marlin Equity Partners, which purchased Intuitive last November, later acquired Relevant Business Systems, a 23-year-old, San Ramon, CA-based provider of the Infimacs II ERP software, in an attempt to get in on the consolidation fever sweeping the enterprise software market. In March of this year, Intuitive acquired SupplyWorks, a seven-year-old, Bedford, MA, provider of the MAX suite of supply management software.
The plan was to consolidate the three companies into an integrated enterprise software player primarily serving SMB manufacturers. But privately held Made2Manage, with the backing of investors Battery Ventures and Thoma Cressey Equity Partners, had other ideas.
As it homed in on an agreement to acquire Onyx Software Corp., a .NET-based CRM software company that has received -- and rejected -- a series of takeover offers from CDC Software, Made2Manage was also sizing up Intuitive, noted Jeff Tognoni, Made2Manage's CEO, in an interview. In addition to gaining .NET technology smarts and development talent, Tognoni said the acquisition will enable Made2Manage to broaden its presence in the SMB space (most of Intuitive's customers operate in the make-to-stock segment, which complements Made2Manage's make-to-order footprint); extend its micro-vertical strategy into aerospace and defense via Relevant; and add supply chain management software with an on-demand delivery option vis-a-vis SupplyWorks.
Intuitive's .NET expertise will help Made2Manage accelerate the move of its entire product line to the Web services architecture. While not willing to move up the three-year timetable to which the company has committed, Tognoni said that Intuitive's proximity to Microsoft's Redmond, WA, headquarters is a boon Made2Manage's .NET initiative. "[Intuitive developers] can literally go down the street and visit Microsoft, which they have done in the past," he said, noting the Kirkland location will become Made2Manage's .NET development lab, complementing work done at the company's other facilities.
While Tognoni declined to say how much Made2Manage paid for Intuitive, he said the deal was the largest the company has completed to date, and is roughly half the value of the $92 million it agreed to pay to acquire Onyx. (Tognoni declined to discuss the status of the Onyx purchase agreement, saying that Made2Manage "stands behind the deal on the table" and expects a response from Onyx's board in roughly 10 days.)
As with its previous acquisitions, Made2Manage will support and maintain all of Intuitive's products, including those of Relevant and SupplyWorks. Most of Intuitive's management team is expected to remain on board except for the company's founders, Tognoni said.
Factoring in the pending Onyx deal, Made2Manage will have revenues north of $100 million (it had roughly $30 million in late 2004), 500-plus employees, and roughly 3,300 customers (counted as separate corporate entities), Tognoni said. The combination of Intuitive and Made2Manage will make for a more formidable competitor in the lower end of the SMB space (manufacturers with revenues of between $5 million and $100 million) against companies such as Epicor, which also has embraced the .NET architecture, Infor (through its acquisition of Lilly), and others, Tognoni added.
"Long term, we want to have horizontal product coverage -- with white space [for partnerships] and a lot of vertical [offerings] to solve ... specific types of manufacturing needs," he said, noting that the acquisition of Intuitive gives Made2Manage a technical edge and vertical market expertise to compete against one-size-fits all horizontal ERP vendors.
Analysts tended to agree, although they argued that even with this acquisition and the pending Onyx purchase, Made2Manage will still have a lot of work explaining its strategy and building out a company-wide .NET-based framework for previously acquired applications.
Judy Sweeney, an analyst with AMR Research in Boston, saw the deal as positive for Made2Manage, Intuitive, and both companies' customers. Intuitive, she noted, did not have the "critical mass or deep pockets" to pull off its planned consolidation run.
Made2Manage and its customers will benefit from Intuitive's .NET expertise, she pointed out. "It's becoming harder and harder for [smaller ERP vendors] focused on the SMB segment to compete with the Microsofts of the world that have more elegant user interfaces enabled by the .NET architecture," Sweeney said. "The mid-market buyer is getting more sophisticated and wants both the functionality and the ease of use of the .NET architecture."
Ray Wang, a Foster City, CA-based analyst with Forrester Research, said the acquisition, like others in the business software space, was driven by the strengthening influence of "middleware ecosystems" such as Microsoft's .NET, Oracle's Fusion, SAP's NetWeaver, and IBM's Websphere. By acquiring Intuitive (and Onyx), Made2Manage will be better able to leverage demand by SMB manufacturers for .NET-based applications, which have a cost of ownership benefit that starts with the purchase of the software and extends to maintenance and functional extensions offered by low-cost programming houses that have emerged in India and China, Wang pointed out.
With capital cheap, private equity companies are moving aggressively to build portfolios of applications software companies focused on the SMB market that will eventually butt heads with Microsoft Dynamics, Microsoft's revitalized business software suite. Regional companies with less than $500 million in revenue will have a tough time remaining independent because they won't have the wherewithal to concurrently invest in technology development and global market expansion.
The good news, Wang said, is that while the large enterprise market is well penetrated, the SMB market has a lot of headroom. To successfully compete with the partner networks built by Microsoft and SAP, ISVs will have to operate more like systems integrators and use standard technology components as the foundation of their offerings, and differentiate with vertical functionality, usability enhancements, or service excellence.