ERP Considerations for Private Equity Firms
For private equity firms, the following are potential areas of opportunity when dealing with ERP in portfolio companies and potential acquisitions.
ERP Status in Target Companies: Assessing the ERP status of companies under consideration for acquisition is essential. ERP-related valuation adjustments and decisions may depend on:
- ERP Status and Cost Efficiency: Whether the ERP system was poorly chosen, resulting in unfavorable commercial terms and high ongoing costs.
- Technology Status: Whether the ERP technology is outdated and the vendor’s ability or willingness to address these issues.
- Implementation Quality and Risks: If the ERP implementation was poorly executed, there may be significant effort and risk involved in addressing these issues.
- ERP Transfer Rights: Clarity around ERP transfer rights is crucial. Without these rights for transferring the ERP system upon sale may require vendor permission and additional fees.
ERP in Current Portfolio Companies: the following are potential areas of opportunity when dealing with ERP in portfolio companies and potential acquisitions. Within the existing portfolio, managing ERP systems can yield significant value. Important areas to fully understand include:
- Enterprise Business Application Strategy: Developing a strategy to define the functional domains of business applications and assess their status. This is especially critical before making any improvement efforts on core systems like ERP.
- Unified ERP Strategy: Exploring the feasibility of unifying ERP systems across multiple companies to control risk and costs.
- Terms and Cost Optimization: Reviewing existing ERP agreements to identify opportunities for improvement and timing for execution.
Cloud ERP Risks: Cloud-based ERP brings specific risks that should be monitored and controlled, such as:
- Subscription and Usage Costs: Potential for unbounded cost increases in subscription renewals, user additions, and feature expansions.
- Service Disruption in Disputes: Cloud vendors may have the authority to disable services unilaterally during disputes.
- Vendor Viability: In the event a cloud ERP vendor ceases operations, it’s important to determine if an independent fail-over plan is available or needs to be arranged.
ERP Vendor Acquisitions: The ERP industry is mature, but in our view some structural aspects are unsustainable. The ERP sellers, as a group, emphasize unilateral control over customers—with the key reason to create more and better options for revenue growth via escalating fees. Private equity firms with interests in ERP companies may find value in a strategic discussion on these dynamics.
Engleman Associates has been involved in over 1,000 ERP projects since 1996, with deep experience and intellectual property focused on controlling ERP access costs, project risks, and achieving strong outcomes.
To discuss your ERP needs, reach out to our president, Mark Engleman, at 360-699-6150 x1005, or schedule a meeting with us here.
Access our various white papers on improving cost, terms, and implementation results with on-premise and Cloud ERP.
ERP Selection – Provo Craft
EAI-SoftSelect was a great partner throughout the process of choosing an ERP solution. They helped us control the terms throughout the ERP buying process, and we achieved impressive results in reduced ERP license fees.
Having an experienced partner like EAI-SoftSelect, helped us negotiate for the products we need and set our expectations for the process of implementing these solutions.
ERP Selection – Cornell Pump
Negotiating ERP costs is complicated and the ERP software vendors take advantage of the buyer’s lack of experience. EAI-SoftSelect’s experience and influence helped us level the playing field. We clearly saved money and lowered our long term risk.
ERP Selection – Leupold & Stevens
Long term ERP license costs were initially very difficult to calculate. Working with EAI-SoftSelect we were able to insist on a predicable ERP license fee approach and achieve much lower initial and ongoing license fee costs.
