Cloud ERP vendor Rootstock acquires competitor Kenandy

Today, cloud ERP vendor Rootstock announced it has acquired competitor Kenandy.  Both firms have built their solutions on the Salesforce.com platform and toolsets. Some of those Salesforce technologies include Force.com, Salesforce IoT, Einstein Analytics and the Lightning UI. Both firms serve the discrete manufacturing world; however, there are functional nuances within each that might offer a better fit for some customers and prospects.  Read the press release here.

Kenandy’s pedigree has always been interesting. Its founder is Sandra Kurtzig – the former CEO of ASK Group and creator of MANMAN (a major ERP solution in the 1990s). Sandy was encouraged to create Kenandy (the name is an amalgam of her two son’s names: Ken and Andy) by Salesforce CEO Marc Benioff and Ray Lane, who was with venture capitalist Kleiner Perkins Caufield & Byers at the time.

Rootstock’s backstory is interesting, too, as it originally launched about a decade ago on the NetSuite NS-BOS platform. Years later, Rootstock switched platforms to join the Salesforce platform and ecosystem.

I had a chance to chat with Rootstock CEO Pat Garrehy about the deal. Here are the short and fast highlights of that conversation:

I asked Pat if this deal was a long-considered strategic initiative or was it opportunistic. His response: "Opportunistic." Pat said that a lot of things fell together recently that made this deal possible. One of those was the presence of key leader for the new Kenandy unit and another was the closure of a still-confidential mega deal.

Because this deal only recently came together, some matters are not known at this time. Financial terms of this deal were not made available to me. Pat did agree to cycle back with me after he and their team have some time to finalize their new post-acquisition strategy.

What happens to Kenandy, the company, its products and customers?

Pat indicated that for the foreseeable future, Kenandy will operate as a unit of the combined firm. They’re currently assessing the product functionality (current and planned) with each product line. Where possible, they will supplement functionality in each product line to quickly make one more competitive. This is an interesting point as Pat was quite insistent that the two firms rarely competed directly with each other. In Rootstock’s case, they often saw firms like Epicor, Plex, SAP, QAD and others.

Pat sees several immediate synergies emerging. Kenandy has a significant number of software engineers, a strong financial executive and other team members that will be quite welcome in Rootstock. It’s the talent that makes the deal fortuitous as Rootstock was ramping up for a lot of (expensive and time-consuming) recruiting activity pre-acquisition. By the way, both firms are based in Silicon Valley.

Will any new capital come with this deal? Pat said no. Prior to this transaction, he was starting to put together a new capital raise round. That will still happen but it won’t be tied to this transaction.  The pre-acquisition capital raise sounds like it was intended to finance more of Rootstock’s accelerating growth. The firm continues to bag ever bigger customers. One of most recent was a 12 country, 400-user, SAP-displacement at Mipox.

Will this deal change the board composition at Rootstock? Interestingly, it will not. Pat did indicate that new investors in a forthcoming capital raise may want a board seat.

Many acquisitions trigger job losses. Pat’s thinking appears to run contrary with that. While they will likely consolidate some functions (e.g., front and back office groups), growth requirements for the combined firm should cause most everyone to be fully utilized.

Action summary

In short order, Rootstock will:

• Clarify which product lines will serve specific markets, demographics and verticals.
• Use that segmentation to refine/update the product roadmaps for the two product lines
• Concurrently review and update the company’s macro-brand and the brands for the two product lines. Now that Rootstock is larger, is still an ERP on a modern cloud platform, and of more consequence to Salesforce, its branding and messaging will need more than a refresh.
• Get better economies of scale with its marketing spend and activities. Instead of both firms have duplicate booths and marketing staffs at Salesforce events and manufacturing shows, they can re-focus some of that spend and energy into other marketing activities.

My take

This was a missed opportunity for old school ERP vendors. Those firms have been too focused on playing defense, not building out their ecosystem, experiencing poor platform adoption by third parties, and general bad-boy behavior. They could have scooped up Kenandy but didn’t.

I expect a new wave of trash talk/FUD (fear, uncertainty, doubt) from Rootstock competitors. They won’t be sending any congratulatory notes but will likely be trying to convince Kenandy customers to go backward to some old school hosted or on-premises solution. It won’t work. We should watch this as the volume of trash talk correlates with the impact that a bigger Rootstock is having on these competitors. I don’t expect much FUD right away but I think we will start hearing noise soon enough. No, in the short-term, expect competitors to be quite dismissive of this deal. FUD goes hand-in-hand with acquisitions and mergers. I’ve seen this movie so many times that I know the dialogue by heart.

A big beneficiary of this deal may actually be Salesforce.com.  Salesforce spawned a powerful group of complimentary platform partners in the marketing space. Firms like Eloqua, Pardot and Marketo were early platform plays of Salesforce’s, gained major market share with larger firms, and, eventually became large firms themselves. When partner firms do well, they trigger additional adoption of Salesforce’s CRM solutions and its ancillary products. This creates a virtuous cycle that continues to benefit those in the ecosystem.

Salesforce needs a bigger, badder ERP player in its ecosystem to help it drive more of its own product sales into manufacturers globally. A bigger Rootstock helps in this regard. I would expect to see greater Rootstock exposure at Dreamforce and other Salesforce events.

This deal also, in Pat’s words, “takes friction and confusion” out the Salesforce sales process. Prior to the deal, many Salesforce sales professionals may not have known which firm to call for specific manufacturing prospects. Now, one call will trigger the right response, the most appropriate product and sales resources, etc. onto the prospect. That’s a win-win.

I don’t see any need for customers of either product line to hit a panic button. Some notable software acquisitions have been acrimonious and customers were rightly fearful. The hostile takeover of PeopleSoft/JDEdwards in late 2004 by Oracle was no lovefest. Customers sometimes don’t do well in these deals as the acquirer is only interested in: killing off a competitor, planning to milk the maintenance (or subscription fees) to death, jacking up pricing, etc.  Take it from someone who’s known Pat for a long time, I don’t sense that he’s up to anything underhanded here. He’s all about growing the combined company. (I wouldn’t say that about some other software executives I know – you know who you are!)

Finally, accounting software firm FinancialForce may be another beneficiary. FinancialForce is also built on the Salesforce platform and their financial software suite has often been cross-sold with Rootstock.

Ultimately, whether this deal becomes accretive quickly and triggers great growth is something that will depend on how well and how fast the bigger Rootstock can rationalize the products and focus the company appropriately. Time will give us that answer.