Exclusive - IQMS' CEO on why IQMS was acquired by Dassault Systèmes - and what's next

Jon Reed Profile picture for user jreed December 18, 2018
The acquisition of IQMS by Dassault Systèmes was more evidence of the resurgence in midmarket manufacturing. But why Dassault Systèmes? And what concerns did customers raise? Here's what IQMS' CEO had to say.

Let's face it - acquisitions are a fact of life in enterprise software - even in holiday season. Still, IQMS' announcement of their pending acquisition by Dassault Systèmes stood out.

Why? At the recent IQMS Pinnacle user event, I was struck by the depth of relationships between IQMS and its customers.

That came out in the customer use case I did yesterday, How IQMS customer Custom Profile makes manufacturing modern by bridging the IT - business gap. Custom Profile's Brian Horlings revealed that he'd only missed one IQMS user conference since 2004. One of the tech support people he used to call at IQMS is now a senior VP. I heard plenty of similar anecdotes in Las Vegas.

So how would customers react to the ownership change? That was a burning question for the IQMS leadership team members that joined me on a call yesterday. But the first question is: why Dassault Systèmes? And why now? IQMS President and CEO Gary Nemmers told me it all started with an inquiry from Dassault, and a serendipitous overseas trip.

But the answers led us further: into the resurgence of midmarket manufacturing, not to mention the support manufacturers need to make their business transformations happen.

How the Dassault Systèmes deal went down

A year and a half ago, after meeting with one of IQMS's largest customers in Europe, Nemmers suddenly had an opening in his schedule:

I reached out to Dassault Systèmes and said, "Hey I'm up in Switzerland. I could hop down to Paris and maybe spend an afternoon with you guys."

That was the beginning of what really seemed to make a lot of sense for possibly doing something with Dassault Systèmes, and leveraging their SolidWorks VAR channel which is so extensive.

This was never a one horse race. IQMS started fielding more acquisition queries. Things got hectic enough that IQMS hired a banker to manage the inquiries. Nemmers says they explored their options with due diligence, but Dassault Systèmes always made the most sense.

So, on December 7, they made the acquisition agreement official. It's now pending the usual regulatory approvals, with an official announcement anticipated in a few weeks. But why did Dassault stand out?

The rationale behind the why Dassault Systèmes versus another one of the strategics, or even private equity that came in near the end of the process, was really what I mentioned about the SolidWorks channel. They define the SolidWorks group of customers as 200,000 or so.

Nemmers says about 25 percent of those SolidWorks customers, give or take, are manufacturers:

That alone would suggest that we have quite a great market opportunity in front of us now being part of Dassault Systèmes.

Given that almost two thirds of IQMS' existing customers run on SolidWorks, that's an obvious fit for IQMS:

Quite honestly, we think 60+ percent of our customers use SolidWorks, so out of 1,000 customers or so we think we have 600. We have a small portion of that 55,000 or so who are currently SolidWorks manufacturers.

The real market driver - the midmarket manufacturing opportunity

Just how big is the midmarket manufacturing opportunity? Nemmers says it's been estimated at six billion dollars, growing annually at seven to eight to nine percent through 2023 or 2024, depending on the study:

We believe that is a real market driver for this, and makes the rationale behind the merger all the more apparent.

Yep, it's crisis/opportunity time for midmarket manufacturers. In my view, this acquisition matters because it points to the resurgence in midmarket manufacturing. But there's a huge catch: not all manufacturers will make the cut. IQMS calls this an industrial renaissance – a “convergence of a diverse and powerful collection of digital technologies that is transforming every aspect of industrial business.”

I believe IQMS is right: the world's 250,000 small and midsized manufacturers must adopt and optimize new ways of doing business. As Nemmers told me:

There are legacy systems out there that we continually see on a quarter by quarter basis that are end-of-lifeing. They are starting to say, "We need to look for new technology to replace the legacy system that is not getting the attention it needs to run our business."

Nemmers and team believe Dassault and IQMS will give manufacturers a higher ability to compete in a connected manufacturing world. IQMS CMO Steve Bieszczat added:

If you look at the midmarket, they're extremely popular right now in terms of people's demands for them to make products. They need to move into a more automated state, not just automated manufacturing, but automated workflows and automated accounting and inventory control and all that.

But that automation can't come at the expense of usability:

The key benchmark for technology in the midmarket is usability. They just can't deal with a lot of complexity, and a lot of complex integration. We say that the midmarket needs more tech buried in the usability. That's always been our calling card.

Then Bieszczat hit on a point I've been preaching: manufacturers don't want integration headaches between core systems. The MES and ERP divides of the past aren't going to fly. "Smart" systems hate silos. Real-time monitoring across systems is tedious. Bieszczat sees this acquisition as adding to that end-to-end push:

Our other calling card is the end-to-end solution: the MES, the manufacturing execution, production ordering and process monitoring. So this gives us one step earlier in the whole manufacturing process, an end-to-end solution like Gary, said, from design, then going to manufacturing operations and execution... Our messaging doesn't change, it just gets augmented.

Customer reactions - excitement and concerns

So let's get back to my original concern: customer reactions. No surprise: Nemmers and Bieszczat have been hitting the phones. Nemmers:

Steve and I have had dozens upon dozens of conversations over the past week with our key strategic customers, and we have more this week as well. Every single one has been positive. 90 percent of the customers we talk to either have SolidWorks, or are already Dassault Systèmes customers, so they know Dassault Systèmes very well. They use the product; they understand what the 3DExperience Platform is. They see the synergies, and they see the rationale behind the merger - and they're nothing short of excited.

Bieszczat added:

I would throw in there, kind of using the word brand broadly, they're very happy with the brand. There is a trust in the Dassault software products. The products run well, the support they give is good, they are reliable and all that. So, they were pleased on that front too. It isn't like we were acquired by somebody that they didn't like. They like Dassault, so it's a comforting brand.

But what about customers who wonder about those long-term relationships? Nemmers:

I think a couple of our customers just had a concern, out of the dozens we called. They said, "We hope you don't get away from your roots in discrete manufacturing." They hope we don't get away from our roots being an accessible, transparent, nimble software vendor and partner who is there for us 24/7 when they need to get something done.

"We hope your focus on the product is going to continue along the same lines - you aren't going to get blown into process manufacturing or something else. And/or get too big too where we don't recognize the same company that we've been with for the past ten years or so."

My take

I've never believed in judging acquisitions too optimistically or pessimistically on day one. It's all about execution. That means everything from continuity of services, to executive retention, to delivering on innovation promises. Not to mention the need for exceptional integration.

That said, the overlapping customer bases imply a welcome response on both sides. Dassault's VAR channel will surely be an asset to IQMS, and vice versa, particularly for international expansion. Nemmers told me they will roll that out carefully and strategically, which makes sense. You can't move into selling manufacturing ERP and MES overnight. The use of leading IQMS VARs as flagships to foster regional VAR growth with Dassault is a good plan. VARs have to transform also, and that's not always easy.

I'm not surprised that a handful of customers did express concerns about losing that personal touch. It's an understandable reaction. Nemmers said by the end of those conversations, those customers were in a good place with what they heard. Nemmers told them IQMS has already doubled in size the last few years. That's a useful benchmark to judge how these changes will play out for them.

Customers also understand that IQMS has been undergoing a shift from a founder-led business for a few years now. Nemmers said most customers they spoke with were glad that IQMS found a good landing place. I think customers are well aware that not all landing places are so comfortable. Finding a good home is far better than bracing for uncertainty.

IQMS can further ease customer concerns by doubling down on its innovation roadmap. Though the customers I spoke with at IQMS Pinnacle were almost universally enthusiastic about IQMS, the one criticism I heard was a desire for more innovation and features in the core offering (as opposed to add-ons). Nemmers responded:

We need to be great in terms of releasing functionality and code on time and with very few bugs and so forth and we aren't great at that yet. But agile is getting us that. We're good, and on the right path. We think that with Dassault Systems behind us now, the use of their process, their playbook, their methodology, their vast development ecosystem that they have will get us to great.

That brings us to questions of integration. IQMS already has pre-built integrations into SolidWorks. There's potential for even more collaboration as Dassault moves towards a fully cloud-based SolidWorks release. Those roadmap specifics will get clearer after the acquisition - IQMS will give us another update then.

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