It was revealed earlier this week that Koch Industries would be acquiring the remaining stake in Infor, taking full ownership of the enterprise software company after two previous multi-billion dollar investment rounds.
It was reported that the deal brings Infor a valuation of nearly $13 billion and that the vendor will continue to be operated by the company’s current management team from its HQ in NYC.
You can read the full write-up of my initial thoughts on the acquisition here, which puts the deal in the context of Infor’s decade-long journey from an on-premise ageing enterprise apps company to an industry focused, multi-tenant cloud platform provider.
As I noted earlier this week, the deal raises a lot of questions for customers and observers. For example, Koch has gone from being a customer, to an investor, to owner - what are its ambitions for Infor? What impact will this have on Infor’s strategy, which until this point has been consistent and cogent? What does Infor have planned for its on-premise install base?
Thankfully, Infor’s Head of International Markets, Cormac Watters, made time to speak to us following the announcement to provide some answers.
Should customers be worried?
Watters wanted to put to bed any concern existing customers may have about the acquisition. He said that given Koch has gone from being a customer, to an investor, to owner, this should give customers confidence in Infor’s products - Koch knows the company “warts and all”, said Watters.
He added that Koch wants to take Infor to “another level” and that the industry giant is well placed to invest. Watters said:
We are now a seriously well financed IT company. Koch is a privately owned, US-based, multinational business. They have sales of around $120 billion a year and are quite profitable.
They’re very well financed. So it takes away some of the uncertainty around how Infor is financed, about how a $3.5 billion turnover business can compete against some of the mega companies. That question goes away. We are arguably now one of the best financed IT businesses in our space.
Watters said that a significant tranche of the final investment will go towards Infor consolidating some of its debt, which is the result of a number of acquisitions over the years and Infor investing in its CloudSuite products. He said that the finance will bring Infor independently to being an investment grade company.
However, he added that Koch is also keen for Infor to double-down on its industry focus and fill any gaps across its vertical lines. Watters said:
Koch has asked us to go and see what gaps we think would fill out the portfolio for particular industries we are chasing. As it happens, Kevin [Samuelson, Infor CEO] and I are over in Europe next week looking at one such acquisition that would actually be a nice additional piece to fill out our automotive CloudSuite. That’s the kind of thing they want us to look at initially.
Is this an internal play for Koch?
One of the initial thoughts that crossed our minds when we heard the news of the acquisition was that Infor is directly aligned to some of the industries that Koch operates in. Executives from Infor have in the past mentioned the opportunity to co-innovate because of the alignment.
As such, is Koch’s acquisition of Infor an industrial platform play for the company to purely take advantage of internally? Watters dismissed this idea and said that Koch’s ambitions are external and global. Co-innovation is still an opportunity, but only in the industries that Infor already has a stake in. He said:
It’s absolutely about the potential of Infor in the general market and very little to do about the potential within Koch. They don’t mandate that Koch companies use Infor. What’s happened is that they’ve become more aware of the digital industry and the digital world. They see that the actual market is available for someone to maybe take a bit more of a leading role than the traditional leaders.
We’ve been very defined in our strategy, that there are 12 industry sub-verticals that we think we are very strong in. Adding a 13th isn’t something you do lightly. We’re very good at food, or fashion, or distribution. We’re not particularly good at insurance, for example.
Insofar as they have businesses that match our current focuses across our CloudSuites, then that’s a fantastic opportunity. They can be our customer and we can co-innovate. But it’s not about looking at businesses within the Koch group that operate in an industry that we aren’t in and saying, ‘oh let’s go create another vertical’. We’re going to keep to our strategy of doing what we do really well.
Migrating the on-premise install base
Finally, we quizzed Watters on Infor’s plans for its large on-premise install base. Whilst the company’s cloud business is seeing strong growth, it can’t be denied that a significant proportion of the company’s revenues come from on-premise maintenance - and it needs to articulate a plan for getting those customers to the cloud.
Part of this, according to Watters, which reflects what Infor CEO Kevin Samuelson told us last year, is focusing on customer success. Watters said that Infor’s technology is “robust”, but that it wants to change the perception amongst its customers and potential customers that enterprise software projects are unpredictable, slow and/or unsafe. Watters said:
If we can find something in the areas of how we deploy, make that innovation step as well, they’re very keen that we look at that as well.
Specifically, when talking about the on-premise install base, Watters said that Infor is taking a different approach to other vendors that find themselves in a similar situation. Its plan is two-fold. Firstly, Infor is going to attempt to take a more targeted approach to getting its buyers to migrate. Watters said:
We are now better placed to bring some of the heritage, on premise customers on to the multi-tenant cloud platforms. But we are going to do it in a different way. We are not going to do this broad brush, ‘every customer please come and have a look’.
We are going to do it in a targeted way. We know some customers on the older products have some functionality requirements or are in an industry where ‘this fits into this targeted multi-tenant suite’. So we’ve developed a tonne of tools around data migration and testing - those are the two key elements of it - to help an existing customer on a different platform move to the cloud.
And by packaging it in that way, it proves to the customer that we know them and that we can help them get there. Rather than just saying ‘here we are, come on board’. It’s more targeted.”
Secondly, Watters was adamant that Infor will not adopt an approach that forces its on-premise customers to the cloud. It is not going to focus on ending support or changes to maintenance to drive the change. Instead, he said, Infor wants to have conversations with customers that focus on their long-term goals. He said:
When our customers see other vendors they’re using apply those techniques, it doesn’t leave a great taste in their mouths. So we think we’re different. If you want to stay using the old technology, we will help you on that, but at this point we are seeing a dramatic increase in those long standing customers coming to us and saying ‘could you help us take advantage of the newer innovations’.
They don’t necessarily say ‘cloud’. But telling them that they’re not being pressured to do it this year, next year, or in the next five years, it takes a bit of pressure off and we can have a proper conversation about the journey.