Infor to be acquired by Koch Industries - what’s the likely impact?
Koch had already invested $3.5 billion in enterprise software giant Infor, but a takeover raises questions about the ERP vendor’s future strategy.
It has been confirmed today that Koch Industries will be taking over the remaining equity stake in Infor, currently held by Golden Gate Capital, following two previous multi-billion dollar investment rounds in the company.
Whilst official figures haven’t been disclosed, it has been reported that Koch already owns 70% of Infor and that the deal brings the ERP vendor a valuation of nearly $13 billion.
Once the deal is done, Infor is set to become a standalone subsidiary of Koch Industries and the companies have said that Infor will continue to be operated by the company’s current management team from its HQ in New York City.
There’s a lot to consider when assessing this deal, given the journey that Infor has been on over the past decade or so.
We’ve been following the vendor closely and have been impressed by the consistent and cogent nature of its cloud strategy. However, the Koch acquisition raises a lot of questions, bringing a lot of opportunities and challenges facing Infor to the fore.
In this piece, I’ll be outlining what will be front of mind for me when I next get to sit down with Infor CEO Kevin Samuelson, to get a sense of the impact on customers, partners, the product line and future direction of the company.
It’s important to think about this deal within the context of Infor’s strategy over the past decade. Back in 2010 ex-Oracle exec (and prior to that Wall Street analyst) Charles Phillips was brought in - along with a new leadership team - to inject some life into the company’s ageing enterprise software apps.
The ERP company had an impressive customer base, but the technology had been ignored for years and most of its install base were on-premise.
Phillips set out an ambitious plan to rewrite Infor’s industry apps for the cloud, running on Infor OS, hosted on AWS, with UX front of mind and centred around a strong API strategy. Other developments have been introduced over the years - such as a new BI platform (following the acquisition of Birst), a new AI platform (Coleman), and the acquisition of GT Nexus (now Infor’s supply chain network). However, the focus has always been the same - multi-tenant industry vertical applications, hosted in the cloud, beautifully designed.
Since then, Infor has grown its cloud business (which, unlike some of its competitors, focuses on multi-tenant) to an $800 million run rate.
The previous investments from Koch Industries - coupled with being a private company - allowed Infor to aggressively pursue a true cloud strategy, without fear of scaring the market. ‘Slow and steady wins the race’, has long been the company’s plan.
Last year, however, we began to see some management changes with key executives moving elsewhere, which eventually culminated in Phillips stepping down from the top job and being replaced by then-CFO Kevin Samuelson.
You can read more on Infor’s strategy here.
Let’s take a look at the key issues we’re considering now that Koch is looking to take full ownership of Infor.
From customer to owner
Koch Industries has itself rolled out Infor CloudSuite, including in areas such as financial management, procurement, and human capital.
But what’s interesting is that Koch Industries and Infor have ‘synergies’ (for want of a better word). Koch is an industrial market business and many of its subsidiary businesses align directly with Infor’s vertical application approach.
When the initial investment by Koch in Infor was made, the management team were talking up the opportunity to co-innovate to create a true cloud industrial platform, much in the same vein as GE and Siemens.
The opportunity for Infor to learn from the different industries within which Koch operates is even more pertinent now that it us under full ownership, which was also hinted at today by Jim Hannan, CEO of enterprises for Koch Industries. He said:
Software is no longer an industry vertical; it is a disruptive layer that is transforming every facet of society,
As a global organization spanning multiple industries across 60 countries, Koch has the resources, knowledge and relationships to help Infor continue to expand its transformative capabilities.
What that looks like needs clarity and existing customers will want to learn how they can benefit from those learnings, without feeling like they’re being sidelined in favour of Koch investing purely for itself. It’s not a zero-sum game and the direct industry experience will hopefully benefit most customers across Infor’s existing install base, but this strategy needs to be articulated clearly and roadmap priorities need to be at the fore (as has been the case over the past 10 years).
There has been a lot of change
As was suggested by diginomica contributor Brian Sommer back in 2018, there are three challenges to any strategy - ownership changes, management changes and a lack of movement within the installed base.
We will come to the install base later, but it’s the previous two that are a concern at present. As noted above, Infor’s strategy up until last year has been consistent, cogent and steadfast. The management team has time and time again sacrificed short-term gains for long-term growth, keeping its eyes on a true cloud ERP vision.
The same can’t be said for some of Infor’s other competitors, which have relied on acquisition and fudged numbers to claim they’re a ‘cloud business’.
However, with both a senior management change and an ownership change in the past 12 months, Infor will need to allay concerns that this means a change in direction for the company’s strategy. When I spoke to new CEO Kevin Samuelson at the end of last year, the message was very much ‘more of the same’ and building on the existing momentum.
The fact that Koch and Infor have today confirmed that Infor will remain a standalone subsidiary and the existing management team stays in place, gives some hope. But they will need to work hard over the next 12 months to convince customers and observers that the current strategy is still in play (particularly as it has been well received by both existing and new buyers).
What’s likely good news is that off the back of today’s announcement, Samuelson is bigging up a long held priority of Koch’s to reinvest 90% of its earnings back into its businesses. It’s obviously not clear how much of that will directly benefit Infor, but it would be wise for Koch to continue investing in the company’s current direction.
Commenting on the announcement, Samuelson said:
Koch’s decision to acquire Infor is a strong endorsement of our product strategy and focus on creating innovative solutions for our customers,
As a subsidiary of a $110 billion+ revenue company that re-invests 90% of earnings back into its businesses, we will be in the unique position to drive digital transformation in the markets we serve. We are rapidly expanding our industry-specific CloudSuites and offering customer experiences and outcomes that are well beyond what is standard in enterprise software.
IPO off the cards
For some months Infor has been talking up the possibility of a huge tech IPO, which now seems dead in the water.
However, and whilst this may be an unpopular opinion, I think it could be good for the company to remain private.
One of the main reasons that Infor wanted to go public was to address its branding and awareness challenges. For whatever reason, Infor sometimes doesn’t get the same airtime as some of its competitors.
Whilst Charles Phillips was CEO, he felt that an all guns blazing IPO would bring the company some brand attention, whilst also allaying any fears about the company’s finances (although Infor does already publicly publish financial records).
But I would argue that one of the reasons that Infor has been able to so successfully turnaround its fortunes - and pick up some big name customers in the process - is because it has remained private.
Unlike competitors that have grappled with scaring off investors, that are still wooed by high earning on-premise maintenance, Infor has been able to aggressively pursue a multi-tenancy cloud strategy. It didn’t have to worry too much about the market’s reaction to it putting cloud first and thinking about how to not only win new customers in that space, but get existing customers there.
Remaining private doesn’t solve it’s branding problem, but it does allow Infor to continue to pursue cloud at all other costs.
But the install base is still an issue
Despite all the progress, it can’t be denied that the majority of Infor’s customer base is still on premise and paying for its ageing industry applications. A lot of Infor’s install base operates in verticals where business is complicated and moving from A to B isn’t a simple step.
Infor is talking up its data and AI capabilities, but in all likelihood just getting to the cloud will be an arduous journey for many of Infor’s existing clients.
The good news is that from what we can tell, those existing customers are quite loyal and buy into Infor’s vision - I don’t believe that many will be jumping ship to a competitor. Infor has been clear, honest and direct about the future of enterprise software and it’s customers are buying into that.
However, they need guidance and Infor needs to play a role in helping them build that capability. Getting to the cloud is one part of that, but intelligent, context aware enterprise applications and autonomous aware supply chain networks require a whole host of other skills.
What is Koch’s plan for this? The key is that Infor needs to be aggressive in its approach to convincing customers to move if it wants to keep that cloud growth rate up. The company has struggled to cultivate a thriving partner ecosystem that could help with this (although this has improved in recent years). Adopting an approach where the status quo is ‘good enough’ will not do.. And we need to hear this strategy articulated.
Until we speak to someone at Infor/Koch, we can only make assumptions at this point. Don’t worry, we are working on it. I’m less concerned about this than I would have been in an IPO situation.
Koch up until this point has adopted a long-term strategic focus with Infor and what we are hearing so far comforts somewhat. We just hope that Koch Industries recognises that Infor needs to double down on its existing strategy, whilst investing heavily in a capability and education programme across its install base.
But there’s no denying that this is a new era for Infor and is one that we will be watching closely. Let’s hope it’s a positive step to build on a decade of hard work.