Last Friday's unsolicited bid of $11.25 per share for Lawson Software by Goldengate Capital, the private equity company behind Infor, has set the chattering classes off, speculating that Oracle will enter the fray. While that might up the ante from the present price tag of $1.8 billion, I don't see Oracle being that interested but I do see it having an impact on the ERP landscape.
The proposed merger would combine Infor's $1.2 billion ERP business with Lawson's $360 million ERP business to move past Sage and become the third-largest ERP vendor, according to data provided by Gartner.
SAP (NYSE: SAP) and Oracle (NASDAQ: ORCL) hold a commanding lead in the ERP market, with a 26% and 12% share, respectively, according to 2009 Gartner market share data published in April 2010. An Infor-Lawson merger would create the number three player with a 7.5% share, followed by Sage at 6.8% and Microsoft at 4.2%.
Lawson has had a deep relationship with IBM that goes back many years. That doesn't jibe with Oracle, which has been steadily ticking off JD Edwards customers. But there are other reasons why it is unlikely Oracle will step in. Lawson plays in a space in which Oracle is not particularly interested, apart possibly from the manufacturing expertise brought to the table by Intentia. Once you carve out the likely cost savings arising from an acquisition and factor in the likely value of ongoing maintenance, then it looks like the price Infor says it will pay is high enough. Why would Oracle pay more unless there is leverage the rest of us don't know about?
That aside, the competitive landscape becomes a little more interesting. Lawson has a decent retail sector business. Unit4, which has 25% of the UK high street retail market has long held ambitions to expand into the US. That has not been successful so far. Taking out a competitor, whether it is to Infor or anyone else creates an opportunity that Unit4 could exploit. At a customer conference I am attending in the UK, Unit4 said that: 'A reduction in competition is good for us.' It means that while Lawson makes up its mind, Unit4 can go after accounts as an alternative. It would likely use the argument that buying into Unit4 means buying into product that will continue to be developed while Infor milks Lawson customers for maintenance revenue.
Coincidentally, I received a press release from Infor where they report recent earnings and signalled an intention to hire 400 more developers:
Stephan Scholl, executive vice president of global field operations said: “Our license growth of 17 percent and increased cash operating margins of 24 percent demonstrates the strength of the momentum we are seeing. Strong revenue performance and improved operational efficiency has increased our operating margins and generated cash flow beyond our targets for the quarter. The improved margins, along with further improvements in operating efficiencies, will fund the additional investment in product development.”
All part of the charm offensive to win Lawson over? Go figure.