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  • CFO Europe Magazine

In a Fix

Confused by the spate of takeovers in the enterprise software industry? A new crop of third-party advisers is here to help.

You wouldn’t know it by the
company that he works for, but Gijs
Houtzagers doesn’t like to take risks, at least
not when it comes to IT. When he joined
Holland Casino, a €681m company that runs
13 casinos in the Netherlands, in 2002, he
says its PeopleSoft ERP system was “in a bit
of a mess” and some bold work was needed.
A big reimplementation followed, and a year
later the entire company was working with
the same version of the software. But then,
Houtzagers recalls, came “the Oracle thing.”

Oracle’s hostile bid for PeopleSoft was
launched shortly after PeopleSoft’s takeover
of JD Edwards in mid-2003 and it dragged on
and on. PeopleSoft grudgingly accepted Oracle’s
$10.3 billion (€7.9 billion) offer at the end
of 2004. When the dust settled, three of the
ERP market’s largest vendors became one.

Like many PeopleSoft and JD Edwards
customers, Houtzagers wasn’t comfortable
with the thought of his company’s IT
systems coming under new ownership.
Given the rancorous takeover battle, in
which each party rubbished the other’s
products, management and much else,
Houtzagers was more than a little nervous
about Oracle’s commitment to its
new customers, despite conciliatory
statements issued after the deal closed.
Sooner or later, he reckoned, Holland
Casino would be forced to upgrade to
Oracle’s next-generation applications
suite, called Fusion. Rather than take a
gamble and leave his company at Oracle’s
mercy, Houtzagers explored his options
and took action.


It’s a scenario that plenty of other companies
are familiar with. The group of five
leading IT vendors formerly known as
JBOPS—for JD Edwards, Baan, Oracle,
PeopleSoft and SAP—is now three. Market
leader SAP is notable for its focus on
organic growth and relatively balanced revenue
split between maintenance, licence
and services fees. Still, it is not immune to
merger fever, having been outbid for retail
software specialist Retek by second-ranked
Oracle, which spent some $20 billion gobbling
up rivals over the past two years. The
third-largest ERP vendor, private equity-backed
Infor, is a collection of 30-odd
formerly independent ERP vendors,
including Baan, following its May takeover
of SSA Global, itself a prolific dealmaker.

And ERP users should brace themselves
for more upheaval. “Further consolidation
among ERP vendors is inevitable,”
says Paul Hamerman, an analyst at IT
consultancy Forrester Research.

With their market rapidly maturing,
ERP vendors are finding new licence
growth scarce. So their best hope for revenue
growth is in the annual support contracts
they set up with their customers.
These typically range between 17% and
22% of the original purchase price of software.
Forrester predicts that maintenance
revenue will grow by an annual average of
9% through to 2010, outpacing both
licensing and services growth. By the end
of the decade, maintenance will account
for 45% of ERP vendors’ revenue, up from
40% in 2005.


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