There was a rather stunning announcement concerning the world of Cloud based ERP and B2B systems technology this week.
Infor announced yesterday that it has received an additional equity investment of more than $2 billion from Koch Equity Development LLC, the investment and acquisition subsidiary of Koch Industries, Inc. According to the announcement this incremental investment “will provide Infor access to additional growth capital to accelerate innovation, expand distribution, and continue disrupting the enterprise applications industry.”
The investment transaction is expected to close in early 2017 and represents the largest ever made by Koch Equity Development involving another firm.
The name Koch may have resonance with readers, and yes, ladies and gents, this is the same privately owned Koch Industries that reported $100 billion in revenues in 2015. The Koch conglomerate of industry presence stems from brothers Charles G. Koch and David H. Koch who have garnered a fair amount of visibility in U.S. political discourse.
Under CEO Charles Phillips, Infor has undertaken a new phase of growth and innovation that is clearly leveraging Cloud based technologies. This new $2 billion infusion obviously represents a significant boost in such efforts, representing the equivalent of what the company has invested in product design and development in the previous five years. In its recent last fiscal year, Infor recorded total revenues of $2.7 billion and invested $422 million in research and development in FY16 alone. The closing cash balance in Q4 was $705 million, and that position immediately climbs to near $3 billion when the Koch infusion occurs. That represents a lot of firepower in the world of mid-market ERP technology.
Infor has been private equity owned by Golden Gate Capital and Summit Partners, and both firms will retain control of the company. However, Koch Equity will be granted four of the total nine Board of Directors seats.
There will be lots of initial speculation as to what areas will be leveraged by this investment. Some executive quotes from the announcement point to co-innovation efforts involving various Koch multi-industry businesses. That would imply Infor’s movement up-market to support larger enterprise Cloud ERP support needs, while connecting seamlessly with operating subsidiaries or external supply chain partners. It would thus likely include further conversion of current Koch business units to Infor based technology.
Infor’s prior acquisition of GT Nexus, a B2B network supporting customer global transportation and logistics transactional and business process support needs may well be another area of added investment in either further network and applications development or leveraging growth by added acquisitions that can support process needs beyond logistics and transportation, including procurement and planning.
A third area could be in direct ownership of Cloud infrastructure, since Infor currently contracts with Amazon Web Services (AWS) for most of its cloud hosting needs. Of the largest players in the ERP market today, Oracle has invested and deployed its own Cloud applications and IT infrastructure network while SAP has elected a hybrid model that features both SAP hosted for HANA Cloud based technology and partner owned Cloud infrastructure for hosted ERP applications.
Our initial view is that Infor stands to gain more by added investment in all three areas, but in different scope. Our bias points to a lost opportunity if Infor does not take the opportunity to expand its capabilities to be a unified Cloud ERP, supply chain B2B network and managed services provider and GT Nexus is the key to such strategy.
This Infor announcement comes on the heels of Oracle’s July announcement to acquire Cloud ERP provider NetSuite for an estimated $9.3 billion. That acquisition also presented various possibilities but in different dimensions.
The initial takeaway from this week’s Infor announcement is that a thunder bolt has been heard in the Cloud ERP landscape, one that will certainly play out in the months to come. It serves yet another indication of serious money being invested in Cloud based applications and technology and on the customer adoption attractiveness of these technologies.
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