Manufacturing companies buy ERP software from Tier 2 vendors like Infor more than companies in any other sector, according to a new report from Panorama Consulting.
It's a trend that lends credence to Infor's strategy of continuing to buy up smaller, niche vendors to compete with the Tier 1 vendors. Last week, Infor announced that it had acquired SoftBrands, which sells ERP software for manufacturing and hospitality industries, for $80 million.
The move also signals more consolidation in the ERP market this year, according to analysts.
"We are going to see more consolidation coming. There are not a lot of public companies left in the enterprise applications space," said Bruce Richardson, chief research officer at Boston-based AMR Research. "We could see all the on-premise guys get bought up in the next year."
SAP is still the top choice for manufacturers, with 35% of Panorama's 670 survey respondents saying they were running SAP software, followed by Oracle (24%) and Microsoft (14%).
But 27% of the manufacturing respondents were running ERP software from Tier 2 vendors, compared with 23% of respondents in other sectors.
Manufacturing companies are probably more willing to buy ERP systems from Tier 2 vendors because ERP vendors started off with a manufacturing focus, and there are simply more of them. In turn, the needs of manufacturers are so complex and diverse that no single vendor can do everything a company needs, so companies are willing to look at several, according to Eric Kimberling, president of Denver-based Panorama Consulting.
"There so many niche players in that space, there's a lot more options," he said.
That said, consolidation is definitely more of a concern now than it was a year ago, with vendor viability being a factor in ERP buying decisions, Kimberling said.
With the SoftBrands deal, Infor scotches the rumor that it couldn't buy any more companies because it was in debt, according to Ray Wang, vice president and principal analyst at Cambridge, Mass.-based Forrester Research.
"There are going to be more acquisitions," Wang said. "Typically, as we come out of a recession, people consolidate."
There are some good deals to be had out there. Richardson pointed to QAD, which last week had a market cap of under $100 million, about a third of its annual revenue. He also thinks that Epicor is not getting a lot of traction, and it's only a matter of time before it gives in to a buyer.
But vendors may be waiting for the market to bottom out, he said. Everybody's looking, but the vendors sense that companies haven't reached a floor in some of the valuations.
Viability of the Tier 2 vendors may be a concern in purchasing decisions, but there's also a flip side.
Kimberling pointed to companies like JD Edwards, which, so far at least, has been kept as a separate product by owner Oracle and continues to thrive.
In turn, one of the things Infor has done, Wang said, is to stabilize a lot of vendors that were going to go bankrupt.
"[Infor has] given companies that have bought software a second life," he said.
Further consolidation may be helped by the fact that many manufacturing companies are shopping for new ERP systems. Panorama is seeing lots of inquiries from manufacturers because a lot of companies have changed so much over the last 10 years, Kimberling said. Now, their supply chains are more complex and more global, and they've outgrown their current system.
Also, the recession means there are plenty of good discounts on ERP to be had.
"Don't be afraid to negotiate and know you're in the driver's seat," Kimberling said. "They are being very, very aggressive … in discounting. Don't be afraid to ask for something that seems ridiculous."