The New York Post has reported that are two parties interested in taking a stake in or acquiring Infor. This is the latest twist in the acquisition of Infor that we have previously reported on. The Post is unaware how large the stake in Infor will actually be but it believes that the Blackstone group is teaming up with CVC Capital partners. It also believes there is a second bid likely from an unnamed party.
Is JDA in the mix?
This is not the only ERP deal that Blackstone is involved with this year. They recently helped to recapitalise JDA Software in deal led by New Mountain Capital. That recapitalisation is allowing JDA to invest in R&D to build up their portfolio.
However if Blackstone does help to recapitalise Infor, will it consider combining the two firms? There are synergies between the two companies in that they both operate in the retail space. Corey Tollefson, VP and GM of Infor Retail admitted earlier this year that the gap in their retail product is in the store planning and layout software. JDA are the leading company in that space.
An acquisition or merger with JDA by Infor would be a significant undertaking but not a prospect that one can ignore completely. It would create a powerful combination in the retail market. They would have a portfolio of products to challenge both SAP and Oracle in that market.
Infor is still worth around $10 billion.
The Post reported that the value of Infor is around $10 billion. Most of that would be used to repay debts that are estimated at $6.5 billion. The remaining $2-4 billion is likely to be split between the current owners and the management team. Golden Gate Capital and Summit Partners would be the main beneficiaries. It is also likely that Charles Phillips, CEO and members of his management team would receive money as well. That $6.5 million debt mountain has led Moody’s Investors Service to rate Infor’s debt at B3, a high credit risk.
The Post also points to a reason why Infor is not issuing an IPO. With cash flows revenues of $320 million in 2015, it has debt equal to 20 times its cash flow. This is too high to list its shares in an IPO, according to a debt analyst. Cash flows during 2016 increased to $419 million on operating revenue of $2.7 billion. This reduces that factor to 15 times although revenues were slightly down on the $2.76 billion in 2015.
According to the Post: “In fact, with the company generating only $320 million in 2015 cash flow, it has too much debt (20 times its cash flow) to list its shares in an initial public offering, a debt analyst said.” This view is at best dated.
At the end of the full year 2016 the company held $705 million in cash or cash equivalents. Total liabilities were just above $7 billion. The debt ratio was also improved. Earlier in the year Fitch, had the following view for Infor as: “Fitch estimates total leverage (total debt to operating EBITDA) of 9.8x (9.2x in constant currency) as of Jan. 31, 2016.” (registration required) SEE UPDATE BELOW
The increase in cash flow was a result of cost cutting by Charles Phillips. There is a limit to how much cost cutting any company can do before it causes itself harm. Phillips will need to concentrate on increasing revenues as the company moves fully to the cloud. The problem is that not all customers want to go in that direction. Infor recently announced that its customer Blake has deployed Infor CloudSuite Syteline on-premises rather than the cloud.
Why are Blackstone interested
What Blackstone are believed to like about the ERP market is that the revenues, and cloud revenue in particular, provide a consistent revenue stream in the future. ERP implementations are rarely replaced quickly unlike some other software investments that business can easily change. It may be that having missed out on investing in the other ERP solutions that have recently changed hands such as Epicor and IFS they want to have a stake in a market that is set to grow.
It is looking more and more likely that an Infor deal will happen. Whether that will include the complete company is not yet known though. Whatever happens it will lead to a new chapter in the history of the company. Philips has led the company through the consolidation phase and has redirected the vision and revenues towards the cloud.
If the new investors remove some of the debt burden it may allow Infor to increase its spending on sales and marketing. There is a pressing need for this to happen. NetSuite may go through a rejuvenation under Oracle as it looks to invest heavily in product and sales. This means that NetSuite are likely to become a significant threat across a lot more markets than NetSuite currently operates in. For an ERP vendor such as Infor there is a small window to grab market share while the NetSuite acquisition completes.
Our previous pieces on this story:
Following contact with Infor a correction was made to the above article. The error related to the value of cash flows for the full year at Infor. A further comment will be added later once clarification from Infor has been received.
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