Sourcing a Deal? Retail Specialist Epicor to be Taken Private by Apax

The technology M&A frenzy is showing no signs of abating. Yesterday, Apax Partners, a private equity firm, announced it was acquiring both Epicor and Activant Solutions and planned to "merge them" into a single entity. According to the news, "Apax will commence a tender offer to acquire all of the outstanding common stock of Epicor for $12.50 per share in cash, followed by a merger to acquire all remaining outstanding Epicor shares at the same price paid in the tender offer." For Spend Matters readers, the deal is important to watch for a number of reasons -- even if you're not a retailer -- because it signals a number of trends worth paying attention to (and yes, Epicor did check the box on a supplier relationship management capability even if it was otherwise unremarkable in a market where tier two and vertical specialist ERPs often pay lip service to transactional procurement, sourcing and supplier management).

Consider the moderate to high probability that vendors you rely on every day will enter into transactions with other vendors or financial buyers in the next 12-18 months. Richard Lee, a partner in Spend Matters Group, suggests that 382 non-financial firms in the S&P 500 hold $932BN in cash and short-term instruments, up 31% from the previous year -- which makes cash the preferred "currency" for acquisitions and increases the likelihood across all sectors that deals will get done. Moreover, he notes, "approximately 50% of 2011 YTD deals are have been in cash, double the volume during the same period in '09."

In addition, the herd mentality in M&A is likely to drive consolidation into more narrow windows (i.e., deals will happen with greater frequency over a set period). Paul Parker, Barclay Capital, head of global M&A, said in 2010: "As we see GDP growth turn up, I can guarantee you will see M&A turn. Each sector will have a signature transaction and then others." What is the signature transaction in the procurement and supply chain sector likely to look like? Who knows -- but it will definitely have to involve one of the larger independent and focused vendors and/or services providers in the sector (e.g., Ariba, Emptoris, BravoSolution) or someone like a GlobaleProcure in the outsourcing space.

As we've previously noted, the most important thing customers can do following a transaction where their vendor was acquired is to make their voice heard "by getting to know the acquiring company as well as whispering in the ear of the account and executive management of the firm you're already working with." As for Epicor and Apax, our general experience suggests that when a PE firm purchases a software asset in a non-distressed situation, it's generally better for customers than a larger software firm buying the same company over the longer-term.

Jason Busch