QAD, one of the better known Tier II ERP vendors, is acquiring one of its major alliance partners, TRW ISCS, for a mere $1 million in cash and transaction/integration costs of $4-5 million. According to the press release, QAD expects the unit to generate annual revenue in the range of $13-15 million and be accretive to earnings by the second half of fiscal 2004. If so, this appears to be a good deal for QAD. TRW ISCS was what was left of Largotim, one of the top QAD alliance partners. Largotim was acquired by BDM in the late 1990s. BDM, in turn, was acquired shortly thereafter by TRW. With QAD now acquiring the TRW unit, the cycle is complete.
QAD has traditionally focused on development of its flagship product, MFG/PRO, and left nearly all of the implementation services and much of the sales effort to its alliance partners. But with the slowdown in technology spending, QAD has been moving more and more into direct sales and services. With its large installed base, this is a wise move, and the acquisition of TRW ISCS just accelerates the trend. The same technology slowdown no doubt led to the fire-sale price QAD was able to negotiate. As the enterprise software sector begins to emerge from the doldrums, I expect to see other vendors acquire some of their more attractive yet weakened partners. This positions the surviving vendors to take a larger share of each new deal, instead of having to share it with a partner.
