Reading the letter, one wonders if there is really a recession going on. Schaper reports 94% of customers renew their annual maintenance agreements. In addition, he claims that over the past four quarters 495 former customers were brought back onto maintenance and 2,165 new customers were added.
Concerning Infor's financial viability he writes,
We generate significant cash flow and have a solid cash balance. While we have accumulated debt to finance some of our acquisitions, we were fortunate to have financed at the height of the debt markets in 2007, affording us low-interest rates with flexible terms. We are also backed by Golden Gate Capital and Summit Partners, two of the leading private equity funds in the US with over $19 billion of capital under management. Our global scale, leadership position, profitability, current liquidity, and access to additional capital markets make us a viable and a secure partner for the future.My take. I have no reason to believe Schaper is not presenting an accurate picture. If Infor is in relatively better shape than many enterprise software vendors these days, I think the cause is two fold:
- As Schaper points out, Infor is still privately-held. Golden Gate and Summit Partners, of course, still want to see results so they can take Infor public at some point. But for right now, Infor doesn't have to worry about Wall Street expectations.
- More significantly, though, I think that Infor's reliance on maintenance revenues is serving it well right now. Although Schaper claims over 2,000 new deals in the past four quarters, I would suspect many of those are small deals for Infor's complementary products or for its smaller ERP systems, such as Lilly or Syteline. Nevertheless, living off maintenance revenues is not a bad place to be right now. It's an annuity business and much more resistent to recession than new license sales are.
So, if I am a customer of any of these vendors, I wouldn't be concerned about their financial viability. But I might be concerned about their ability to support me as they conduct layoffs.
Update, Jan 30. A reader reports a layoff among Infor's professional services staff yesterday. A check with Infor's PR group, however, finds that this number is part of the 5% reduction in force that was reported on December 8. The 5% is being phased, apparently.
Related posts
Layoffs at Oracle, SAP, and Infor
Infor layoffs, Dec. 2008
SAP layoffs, January, 2009
Layoffs at Infor and Sage
4 comments:
There must be some reasons for the customers to have a concern, so the CEO came out to make a open letter like this.
I think the problem is whether Golden Gate have any reason to support Infor, as an IPO is not very likely to be an exit strategy in the near future.
I think the main reason Infor customers would be concerned is because we are in recession and other enterprise software vendors are laying off staff. I commend Infor for addressing these concerns publicly, even though the firm is privately held.
Concerning Golden Gate and other investors, they have plenty of reasons to continue to support Infor. They own it and it is a viable business. As I indicated in the post, being highly dependent on maintenance fees at this point in the economic cycle is not a bad place to be.
Infor is in a different situation than other ERP vendors. Although it is privately held, it is bearing a high amount of debt.
If an IPO is not likely, will Golden Gate inject more capital to pay back the debt?
If Golden Gate refuses to inject more capital, the only option is to sell the software assets, and sell it at a cheap price.
Don't bet that as soon as they can they will go public, if not, i wouldnt be suprised if they sold.
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